Financial Sector Q2 2024 Earnings: S&P Global, UMB Financial, and Axos Financial Report Strong Results

UMB Financial Corporation (UMBF) Q2 2024 Earnings Call Transcript

Kay Gregory - Investor Relations Mariner Kemper - President & Chief Executive Officer Ram Shankar - Chief Financial Officer Jim Rine - Chief Executive Officer, UMB Bank Tom Terry - Chief Credit Officer Good morning. Thank you for attending today's UMB Financial Second Quarter 2024 Financial Results Call. My name is Jennifer and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] I'd now like to turn the call over to Kay Gregory, UMB Investor Relations. Kay, please proceed. Kay Gregory Good morning and welcome to our second quarter 2024 call. Mariner Kemper, President and CEO; and Ram Shankar, CFO will share a few comments about our results. Then we'll open up the call for questions. Jim Rine, CEO of UMB Bank; and Tom Terry Chief Credit Officer will be available for the question-and-answer session. Before we begin, let me remind you that today's presentation contains forward-looking statements, including the discussion of future financial and operating results, benefits, synergies, gains and costs that the company expects to realize from the pending acquisition as well as other opportunities management foresees. Forward-looking statements and any pro forma metrics are subject to assumptions, risks and uncertainties as outlined in our SEC filings and summarized on slides 48 to 51 of our presentation. Actual results may differ from those set forth in forward-looking statements which speak only as of today. We undertake no obligation to update them except to the extent required by securities laws. Presentations and materials are available online at investorrelations.umb.com and include reconciliations of non-GAAP financial measures. Thank you, Kay and good morning, everyone. Thanks for joining us as we discuss our great second quarter results announced yesterday afternoon. Our strong first quarter performance continued into the second quarter with net interest income growth driven by a growing balance sheet and net interest margin expansion along with solid credit metrics. We reported GAAP earnings of $101.3 million or $2.07 per share driven by continued momentum across our various lines of business. On an operating basis, we earned $105.9 million or $2.16 per share. Balance sheet growth included a 7.7% linked-quarter annualized increase in average loan balances led by commercial real estate and construction draws on previously approved lines. Additionally, average card balances increased 26.1% assisted by the full quarter impact of our co-brand card portfolio we acquired in March. Top-line loan production was $926 million for the quarter. Payoffs and paydowns which are difficult to predict were 3.7% of balances. This is a slight increase from prior quarter but in line with our historic averages. Credit quality in our loan portfolio remains excellent. Net charge-offs were again just five basis points of average loans for the quarter and non-performing loans fell to a meager six basis points of total loans. Over the past eight quarters, our non-performing ratio has averaged eight basis points compared to 39 basis points for our peer group and 35 basis points for the industry as a whole. Credit cards drove the small amount of charge-offs we saw in the quarter, while we had a net recovery in both C&I and Specialty lending. In fact, C&I has posted net recoveries in four of the last five quarters. Asset quality has been very strong in our investment real estate portfolio. Since 2016 we've charged-off less than $1 million cumulatively, which can be attributed to just three loans. Provisions of $14.1 million reflects the continued loan growth along with the impact of a recalibration of our models. Our coverage ratio increased three basis points to 0.99% of total loans. Average total deposits grew $815 million or 9.7% on a linked-quarter annualized basis including the intentional reduction of brokered CD balances and the expected seasonal decline in public funds. For comparison peers have reported a median annualized increase of just 4.5% for the second quarter. Deposit growth in the quarter highlights our strong diversified funding profile with growth coming from nearly all lines of business. On the consumer front we've had good success from private banking and retail money market promotions with targeted marketing investments made in the first half of the year. Excluding brokered CDs, average client deposits increased approximately $1.3 billion from the last quarter. In fact since the turmoil of last spring our deposits excluding brokered CDs have increased by $4.2 billion or 14% over the second quarter of 2023. Ram will share a more detailed look at these and other quarterly drivers shortly. Finally we remain excited about our pending acquisition of Heartland Financial and have shared a few updates in the deck. While it's early in the process we've outlined milestones and progress in the integration planning. Our focus is to ensure a seamless transition without disrupting business' usual activities. The establishment of an integration team allows our customer-facing associates to remain focused on serving the customer and generating growth. Again we believe this transaction will accelerate UMB's growth strategy, further diversifying and derisking our business model. The addition of this high-quality franchise is a great fit from a strategic, financial, and cultural perspective and we look forward to capitalizing on the many opportunities we see as a combined company in 2025 and beyond. Thanks Mariner. Net interest income of $245.1 million represented an increase of $5.7 million or 2.4%, reflecting continued loan growth and higher levels of liquidity. Net interest margin increased three basis points on a linked-quarter basis to 2.51%, outpacing the expectations I shared previously in large part due to stronger-than-expected DDA balances. The increase was driven by the positive impact of 7 basis points from loan repricing and mix, 2 basis points from the securities portfolio, 1 basis point from the level of free funds, and 2 basis points related to various smaller items. These were partially offset by a 9 basis point reduction from higher deposit pricing, driven by mix changes. Cycle-to-date betas on total deposits and on loan yields are 53% and 63% respectively and continue to track closely to our expectations for terminal betas. Looking into the third quarter with the prospect of a Fed rate cut in September, we would expect our net interest margin to be relatively stable to second quarter levels. Approximately 31% of our total deposits are hard indexed to short-term interest rates. As the Fed funds rate changes these deposits reprice down immediately. An additional 17% of our total deposits are what we call soft indexed or balances negotiated at current prevailing market rates. On these soft indexed deposits, we would expect to move deposit rates down pretty quickly following any rate cuts. Overall, we expect our deposit betas on the way down to be immediate and steeper than peer banks, similar to our experience during this past tightening cycle. Coupled with favorable reinvestment of cash flows from the securities books and repricing of some loans at accretive yields our interest rate simulation results shown on Page 33 of our deck shows us as benefiting from interest rate cuts in year one with fairly neutral implications for year two. As a reminder, this analysis does not include any interest income generated from new growth or the Heartland acquisition. At this preliminary stage, we estimate that our pro forma interest rate position will remain relatively neutral. Details and activity in our securities portfolio are shown on Slides 30 and 31 in our deck. The combined AFS and HTM portfolios averaged $12.2 billion during the quarter a decrease of 2.3%. We continue to purchase mortgage-backed securities and agencies while as noted security levels fluctuate based on our collateral needs for both public funds and trust deposits. The average purchase yield in our portfolio was 4.99% for the quarter, while securities rolling off had a yield of 2.67%. We expect $1.4 billion of securities with a yield of 2.54% to roll off over the next 12 months. Capital levels continued to build with our common equity Tier 1 capital increasing to 11.14% and continued growth in tangible book value, which increased by $1.57 from March 31st to $60.58. Tangible book value per share has grown 15.3% over the past year. As previously described in our forward purchase agreement, our regulatory capital ratios do not include the $230 million forward equity offering agreement that we announced in April. Turning back to the income statement. Non-interest income was $144.9 million, a linked-quarter reduction of 9%, largely due to a few non-recurring items in the prior quarter. These first quarter benefits included $8.6 million in net gains on equity position, a $4 million legal settlement and a $1.8 million in gains on the sale of land. Momentum in our fee business has continued with Fund Services' assets under administration growing to $460 billion, an increase of 20% from June 30, 2023. In Private Wealth, our teams have brought in $781 million in net new assets year-to-date, ahead of full year 2023 levels. And credit and debit card spending including from our newly acquired retail co-branded portfolio reached $4.7 billion in the second quarter, up from $4 billion a year ago. Non-interest expense of $249.1 million for the quarter included pre-tax acquisition expenses of $9.6 million and a reduction of $3.8 million in previously accrued FDIC special assessment charges. On an operating basis, non-interest expense increased $2 million linked-quarter and included higher processing fees related to higher software subscription costs in various software projects along with increased bank card expense. Within salaries and benefits expense, typical seasonal reductions in FICA and 401(k) costs along with a decrease in deferred compensation expense was partially offset by increased bonus and salary expense related to the timing of merit increases and higher bonus accruals for 2024 year-to-date performance. Excluding the one-time items and seasonal variances, our core expense run rate in the second quarter was approximately $240 million. Finally, our effective tax rate was 20.1% for the quarter compared to 18.1% in the second quarter of 2023. The year-over-year increase was primarily related to lower income on tax-exempt securities and a decrease in tax benefits from stock compensation. For the full year 2024, we would expect a tax rate between 17% and 19%. Now, I'll turn it over to the operator for the Q&A portion of the call. Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Jared Shaw with Barclays. Jared, your line is now open. So maybe just to start on the pending acquisition and any potential restructuring or changes we should expect heading into closing, I'm sort of thinking around level of brokered deposits given your good loan-to-deposit ratio any securities restructurings that you anticipate either UMBF or Heartland doing. Just as we go into closing any change that we should be thinking about? Mariner Kemper I'll let Ram take that. I mean obviously, we can't give you much in the way of guidance there. But Ram, can you give some color? Ram Shankar Yeah. I'll point out to what we did in the most recent quarter on brokered CDs and FHLB advances on one of our pages in our investor deck, we have the rolling maturities on Page 34 of remaining FHLB brokered and the BTFP program. So other than carefully evaluating them when they come up for renewal or intermediate bias based on our loan-to-deposit ratio and our liquidity levels has probably led them runoff. So that's on our side. We don't expect any asset-side restructuring on the investment portfolio on our books. So no specific guidance on what Heartland might do. But for us, other than paying down, this excess liquidity that we have there's nothing that we're contemplating Jared. Jared Shaw Okay. And then as we look at that potential runoff there, should we just assume that while the cash drifts lower that securities maybe you just use the cash flow from that to reduce? Ram Shankar Yeah, generally, we expect the portfolio -- the bond portfolio to be relatively stable. But yeah, the excess cash might come down just because again given our loan-to-deposit ratio in the mid-60s we can let these deposits go. And obviously as you see on page 34 these are some of our higher-cost deposits or borrowings as well. Jared Shaw Yeah, yeah. Okay. And then on the DDAs, I know obviously each quarter you have some fluctuations with end-of-period balances. Any color you can give on trajectory or expectation on DDA whether it's end of period or average as we go through the rest of the year? Mariner Kemper Probably not much different than the comments we've made in the past, which is that we feel like we're at the bottom of the rotation cycle. We can't predict that really more than give you a backward-looking feelings. And at the end of the day, the way that we come up with feeling that we're close to the bottom of that rotation is the fact that it's pretty clear that rates aren't going up from here. And we feel like with our growth most of the rotation took place and took place early in the cycle as we talked about from the beginning of the cycle that we would go through it first. So on a relative basis against our peers, we believe we're probably through with most of that rotation as long as rates look to be going where we all believe them to be going. Ram Shankar And I would ignore the end of period of DDA balances like I used to always say right there is a lot of volatility at quarter end, month end depending on client and their client activity. So I would not index yourself too much to the end of period balances. Mariner Kemper Though it does help us make more money right? I mean, if there is this mushroom at the end of the quarter, we make money on that as it happens typically at the end of almost every month it seems. Jared Shaw Okay. So you think we could be at a point where we start seeing growth in average or continue to see growth from this quarter in average DDAs? Mariner Kemper I mean, it's hard to predict. I would say that that's just hard to predict whether it's going to grow or not. That's based on sales activities and our ability to bring in new business, which we don't forecast publicly. Jared Shaw Okay. All right. Thanks. And then just finally for me on asset quality. Asset quality is great. I was wondering what happened within criticized and classified in the quarter? And then you referenced a model change for CECL. Is that just using a different Moody's baseline or what -- I guess what drove the model change there? Mariner Kemper So Tom will take the first question, and we'll turn the second part of that over to Ram. Tom Terry Yeah. Our criticized and classified loans are basically flat quarter-over-quarter. You always have a little bit of movement between our low pass watch, which actually was down and that's a pass part of our watch list. But the criticized is flat. Ram Shankar Yeah. On the second question about CECL. We did not change our baseline assumptions. We're still 100% indexed to Moody's baseline. From time to time, we look at our CECL models for performance, for effectiveness and change and swap out macroeconomic variables, drivers, correlations. So as part of that, we tweaked a couple of our models just to get a higher provision get to 99 basis points coverage ratio. Mariner Kemper I mean, all-in-all on that front, we just take a conservative approach. We feel like it's the right -- it's the kind of organization we are and we believe it's in a conservative strong healthy reserve. Ram Shankar And the important part of both of your questions underlying questions is that the provision, excess provision was not because of underlying portfolio trends. It was all quantitatively driven based on changes to CECL models that we have, and loan growth. Mariner Kemper And I would just say just to echo what Tom said related to those things, our books really never looked better. When we talk about criticized being flat, it's also meager six basis points. I mean, it hardly exists. And then the charge-offs are what they are. We feel very good about how we manage the company. It's the same team doing the same thing for a long time. We'll take it very seriously and we're real proud of it. Thank you. Our next question comes from the line of Chris McGratty with KBW. Chris, your line is now open. Chris McGratty Good morning. Ram, maybe coming back to the margin -- just coming back to the margin for a second, you guys are 2.5 Heartland's margin looks roughly as of last quarter about 100 basis points higher. With the bond restructuring from them and the accretion, I mean, you should be -- I'm trying to get a sense of like pro forma margins. So any comment there would be helpful given you've talked about relative neutrality on the NIM. Ram Shankar Yes, that's a tough question for me to answer just sitting here. I mean as you know, right, it really depends on what the portfolio marks on acquisition date whenever that happens, right? So there's going to be a lot of noise related to how that accretes into income. So, I mean you can do a simple math based on taking their whatever 3.73% margin and our 2.52% margin on our earning assets and get to a number, but there's going to be a lot more noise because of purchase accounting adjustments. So it's really hard for us to sit here. Obviously, they're still running their book and really depends on what happens to deposit betas and how we manage it after close. So I feel like it's too early to kind of give you a pro forma look at margin other than the comments that I said that relatively we should be neutral from an interest rate position on a pro forma basis. Mariner Kemper I mean longer term it's one of the reasons we're doing the transaction, right? I mean they do have a better margin tied to having a smaller business book of loans which carries a higher yield. They have a more granular deposit base. So I mean it's the combination of the way they run their business longer-term taking the accounting noise of the marks and all that is part of the reason we're doing the transaction. So longer term, we expect that. Chris McGratty Okay. And in terms of just broader efficiency meaning the objective and you've accomplished it over the years is operating leverage. If I think about the bank you've been running kind of low-60s. It would feel given that momentum mid-50s would seem once you get everything accreted and integrated that would be reasonable. But is there anything we're missing in terms of investments now that you're through in last quarter you talked about the investments you're making to go through 50%, but any other guidance as we look out over the next couple of years? Mariner Kemper I mean I think, we remain -- probably not going to give you what you're looking for here, but what we remain is focused on being efficient as we have been. There's always more work to do. I think the combination of our two companies will make us that much stronger. I would say again, just overall, it is more operating leverage than efficiency. So I think the room for us, the opportunity for us is to focus more on revenue than it is expense reduction. We've done a lot of that efficiency work to make our systems modernized. We've said in comments before that we've pushed a big bowling ball through at the front end of the pandemic. We pushed a big bowling ball through the pipeline right to get our systems up and ready and modernized. And we are more focused today on spend that's focused on customer experience. So more than 50% of our spend is focused there. So, that should benefit both revenue and retention of client and all of that. But in general, I would say, I think our opportunity is on the revenue front and we're good at that. And I think the exciting thing about the Heartland transaction is we'll be able to take their great small business platform and layer our institutional and our C&I on top of their branch network and their footprint. And as you're aware and the way we modeled all that, there are no requisite synergies in what we produce publicly. So that's all upside and gravy and yet to be seen. So we're very excited about that. And again I'd just re-echo that if you're thinking about operating leverage, our opportunity is more on the revenue side than its expense. Chris McGratty Great. And then if I could just one more Ram on the deposit cost quarter-on-quarter change. Any particular -- I heard your prepared remarks about the index deposits, but any particular product that drove the increase? I know, there's been some questions from some of the larger banks about sweep deposits, but any impact from that or any one category you call out on the driving the costs? Ram Shankar No, the increase in cost on a quarter-over-quarter basis is the pipeline of institutional deposits that we've talked about for the last couple of quarters. So the timing of those coming on board was the driver of the deposit cost. And I'll let Jim answer on the sweep side but -- yes. Jim Rine Well, on the sweep side, I assume you're referring on the health care portion for us. We don't anticipate that being an issue. We're not a fiduciary as you know those deposit transaction accounts for health care-related expenses, we don't anticipate that being anything material for us going forward. And it wasn't a driver in the second quarter either. So no future impact no current impact yes. Thank you. Our next question comes from the line of Nathan Race with Piper Sandler. Nathan, your line is now open Nathan Race Yes. Hi, guys. Good morning. Thanks for taking the question. I was curious just to get an update in terms of what you're seeing across the loan pipeline and just overall, loan growth expectations over the next couple of quarters. I'm just curious based on the pipeline mix, do you expect that to be largely driven by commercial real estate as we saw here in 2Q? Mariner Kemper I'll take that. Nathan, if you look backward the comments we made in the first quarter are the same we would make in the second quarter as to where that CRE balances were coming from. Largely they were from existing commitments that are being drawn on. We do continue to book business in CRE multifamily and industrial. So there remains lots of opportunities there. So as we talked before it's less than it was, because we're more focused on great current relationships that we can broaden our relationships with deposits and other business with. So that's the case kind of transitionally coming out of the pandemic, where there was all that excess liquidity in the system. But as far as the pipeline goes, we actually see a very strong third quarter. And as you know, we usually only give a look into the next 90 days. As we do that it's a very strong third quarter and it's coming from across the board all of our segments. Nathan Race Okay, great. Very helpful. And then just going back to Ram's margin guidance I think for the back half of the year just kind of stable even if we get a cut at the end of September. Just trying to understand maybe how conservative that guidance is just given that you seem pretty well matched up in terms of your hard and soft indexed, deposits relative to your true floating rate loans in terms of those percentages and just as you kind of continue to grow loans at pretty strong clips and use some of the excess liquidity coming off the bond portfolio to support that growth. Ram Shankar Yes. I mean it's a complicated question lot of moving parts, right? The first thing obviously is the level of DDAs like we answered before. I mean we've said, it could be $10 billion, it could be $9.5 billion or it could be $10.5 billion. So the overall mix of deposits and timing of some institutional deposits coming in can impact our deposit costs. But all said, as I said in my prepared comments, we have close to 48% of our book that are priced at market rates that will move immediately or pretty quickly after the Fed cuts rates, right? And we still have about $1.8 billion of fixed rate loans that will continue to reprice higher in the next 12 months because they're at call it 200 basis points below where our current market rates are. So that's a positive as well. And then the third positive obviously is what's happening in our securities book with about $1.4 billion of cash flows coming due at 2.54% and getting priced 200 basis points, 250 basis points higher. So lot of positive momentum on one side and then the other side is just we have 69% or 66% of our loans are variable in nature. 69% of them are tied to SOFR or Prime rate. So when that happens. SOFR moves in advance of what the Fed might do. So that might impact loan yields on the other side. So lot of moving parts as I'm saying and obviously this is true for the next two or three quarters, before we layer on the Heartland acquisition. So I would say given - I'd stick to my original comments that we expect it to be stable. Again, it will be dictated by what happens to mix of deposits including DDAs. And loan growth, yes. Yes new loans will be accretive to your point, yes. Nathan Race Okay, great. And then you just continue to see kind of good momentum on the institutional fee income. Just curious can you give an update in terms of the opportunity you're seeing across those lines. And just kind of any thoughts on just kind of activity levels and if you can kind of continue to sustain the growth rate that we've seen over the last year or so across institutional? Mariner Kemper That's another one of my favorite questions. I love our credit quality questions and I love our institutional growth questions. I'll say a couple of things and let Jim add on, if I missed anything, since the business lines report to him. But we continue to be positioned very well across the board but in particular a couple of things. In AI Alternative Investments within our asset servicing business is very, very strong. The profile is very strong. There's a lot of fund creation, a lot of fundraising going on, a lot of growth within some major clients that we have. We continue to see a really strong pipeline there and then a lot of growth within the customer base. So that is the profile there continues to be very strong. And I think the disruption in the space with our competitors being bought and sold, also has continued to be very helpful. So that's a really strong business with strong profile and a great tailwind. Corporate Trust continues to be fantastically strong. And I think the strength in travel and all that has really pushed a lot of activity in the Airline Business which is coming on. Our CLO Business and such that we are building in that space, is again have real great tailwinds. We're having a really good time hiring people in the space. And again, just consolidation and hiring has been really great for us in that space. So we continue to feel good about that. The rest of them are all strong. Those are some with some real momentum and outsized profiles. Our Wealth business interestingly also has a really great profile right now. The sales activity and new generation of assets under management there have been very strong. And so that's nicely up quarter-over-quarter and year-over-year. Anything you might add Jim? Jim Rine No the only thing I would add is just -- as you know the Corporate Trust Business is also a great contributor to our deposit base. And we have the ability to move if they get -- if they balloon, we can move it off balance sheet. We have the ability to keep it on balance sheet. It's really built that out nicely. And we're continuing to invest. So outlook for those businesses continues to remain very strong. Mariner Kemper And Healthcare continues -- like I said all the businesses are strong profile for all of them are strong, but there's some real momentum in Corporate Trust and AI within this the whole set. Nathan Race Okay, very helpful. Thank you for that. If I could just ask one more, just in terms of thinking about expenses next year. It looks like you guys aren't planning to convert the systems until the fourth quarter of next year. So just curious, to what extent or what degree of cost saves you guys think you can realize assuming you close the deal early next year, ahead of the costs saves or I'm sorry ahead of the conversion later in the year? Mariner Kemper Well, we'll -- I mean, we'll -- as they come in and we execute against them we'll report on them. It's probably premature to tell you how, when it's too early really to report on that. But we intend obviously to segregate and report on those synergies and savings as they come through every quarter. Ram Shankar Yeah. And nothing has changed from our announcement. If you go back we expect that based on first quarter close and the fourth quarter conversion that we would get 40% of that 27.5% cost saves, in the first -- in the 2025 timeframe and then everything else in 2026 and beyond, so no change from that perspective as of now, Nathan. Mariner Kemper And you'll see, as I said that sort of, projections for it all hasn't changed, but you'll see it come through as it comes through. Nathan Race Okay great. I appreciate all the color. Thanks guys. Thank you. Our next question comes from the line of John Rodis with Janney. John, your line is now open. Just a follow-up Ram, maybe on fees, I guess the brokerage line item, if we start to see some Fed cuts, can you hold that level? Or does that start to decline a little bit? Ram Shankar No. That's - no, it takes a lot of Fed cuts for that to be impacted on the negative side. It has to be 300 basis points plus -- 400 basis points of cuts before it impacts the 12b-1 money market revenue share. So there's no risk of that. To Jim's earlier point we're still seeing opportunities to add off balance sheet and maybe even generate some. But I would not expect any near-term impacts because of revenue share going away until the Fed cuts fairly dramatically. Mariner Kemper And quite frankly, I think the way we see it is the more -- if rates come down activity will go up. So there'll be more activity. So on the margin anyway as that would hit over time we'd see more volume also. John Rodis Okay. Makes sense, Mariner. Thank you. And then just one other on fees. The bank card fees you're $21 million to $22 million now and just talking your previous comments about strong trends and stuff. And so you feel that's up from $18 million to $19 million a quarter last year. So this sort of new level of $21 million to $22 million seems appropriate going forward? Ram Shankar Yes, one of the biggest drivers. So, obviously, purchase volumes even organically have grown up nicely, right? We used to be at $3.5 billion of purchase volumes every quarter, lot of it driven by health care, and we have a lot of momentum as you heard from our fee income lines on commercial where purchase volume is growing strongly. And the biggest catalyst in the second quarter is the -- call it $15 million of co-branded card balances that we acquired. So that new business generated about gross $70 million of purchase volumes fees of -- net of interchange or interchange fees of about $0.5 million. So that's part of the organic and inorganic growth drivers for us. But we feel pretty good at the higher level. It can go up and down from quarter to quarter based on timing of incentives from the network or other things. But generally, we feel like the momentum is positive. Mariner Kemper We also had a couple of large new relationships on the institutional side that have card relationships that are really starting to drive some big volume there. So, I would say, it's up from here they're not neutral. I mean, the trends are upward-sloping. Thank you. [Operator Instructions] Our next question comes from the line of Timur Braziler with Wells Fargo. Timur, your line is now open. Hey, good morning. I wanted to -up just on the margin outlook for 3Q as it pertains to the bond book. It seems at least like much of the bond growth occurred later in the quarter and the amount of repricing was elevated in 2Q compared to what's coming online over the next four quarters. I'm just wondering how much of that repricing took place in the back end of the quarter and if that's not more of a tailwind as we go into 3Q for margin? Mariner Kemper No the back-end balance increase that you're seeing as we footnoted in one of our pages time to time especially at month end as we described earlier there's a lot of collateral needs for trust deposits and institutional-type deposits. So we end up buying those. So those may be inflating what you're looking at. But generally, across the three months in a quarter, we're always looking at every quarter to -- whether we want to reinvest based on our loan-to-deposit ratio pipeline and all that. So, I would not expect a tailwind because of the late quarter purchases. I mean, again, this is just to satisfy collateral needs over the last two days of the quarter and the first two days of the following quarter or last two days of the month and the following two days. So there's no tailwind to be expected in third quarter from that. Timur Braziler Okay, great. And then maybe a follow-up on the Heartland deal. I'm just wondering the fact that you're essentially acquiring 10 smaller institutions versus one larger one. Is that an opportunity, as those are kind of consolidated together and brought under one general operating model? Or is that a near-term risk, as that consolidation kind of maybe offset some of the planned benefits at least in the near-term of the deal closing? Mariner Kemper That's a great question and it's really one of the exciting things about executing this transaction really one of the things that excited us is that they started a journey two years ago basically to set themselves up to look like us over the next five and 10 years, and this acquisition just accelerates all that work. So, they've done -- I said I think early on in one of our calls, they planted the seeds and tilled the soil and we get to harvest. So, they've done all the hard work. They've consolidated the systems and we get to come in and sort of layer in all the things that we do. And so I guess, I would say not a lot of risk to that really more opportunity to leverage the work that they've already done. So we're pretty excited about it. We get to just kind of come in and like I said, leverage the work they've done. So, don't see any risk there really all opportunity. Thank you. There are no questions registered at this time. So, I will pass the call back over to the management team for any closing remarks. Kay Gregory Thank you, and thanks everyone for joining us today. Again, you can always follow-up with Investor Relations at 816-860-7106. Thanks for your interest in UMB and have a great day. That concludes today's call. Thank you for your participation. You may now disconnect your line.

S&P Global Inc. (SPGI) Q2 2024 Earnings Call Transcript

Ashish Sabadra - RBC Capital Markets Manav Patnaik - Barclays George Tong - Goldman Sachs Faiza Alwy - Deutsche Bank Heather Balsky - Bank of America Toni Kaplan - Morgan Stanley Alex Kramm - UBS Scott Wurtzel - Wolfe Research Thomas Roesch - William Blair Owen Lau - Oppenheimer Craig Huber - Huber Research Partners Andrew Steinerman - JPMorgan Jeffrey Meuler - Baird Jeffrey Silber - BMO Capital Markets Russell Quelch - Redburn Atlantic Surinder Thind - Jefferies Good morning, and welcome to S& P Global's Second Quarter 2024 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. All participants are in a listen-only mode. We will open the conference to questions and answers after the presentation and 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's second quarter 2024 earnings call. Presenting on today's call are Doug Peterson, President and Chief Executive Officer; and Chris Craig, Interim Chief Financial Officer. For the Q&A portion of today's call, we will also be joined by Martina Cheung, President 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 filings with the U.S. Securities and Exchange Commission, including our most recently filed Form 10-K. 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 press release and the supplemental deck 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. S&P Global delivered an incredible first half in 2024 as the second quarter saw accelerated revenue growth, significant margin expansion, and the highest quarterly adjusted EPS in our company's history. Total revenue increased 16%, excluding the divestiture of engineering solutions. Transaction revenue in our ratings division continues to drive significant outperformance at more than 60% growth. The revenue from all our subscription products across the company also increased 8% year-over-year in the second quarter despite some of the market headwins that are common across our industry this year. We delivered 450 basis points of margin expansion year-over-year and 30% growth in EPS as we captured market demand and contained our expense growth. As you saw last month, we also announced our CEO succession plan which I'll discuss in a moment. We've been cultivating more than just our leaders at S&P Global and we're pleased with the product innovation coming to the market in the second quarter. The June release of CapIQ Pro included significant enhancements, and we launched new benchmarks and commodity insights. We continue to accelerate our deployment of generative AI and launch new capabilities both at the division and enterprise level. We also continue to optimize our portfolio of businesses and products, with Visible Alpha closing in the second quarter and the recent signing of an agreement to divest Fincentric, which we expect to close in the third quarter. We're excited that we get to cover key developments in each of our five strategic pillars this quarter, beginning with our customers. S&P Global rated more than $1 trillion of billed issuance in the second quarter. Growth was diversified across public and private markets, as private market participants increasingly turned to S&P Global for expertise in assessing credit risk. Revenue from rating services in the private markets increased more than 70% year-over-year in the second quarter. We continue to create new products from the combined data sets and solutions of S&P Global and IHS Market to create incremental value for our customers. In the second quarter, we achieved nearly $200 million of annualized run rate revenue synergies. As Chris will discuss in a moment, this puts us ahead of the pace to achieve the $350 million in revenue synergies we're targeting in 2026. It's remarkable that we're able to deliver these strong results despite the well-known market headwinds that continue to impact pockets of our business. Our diverse customer base and broad product portfolio provide for more stable financial performance for the company overall, as headwinds can often be offset by tailwinds. As an example, while renewal rates were slightly lower than last year in market intelligence this quarter, renewal rates were slightly higher than last year in commodity insights. These market dynamics are not unexpected, and the financial impact was largely included in our initial guidance. Despite macroeconomic cyclicality, we continue to find ways to help our customers achieve their goals using our differentiated data and product offerings. This ability to align our product innovation and investment with customer needs was further demonstrated in the second quarter by the acceleration in revenue growth from our private market solutions and our sustainability and energy transition offerings. Turning back to billed issuance, it increased 54% year-over-year in the second quarter. We continue to see tight credit spreads contributing to favorable market conditions. We also saw modest improvement in some of the important macroeconomic indicators, particularly in North America, that have lent strength to the issuance environment. We continue to see particular strength in bank loans and structured finance, along with robust growth in high-yield investment-grade bonds. Refinancing activity was very strong in the quarter as we saw a pull forward of issuance from investment-grade issuers refinancing 2024 maturities, as well as speculative-grade issuers refinancing 2024 and future-year maturities. This leaves some uncertainty around the back half as we wait to see how much of the out-year refinancings get pulled into 2024. This continues to inform our view that the second half will be softer than the first half in terms of billed issuance and transaction revenue in our ratings business. With the timing and likelihood of any rate cuts in the U.S. market still uncertain, our base case still assumes a modest year-over-year decline in issuance in the fourth quarter. Turning to Vitality, newer enhanced products generated $375 million in the second quarter. This represents 11% of our total revenue and an improvement from the 10% we reported last quarter. Key contributors to our Vitality Index are unchanged from last quarter as we see strong demand for CARFAX listings and the CARFAX Banking and Insurance Group. We also see strong growth in energy transition and climate products from our Commodity Insights Division and Sustainable Bonds from Ratings. As you'll recall from last quarter, key contributors from our pricing valuations and reference data, as well as several thematic and factor-based indices, matured out of the Vitality Index at the end of the year. We're encouraged by the continued acceleration and the pace of innovation of S&P Global and look forward to maintaining our Vitality Index at or above the 10% target. As we look to examples of that innovation, a common thread running through many of the products we're bringing to market is our enterprise expertise in generative AI. In the second quarter, we launched ChatAI on Platts Connect. Launched as a new platform combining Platts Dimensions Pro with IHS Connect, the Platts Connect platform provides access to a truly massive amount of data, research, and insights to power the global commodity markets. With the depth and breadth of information in the platform, we new users would need an intuitive way to navigate and find the information that would be critical to their daily workflows. ChatAI is a powerful customer tool developed through a partnership of Kensho and Commodity Insights that uses generative AI models to provide real-time responses to conversational user queries to help them quickly find the necessary data to make informed, faster decisions. In addition to this AI-powered interface, Commodity Insights continues to bring new benchmark Price Assessments to market. Our Platts team introduced five daily Price Assessments for beef and four daily Price Assessments for poultry, as well as a new report with up-to-date coverage of the protein's market. These continue to broaden and strengthen our position in agriculture commodities. We also continue to scale new functionality in our differentiated energy transition offerings. We significantly enhanced our global integrated energy model in the second quarter, which now enables modeling and scenario building for energy demand in over 140 countries using deep data sets going back more than 30 years. With our enterprise focus on artificial intelligence, we've continued to develop internal tools, including new functionality in the S&P Spark Assist platform we introduced earlier this year. Approximately 14,000 of our people are using Spark Assist internally after just a few short months. As we shared with you last quarter, this platform is designed to be cost effective, vendor agnostic, highly scalable, and secure by design. By encouraging collaboration across the enterprise, we're able to quickly iterate on time-saving use cases and share those developments across the company. We're already seeing users leverage S&P Spark Assist to optimize code, rewrite configuration files for software migrations, and summarize complex documents. We've also used it to aggregate and digest feedback and ideas that we receive through our employee engagement surveys in town halls, empowering leadership to more effectively act on what matters the most to our people. We believe this crowd-sourced approach to developing tools shortens the time to discover and develop new applications using GenAI models. Leveraging LLMs from multiple sources allows us to benefit from the rapid innovation taking place across the technology ecosystem without being locked into a single vendor. Lastly, the June release of CapIQ Pro brought powerful enhancements to the platform that we believe will strengthen our competitive position and create meaningful value for our customers. We fully integrated the fixed income data from IHS market, which brings data on more than 19 million government agency and corporate fixed income securities and makes it readily available through the CapIQ Pro platform. This was a tremendous undertaking made possible through the merger that will benefit our existing customers and help potential customers more easily see the incredible value in CapIQ Pro. The June release also included a complete reimagining of the charting and visualization capabilities within CapIQ Pro, deploying the technology and expertise that came to us through the Chart IQ acquisition. Back to the theme of generative AI. We also introduced transcript summarization within CapIQ Pro. This new tool was built organically and not only provides a quick summary of earnings calls, it also organizes topics and sentiment and empowers the user to immediately click through and find the direct quotes behind the summaries. And it's built on a foundation of Scribe developed by Kensho four years ago. I want to take a moment to discuss an important acquisition that closed in second quarter. Visible Alpha is well known and highly respected among both our customers and our investors. And we're excited to see the progress the market intelligence team has already made since closing the deal in May. Visible Alpha compiles highly detailed financial models via direct feed from over 200 contributing brokers. With over 6,000 contributing analysts including most of the analysts joining us on this call, Visible Alpha has the most detailed and comprehensive consensus estimates available anywhere in the world. We frequently hear from customers that they could not do their jobs without it. S&P Global's position as a trusted partner across the financial markets is opening doors for visible health and private equity, banking and consulting, and driving further penetration and asset management and research. Leveraging the strength of S&P Global's relationships, brand and commercial teams, we've already seen a 5% increase in number of contributing brokers in just the last three months. In addition, we've generated over 150 sales leads and closed 10 deals already. We've seen numerous opportunities to leverage the Visible Alpha Platform in conjunction with the differentiated datasets throughout S&P Global to create unique, deep sector content. We look forward to sharing new developments in the coming quarters. Now, turning to a very exciting announcement we made in the second quarter that fittingly comes under our four strategic pillars, Lead and Inspire. In June, we announced that I will be retiring from my role as President and CEO of S&P Global effective November 1st. Martina Cheung, the President of Ratings and Sponsor of Sustainable1, will become the 11th CEO of S&P Global since we were listed on the New York Stock Exchange over 90 years ago. We are very pleased to see our succession plan work the way it was designed, with development of strong internal leaders resulting in a unanimous decision from our board of directors. I'm focused on delivering strong results over the next few months as I work with Martina on a comprehensive transition plan before she takes over November. As you might have seen, I'll stay on the board until the next shareholders meeting and on as an advisor until the end of 2025. Martina has already joined the board of directors and is working hard to get ready for November. We will have more to say on the transition next quarter, but it's been wonderful to see the outpouring of support and appreciation for Martina from customers, employees, and shareholders. Turning to our financial results, with strong growth across every division, we continue to meet increasing market demand while maintaining expense discipline. We saw accelerating revenue growth in the quarter, and on a trailing 12-month basis, we have expanded our operating margin by 300 basis points. Now let me turn to Chris Craig, our interim CFO, to review the financial results. Chris, over to you. Chris Craig Thank you, Doug. We finished the second quarter of 2024 with exceptional performance across the entire company, with three of five divisions achieving double-digit growth in both revenue and operating profit. Reported revenue grew by 14% year-over-year to a record $3.5 billion in the second quarter. And while parts of our market-driven businesses benefited from the tailwinds Doug highlighted earlier, we are also seeing strong performance across strategic investment areas, which I'll touch on shortly. Adjusted diluted earnings per share increased 30% year-over-year to $4.04. This was driven by a combination of our strong revenue growth, margin expansion of 450 basis points, and a 2% reduction in fully diluted share count. Now, turning to strategic investment areas, where I'm pleased to report we saw growth accelerate across all initiatives. Sustainability and Energy Transition revenue grew 23% to $87 million in the quarter, driven by strong demand for Commodity Insights Energy Transition Advisory Services and subscription offerings. Our Sustainable1 team continues to expand the company's sustainability and energy transition offerings, while leveraging cross-divisional industry expertise to provide our customers with broader solutions. In Private Market Solutions, revenue increased by 26% to $134 million. Growth was driven by debt, bank loan, and CLO ratings, and demand for our private market solutions within market intelligence, which includes products like Qval and iLEVEL. For revenue synergies, we exited the second quarter with an annualized run rate of $199 million. During the quarter, we recognized $54 million in revenue synergies, which came from a mix of cross-sell activity and revenue generated from new products. Turning to our divisions, Market Intelligence revenue increased 7% in the second quarter. Desktop grew 6% or 2% when excluding the impact from the Visible Alpha acquisition. Growth in the quarter was impacted by the continued softness in the financial services end market that we've highlighted previously. Nevertheless, we're focused on adding value for our customers by improving performance and introducing new content and capabilities, including the recent integration of markets' fixed income securities data. Data Advisory Solutions grew 6%, driven by expanded coverage and continued investment in the high-growth areas of our market data and valuations and industry and company data product offerings. Enterprise solutions grew 11% as loan platforms such as ClearPar and our primary markets group were beneficiaries of stronger equity and debt capital market activity in the quarter. For modeling purposes, it's important to note that the enterprise solutions business line includes Fincentric. Credit and risk solutions grew 5% due to demand for our RatingsExpressed and RatingsDirect distribution platforms in North America and Europe. RatingsDirect is also benefiting from user adoption of Capital IQ Pro. Adjusted expenses increased 6% year-over-year, primarily driven by an increase in compensation and the impact of the Visible Alpha acquisition. Partially offset by reduction in expenses associated with headcount and outside services. Operating profit increased 9% and operating margin increased 60 basis points to 32.9%. Trailing 12-month margins expanded 90 basis points to 33.3%. Now turning to Ratings where we saw exceptional revenue growth of 33% which exceeded our internal expectations. Transaction revenue grew by 63% in the second quarter, fueled by increased bank loan and bond issuance. Non-transaction revenue increased 9%, primarily due to an increase in annual fee revenue and an increase in new mandates, particularly from the return of high-yield issuers. Adjusted expenses increased 8%, driven by higher compensation, including incentives, as well as investments in strategic initiatives. This resulted in a 52% increase in operating profit and an 810 basis point increase in operating margin to 65.8%. For the trailing 12 months, Ratings margin expanded 570 basis points to 60.9%. And now, turning to Commodity Insights, revenue increased 12%, driven by strong performance across all business lines, with price assessments and Energy and Resources Data and Insights both growing at double digits. Notably, this marks the fifth consecutive quarter of double-digit growth in our Price Assessments business. Price Assessments and Energy and Resources Data and Insights grew 11% and 12% respectively. Both businesses benefited from strong performance in crude and refined products. In addition, we continue to see favorable commercial conditions across both segments, including strong subscription sales across Middle East, Africa, and Asia. Advisory and Transactional services had an exceptional quarter, with revenue growing 32% or 27% when excluding the impact from the World Hydrogen Leaders acquisition. This is driven by strong trading volumes across key sectors in global trading services and a pickup in consulting activity, particularly for energy transition-related initiatives. Upstream Data and Insights revenue grew by 5% year-over-year, benefiting from meaningful contribution from organic investments, including our Upstream Energy Transition offerings, as well as continued improvement in retention rates. For the full year, we expect low single-digit growth for Upstream. Adjusted expenses increased 8% due to higher compensation costs, ongoing investments in growth initiatives, and the acquisition of World Hydrogen Leaders. Operating profit for Commodity Insights increased 16%, and operating margin improved by 170 basis points to 47.3%. Trailing 12-month margin increased by 130 basis points to 46.8%. Now, turning to Mobility. Revenue increased 8% year-over-year, or 9% when excluding the impact of the divestiture of the after-sales business. Dealer revenue increased 11% year-over-year, driven by new business growth in products such as new car listings and continued success in CARFAX. Manufacturing declined modestly by 1%, driven by a decrease in one-time transaction revenue, particularly in our recall business, which can fluctuate based on the level of recall activity in any given period. This was partially offset by another strong quarter of subscription sales. Financials & Other increased 13% as the business line benefited from historically high underwriting volumes. Adjusted expenses increased 7% due to planned investments in strategic growth initiatives, partially offset by a reduction in incentive compensation expense. This resulted in operating profit increasing by 10% for the quarter, and operating margin improving by 60 basis points to 40.9%. Trailing 12-month margin contracted by 10 basis points to 38.8%. Now, turning to S&P Dow Jones indices. Revenue increased 12%, primarily due to strong growth in asset-linked fees, which benefited from higher AUM and growth in our data and custom subscriptions offerings. Asset-linked fees were up 16%, driven by market appreciation and inflows. Impressively, the Global ETF market saw record inflows in excess of $300 billion on a trailing 12-month basis, highlighting the continued shift to passive investing and opportunities for future growth. Exchange-Traded derivatives revenue grew 4%, primarily driven by strong volumes across our equity complex products. Data and custom subscriptions increased 6% year-over-year, driven by new business growth in end-of-day contracts and real-time data. Expenses increased 4% year-over-year, driven by investments in strategic growth initiatives and an increase in incentive compensation expense. Indices operating profit increased 15% and impressively operating margin expanded by 210 basis points to 70.7%. On a trailing 12-month basis, indices operating margin expanded by 150 basis points to 69.8%. Looking at the quarter holistically, we saw broad strength across the business. Market factors like issuance volumes and asset price appreciation contributes to strong growth in our market driven businesses. And our subscription business lines benefited from the continuing investment in our differentiated data, content, and workflow capabilities. We are pleased with the profitable growth delivered by the combination of strong customer demand and disciplined execution in the quarter. And with that, I will now turn it back to Doug to discuss our outlook for the second half of the year. Doug? Doug Peterson Thank you, Chris. Our financial guidance assumes Global GDP growth of 3.3%. U.S. inflation is 3% and an average price for Brent crude of $84 per barrel. We continue to see fluctuations in the market expectations for rate cuts. Though our base case still assumes there'll be one rate cut in the U.S. in the second half of 2024. While the macroeconomic indicators that help inform our guidance are very similar to last quarter, we're significantly raising our financial outlook for the full year. We're increasing our build issuance forecasts for 2024 by nearly 20 percentage points. Given the dramatic increase in issuance in the first half, we now expect growth in build issuance to be approximately 25% compared to our prior range of 6% to 10%. In our most recent study of debt financing, we examined the volume of debt set to mature over the next several years. We're presenting this data in a slightly different way than we have in the past in the hopes it's more easily interpreted by analysts and investors. Here, we compare the amount of S&P global rated debt set to mature over the next six months, 18 months, and so on out more than seven years as of July 1st in each of the last three years. As you can see, there is very little debt set to mature over the second half of 2024, though this is consistent with what we've seen in prior years. On a cumulative basis, the maturity walls coming over the next several years gives us confidence in the long-term strength of our business. Though the timing of that refinancing activity remains difficult to predict on a quarter-by-quarter basis, all of these factors impact our new full-year guidance calling for higher growth, stronger margins, and substantial generation of free cash. This slide illustrates our current guidance for GAAP results. We're once again raising our enterprise outlook for the full year on all headline metrics given the strength of the second quarter and our improved outlook for the second half. We now expect revenue growth in the range of 8% to 10%, adjusted operating margin expansion of 125 basis points to 175 basis points, and adjusted diluted EPS in the range of $14.35 to $14.60, representing a $0.50 increase from our prior guidance. Additional details on our consolidated financial guidance can be found on our press release, but I also wanted to note that we've increased our guidance for adjusted free cash flow to approximately $4.7 billion, up $200 million from our prior guidance, and reflecting the strong results year-to-date. Moving toward division outlook, our revenue guidance for Market Intelligence is unchanged, and we continue to expect revenue growth in the range of 6% to 7.5%. This guidance reflects the contribution from Visible Alpha, which closed in May, largely offset by the loss of revenue following the divestiture of Fincentric later this quarter. Importantly for models, Visible Alpha is reported in the desktop business line for Market Intelligence, which should accelerate on a reported basis in the second half, while Fincentric is reported in the enterprise solutions business, which should see a corresponding deceleration in the second half following the divestiture, particularly in the fourth quarter. We're raising our outlook for Ratings Business substantially, following the second quarter performance. We still expect the second half to be softer than the first, reflecting normal seasonality, but exacerbated by the level of pull forward that we believe took place thus far this year. For the second half, the favorable market conditions and improved visibility and form a slightly more optimistic view around the third quarter in a modest year-over-year decline in both build issuance and ratings transaction revenue in the fourth quarter. Our revenue guidance for commodity insights is unchanged. We're slightly lowering and tightening the guidance range from ability revenue growth. As we noted last quarter in this morning, the recall business has been abnormally soft year-to-date, and we expect that softness to continue in the second half. The recall business is non-recurring and difficult to predict, but the lowered outlook means that the remainder of the revenue is more predictable, recurring subscription, which gives us confidence in the tighter range of 8% to 9% revenue growth compared to the prior range of 8.5% to 10%. We've also seen significant outperformance in our indices division in the first half, and we're raising our guidance again. We now expect revenue growth in the range of 10% to 12%, up from 9% to 11%. Importantly, this guidance assumes market levels are essentially flat from levels at the end of June. Turning to our margin outlook, for Market Intelligence, while the revenue impacts from Visible Alpha and Fincentric, are largely offsetting, the net impact is expected to be modestly dilutive to margins in 2024. As such, we're lowering the margin guidance for Market Intelligence to a range of 33% to 34%. For Ratings, we're raising the margin guidance by 100 basis points to reflect the strong revenue outperformance, partially offset by higher expected incentive compensation expense. Commodity Insights margin guidance is unchanged. For Mobility, given our expectations for softer revenue from the recall business, we now expect margins in the division to be slightly lower in the range of 38.5% to 39.5%, down 50 basis points from prior guidance. Our margin expectations for Indices are unchanged despite the higher expected revenue growth as we plan to continue investing to position the business for growth through 2024 and beyond. With that, I'd like to invite Martina Cheung, President of S&P Global Ratings and Executive Lead for Sustainable1, to join us. I'll turn the call back over to Mark for your questions. Mark? Mark Grant Thank you, Doug. [Operator Instructions] Operator, we will now take the first question. Thank you. Our first question comes from Ashish Sabadra with RBC Capital Markets. Your line is open. Ashish Sabadra Thanks for taking my question. Congrats to both Doug and Martina. I just wanted to kick off with MI. As we think about, I was wondering if you could talk about the pipeline there. Also, if you could talk about what you're seeing on the sales cycle trend. And how do we think about the Desktop business going forward? Obviously, we see the acceleration from Visible Alpha, but just underlying growth in that business with getting all the info data there? Thanks. Douglas Peterson Thank you, Ashish. This is Doug. First of all, thank you for the question. And let me start by mentioning that the softness that we saw was something that we expected. As you know, there were over 60,000 seats that were eliminated from banks and investment banks since the COVID cycle. We saw softness as the interest rates had gone up. They spiked in 2022 under with underlying inflation. We do see some of that business starting to come back. You saw very strong debt capital markets, equity capital markets. Some of the investment banks signaled that there was going to be a return of M&A. But we do see that within the large banks, so basically, the sell side that there is some talk about vendor consolidation, there's a slowdown in the negotiation of contracts. So let me talk about a few of the ways we think about it. First of all, as you know, we have enterprise contracts. The enterprise contracts are not negotiated by seat. They're not negotiated every single year. We see that we have a strong opportunity to bring more and more data to the discussion as people look at vendor consolidation. As we enhance our technology, we improve all of our different products and services that we have. You heard us talk about what we've been doing with the Desktop by enhancing it with new services and new products. But let me turn very quickly to a couple of the products themselves. As the Desktop was enhanced with Visible Alpha. Visible Alpha is a must have product and service. As I said in the prepared remarks, probably everybody on this call is using it. We've seen a great increase in people coming to the product. When we closed the deal, we had 180 contributing brokers. Now we have over 200. We also saw that with the new release of the Desktop, a really good results from the new visualization tools that we added. Let me mention one other sub segments on Enterprise Solutions, which grew at 11%. That also was very much driven by what we saw happening with the capital markets improving. So we see, many different aspects to Market Intelligence. The last thing I want to mention is we did reiterate our guidance, which is in line with what we said earlier this year. Thanks for the question. Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is open. Manav Patnaik Thank you. If I could just follow up on that in Market Intelligence. Firstly, could you help us with the annualized contribution both from Visible Alpha and I guess what's lost from Fincentric? And just along those lines, what we should anticipate in terms of your continued participation in this vendor consolidation? And are there other things like Fincentric that could be cleaned up there as well? Douglas Peterson Yes, let me start with what we believe is really important for us is our capital allocation model. As we believe that it's really important to continually be looking at our portfolio to ensure that everything that's in part of S&P Global contributes to the whole, that helps the enterprise be stronger, that we see opportunities for some sort of consolidation either through technology, through sales cycles, through product research, etcetera. So we believe that this was both of these transactions, Visible Alpha coming in and Fincentric going out, were both really valuable overall for S&P Global. Now when you think about the modeling that I mentioned on the prepared remarks, Visible Alpha roughly adds about 1% of growth and Fincentric basically takes out about 1% of growth. But as I mentioned also, they're in different segments. The Visible Alpha is in the desktop segment and the Fincentric is in the enterprise solution segment. So you're going to see a slightly different growth rate in each of those based on the Visible Alpha coming in and Fincentric going out. To the second part of your question about vendor consolidation or discussions with the different organizations, we bring incredible strength because of the data and the analytics we have across the entire platform. Not only do we have the traditional market intelligence and financial services, desktop and other solutions, we also have information, for example, which we've been investing in private credit, private markets. We have a really strong sustainability platform which is becoming more and more important. So we can bring data services, data sets from across S&P Global that make it very relevant to any discussion we're having as people look at consolidating their data relationships. Yes, Hey Manav, just to make sure we're really clear here, the percentage points impact that we're talking about were to market intelligence revenue growth, not to the company as a whole. Thanks. Thank you. Our next question comes from George Tong with Goldman Sachs. Your line is open. George Tong Hi, thanks. Good morning. You raised your build issuance outlook from 6% to 10% to about 25% for the full year. In terms of issuance category, where did your outlook for the year change the most for build issuance and what were the drivers? Martina Cheung Hi, George. It's Martina. Thanks so much for the question. I would say we saw growth in the build issuance outlook for the full year across all categories, but I would say accelerated growth in high yield and bank loan ratings. We did see very strong issuance in the first half in investment grade, but that was characterized more by an acceleration in Q1, slightly tapering off in Q2. A lot of that refinancing activity in investment grade was done last year and in Q1. So a bit of a taper off there overall. Some more modest expectations for investment grade for the full year. High yield at BLR, very strong growth. I would say maybe a couple of sub-asset classes to highlight. CLOs is expected to have a very strong year from an issuance standpoint, for example, and a number of other sub-asset classes in structured finance that are seeing quite a bit of growth, for example, data center securitizations. Hope that helps. Thanks for the question. Thank you. Our next question comes from Faiza Alwy with Deutsche Bank. Your line is open. Faiza Alwy Yes. Hi. Good morning. I wanted to ask about the index business and what you're seeing there specifically with data and subscriptions. I know at one point we had talked about sort of growth accelerating here. So just curious on what type of trends you're seeing generally in the index business and on the subscription side. Doug Peterson Yes. So let me start with what we're seeing thematically. As you know and as Chris mentioned in the prepared remarks, we've seen massive flows from active to passive. That continues to be a trend. And within that space, a lot of the flows go to U.S. equities. And within U.S. equities, S&P, Dow Jones indexes picks up the bulk of that. So you've seen that coming through last quarter in terms of volume. There was also some increase in the value, the AUM value. So we benefited from that with the 16% growth in the asset linked fees. As some of those fees are going to be seen on a lagged basis. So we expect that we built into our guidance the expectation that the market was going to remain flat for the rest of the year. But we would see some increases, those average flows continue to come through the rest of the year. In terms of themes, we continue to see a lot of interest in different types of asset classes. So within even the asset class of the S&P 500 large cap U.S., we've had new partnerships with some large asset managers with new types of S&P 500 funds. The S&P 500 quality, the S&P 500 economic ETF. We also see a lot of innovation around fixed income and credit through the Cboe iBoxx emerging market bond index. We've also seen some really interesting new products coming out that bring in mid-cap using our indices, the Vanguard S&P Global 1200 ADR. So across the board, we're seeing a lot of new interest, asset classes. Another one which we want to mention very briefly relates to the private markets and private credit. This is an area where we have a lead. We already have strong positions in private credit indices. And we'll be building that out much more as we take advantage of this asset class, which has a lot of interest in the market. Thanks, Faiza. Thank you. Our next question comes from Heather Balsky with Bank of America. Your line is open. Heather Balsky Hi, thank you very much. I was hoping to ask about investment spend, especially given the success you're seeing in terms of your strategic investments. How are you thinking about the pace of spending going forward, especially as issuance continues to recover? Any changes in philosophy there? Douglas Peterson Heather, let me take that. And as you know, we always believe that it's important for us to have investment in new products, new areas, new services. You saw the benefit of many of those this quarter. Our Vitality Index, which is revenue that we start the beginning of the year with about a 10% approach to what we want to see for the percentage of our revenue, that grew this quarter to 11%. That's a very important indicator for us to see growth in the innovation, the investments we're making. We've been investing in a couple of key areas. Private markets is one. Another relates to Sustainability & Energy Transition. Artificial intelligence is one, and there's many other subcategories that are important for us. We know that the ability to continue to have loyal customers, the ability for us to generate positive pricing is always going to be based on the value that we bring to our markets, the value we bring to our customers. So you're going to see us continuing to set aside capital to invest. And fortunately, we've been very successful in the last few years. That doesn't mean that we are successful with everything we do, but we're very pleased with the track record we have. Thanks so much for the question, Heather. Thank you. Our next question comes from Toni Kaplan with Morgan Stanley. Your line is open. Toni Kaplan Thanks so much. I wanted to ask about AI. You had a very early head start when you bought Kensho, but maybe just talk about how you're viewing the competitive position now. Have competitors closed the gap by working with Microsoft? And also maybe just talk about your opportunity to use your proprietary data within new AI products. Thanks. Douglas Peterson Thanks, Toni, for that. I'm going to start and then hand it over to Martina, who can give some practical applications. As you know, when we first bought Kensho six years ago, we had a vision that artificial intelligence tools were going to be used by people like us on this call to enhance our decision-making, to make us -- allow us to make decisions faster with more data. And we're seeing that play out, especially now that artificial intelligence has moved into generative AI. As you know, we have in place a system of governance, where we have a Chief AI Officer for the Company. We have an AI Council. We have a system towards ensuring that we have the right kind of training across the entire company. We have an accelerator if we see a really good opportunity that we want to move fast on. But really at the foundation of everything is an open architecture model. We've built something called S&P Spark Assist, which is now used by over 14,000 users. S&P Spark Assist allows us to bring our models into our model garden and use it as a copilot. It means that we can be agnostic towards which model is best. We think that it's bringing us all kinds of new opportunities. You saw this quarter, we announced the launch of Chat AI on Platts Connect. This is a really good product. I actually use myself this quarter the transcript summaries on CapIQ Pro. Those are really valuable. But I think Martina can add some to this with applications that she's seeing on the ground in Ratings. Martina Cheung Yes. Great. Thanks, Doug. Thanks for the question. I would say in Ratings that we've had, like most other organizations, dozens of pilots underway. We're very excited overall about the potential for GenAI to improve quality, to create efficiency and time to market for our core Ratings business. And one example I thought would be interesting is what you've mentioned in the past that we had focused in on a tool to help our CLO credit analyst with making sense of very complex CLO documentation. And that proved to be fortuitous, given the very, very busy year that we've seen so far in CLOs. And we're excited about this tool which we're deploying out into production for our analysts over the second half of the year and its ability to help save time for the analysts so they can focus in on the important jobs of getting the ratings done. Just other minor point for us, more major point for Market Intelligence, but as a rating agency and with a very large pool of credit analysts using RatingsDirect on CapIQ Pro, we're super excited about the work that Market Intelligence is doing to build out a GenAI interface on RatingsDirect and CapIQ Pro, and we've been helping them do that as well. Thanks for the question. Thank you. Our next question comes from Alex Kramm with UBS. Your line is open. Alex Kramm Hey good morning everyone. Just wanted to come back to Market Intelligence and the performance there. And I'm particularly interested in the cyclical upside and downside. We obviously all realized that since market came in, the business is a little bit more cyclical. And when I look at this quarter, non-subscription and recurring variable, both up double digits or more than double digits. So it seems like the cyclical side is helping you a little bit already. So can you maybe just talk about where you think you are on the more cyclical elements in that business? And what the biggest things we should still be looking for, i.e., IPO markets opening up, etcetera, to drive cyclical upside even higher, and maybe you can dimensionalize that in terms of revenue potential upsides from as markets open up. Thank you. Douglas Peterson Yes. Thanks, Alex. As you know, we already built in our expectation into the guidance that we gave. But when we look at some of the cyclicality that took place, we grew in the Enterprise Solutions sub segment almost 11%. And this included some revenue that came from some non-subscription revenue, things like we had strong growth in lending solutions and markets. We had very strong growth in regulatory and compliance. And these were -- these are some of the areas that really are driven by volume. If you ask me, what are some of the key factors that we're going to be watching very closely, obviously, interest rates is number one. We gave you our expectation of one interest rate decrease of 25 basis points at the end of the year would be in the fourth quarter, more likely towards the end of the fourth quarter. We see that the markets have different views on that. In the recent earnings calls, a couple of banks show that they would have that they would have up to 3 interest rate declines this year. But we're not including any of that into our own guidance. The other factor we're going to look at quite closely is M&A revenue and M&A activity in the investment banks. M&A is still relatively weak. It's not on a track for what we would normally have seen. It was incredibly strong in 2020, 2021. And ever since then, it's been quite weak. And so we did see some green shoots of M&A activity this quarter, but there's a lot of pent-up capital, a lot of firepower in private credit, in private equity. There's a lot of private equity that's sitting on the sidelines getting ready for exits. There's a lot of M&A activity that's ready, we believe, from corporates. We're going to be looking at how they're going to be managing their own balance sheets and their own capital positions. So it's our view that over time, these are going to be some tailwinds that would benefit us, but that's not built into our guidance for this year. Thanks, Alex. Thank you. Our next question comes from Scott Wurtzel with Wolfe Research. Your line is open. Scott Wurtzel Hey good morning guys. Thanks for taking my question. I wanted to ask on the revenue synergy side. Obviously, it seems like you're making very good progress there against your targets. I know going back the last few quarters, we've talked about maybe a little bit more shift from cross-sell to new product development. So just wondering if you could maybe help contextualize a little bit more in terms of the synergies that were recognized during the quarter in terms of new product versus cross-sell? Thanks. Douglas Peterson Thank you, Scott. Let me take that and talk about what we're seeing really are important. We still mostly see cross-sell. That's the most important source of our growth, but we are now very successfully launching new products. We had over 21 products that were launched so far this year in Market Intelligence. We have 9 in the Commodity Insights area. And then we have a good pipeline between the rest of the year of another about 15 between those 2 divisions. In Indices, we've launched a series of new approach to providing custom indices using the fixed income and credit indices that were from IHS Markit. But as I said, the cross-sell has been really, really important. We probably underestimated the value and the power of the S&P Global brand. And we also probably underestimated the diversified relationships that we have. If you think about the Financial Services business at IHS Markit, it was a Financial Services business. But at S&P Global, we've always had a very strong corporate business, government, academics, all types of financial services. It's buy side, sell side, it's sovereign wealth funds, etcetera. So we believe that we've had the opportunity to bring that very powerful set of clients, diversified clients and bring them to many, many more products and services for the financial services products. That's been one of the big upsides. But let me just take one step back and point to a couple of things we already talked about. Adding 19.4 million prices, bond prices into CapIQ Pro, that was one of our synergy opportunities. That's something that's tangible. You can see that. We've also had in Commodity Insights a whole new set of products. We talked earlier about ChatAI, which was added to a feature. So that takes what we have from artificial intelligence layered on top of Commodity Insights platform. That platform was a merger of Platts Dimensions Pro and Connect, which was the IHS Markit platform. So there, you can see it everywhere in the company. We're at $199 million run rate. That was $54 million in the quarter, and we're on track. We're actually ahead of track, and we're very, very pleased with that. And so keep asking, and we will keep delivering. Thank you so much. Thank you. Our next question comes from Andrew Nicholas with William Blair. Your line is open. Thomas Roesch Hi, good morning. This is Tom Roesch on for Andrew. I want to -- in the first quarter, you guys talked about a number of private deals being refinanced in the public markets. I was wondering if you could provide any color on what you saw this quarter in the sense of refis coming from private to public markets. And if you kind of see that trend continuing where more that is coming from the private markets than the public? Thank you. Martina Cheung Hey Tom, this is Martina. Thanks for the question. It's been interesting, certainly some different trends in the two quarters. As you said, we certainly saw more in the first quarter go from private to public. We actually saw going both directions in the second quarter. Some of that we see as being more attractive pricing in the private markets compared to what might have been available in the first quarter. But I think all of this goes to the original thesis and strategy that we've had around private markets, which is, number one, we see this opportunity. We've had a very specific strategy around it. And we have continued to say since Investor Day that we will be ready to serve the debt wherever it comes, whether it's the public market or private markets. And you see that strategy on the private side play out with the results in Q2, the 70% growth in our private market's revenues and Ratings obviously, as well as the broader public market bond rating growth that we've seen on the transaction side as well. So this is a good story for us. These two trends are complementary for us. We've got the right capacity. We've got the right expertise around this, and we feel good about our position to serve the debt either way going forward. Thanks for the question. Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open. Owen Lau Hi, good morning. Thank you for taking my question. So for Rating, one of your competitors guided to high teens growth for the full year, and you have around 14% to 16% growth. I mean it's not that way off, but I'm curious to see if you have done any analysis to try to understand the delta and different assumptions. And also how much impact for your one run rate cut I think at the end of the fourth quarter assumption would impact your Rating revenue guidance? Thanks. Martina Cheung Thanks so much, Owen. As you know, we don't plan with competitors in mind if that's a clear way to say it. We feel very good about the strategy that we set out. Obviously, the over performance comes in a variety of ways. First, it is a very strong market revenues, but we've also been able to meet that demand either because we've had a specific strategy as in the case of private markets, but also in other cases where we've preserved capacity and expertise over the last couple of years, and we can handle additional volumes. So we feel very good about that. I would say overall, our growth rate with the new guidance 14% to 16% reflects a couple of key drivers that Doug highlighted in his remarks. First is that we continue to hear totally from the market that issuers are avoiding, in particular Q4. And so that certainly has a tapering effect on the back half of the year for us overall. I would say we've also -- I think you maybe alluded to this a little bit of a tougher comp in the back half, whether it's lapping that onetime revenue from the second half of last year, but also a very, very strong Q4 from last year. And as Doug said, we'd expect a modest year-over-year decline in Q4. But overall, if you look at the full year, we feel really good about it. It reflects growth not just on the transaction side, but on the key strategic areas, strong performance and growth as reflected in the second quarter, things like our annual fees where we continue to align the value with the economics that we have with the customer and good growth in other areas such as new mandates. So a great story for us overall, I think. Thanks for the question. Thank you. Our next question comes from Craig Huber with Huber Research Partners. Your line is open. Craig Huber Great. Thank you. I believe three months ago, you guys said in Market Intelligence that you've expected to perhaps see some improvements in the growth rates of Market Intelligence revenue in the second half of the year. You obviously have your guidance where you kept flat for the revenue outlook for the full year, given what's happened in the first half of the year. Do you still feel it's possible just given the new products you've cited here? Douglas Peterson Craig, it's possible. As you heard in a couple of questions ago, I talked about some of the potential tailwinds that we could see in the business, whether it's related to rates, to M&A activity, but we don't build the guidance based on wishful thinking. We have to build on what we see, what our expectations are. So the guidance is built right now based on what we see in the market, and that's why we've guided for the top line growth to be consistent where it was the last time we provided guidance. Thanks, Craig. Thank you. Our next question comes from Andrew Steinerman with JPMorgan. Your line is open. Andrew Steinerman Hi Doug, on MI, could you just tell us directionally how MI organic ACV growth did in the second quarter compared to the organic revenue growth? And with the possibility of acceleration, my question is, is organic ACV growth at MI accelerating? Douglas Peterson Well, we don't report on ACV. It's not a metric that we use. We report on revenue. We -- obviously, we do look at our sales pipelines. And we're very pleased with what I mentioned earlier with the opportunities we see in cross-sell with the power of the brand, with the ability to open doors for new clients. We have a very strong pipeline of innovation that's coming through. We're incredibly pleased with Visible Alpha. I can't just, I almost can gush about it, what the opportunities are there, what it means for our ability to cross-sell because of Visible Alpha. So I think that for us to keep looking forward, this is a really powerful franchise, whether it's in the Desktop area, the data and advisory, the industry research that we're providing. It's in the Enterprise Solutions and then in the Credit & Risk Solutions. We know Credit & Risk Solutions is an area that is in growing demand because of what's happening in the volatility of the market. So across the board, we're quite pleased with our progress. You can also see it from what we're delivering from the synergies. But we don't use ASV. That's not one of the metrics that we use for -- that we report on. Thanks, Andrew. Thank you. Our next question comes from Jeff Meuler with Baird. Your line is open. Jeffrey Meuler Yes, thank you. I just want to make sure there's nothing in Mobility beyond the recall weakness or variability. I get it. The sales growth looks good. Vitality products sound good. But the reason I ask is you also lowered the segment margin guidance. And I know there's a range of products there, but I think a lot of the recall products are lower margin. So I'm just trying to confirm there wasn't a change in the subs booking trajectory or trends from the CDK ran similar impact on some of your clients or anything else? Thank you. Christopher Craig Thanks for your question. Well, for sure, when we look at the subscription growth, it's actually been tremendous this quarter. When you look back, 81% of the revenue is driven out of subscription growth, and that grew 10.5%. In terms of the recall activities, actually very high-margin business that comes through. So when we do see that loss and slowdown in the recall, that actually does impact margins fairly significantly. Thank you. Our next question comes from Jeff Silber with BMO Capital Markets. Your line is open. Jeffrey Silber Thanks so much. I know you don't provide specific guidance by quarter, but I was wondering if you can provide any color between what you're expecting 3Q, 4Q, anything to call out? You mentioned you expect a decline in issuance in the fourth quarter, but anything else on the revenue or expense line, that will be helpful for us. Thank you. Douglas Peterson As you mentioned, we don't provide guidance by quarter. You already mentioned the one thing that we've seen, which relates to some issuance potentially between the third and fourth quarter. But there's nothing else. Chris, do you want to add anything? Thank you. Our next question comes from Russell Quelch with Redburn Atlantic. Your line is open. Russell Quelch Yes, hi guys. In Commodity Insights, this is the fourth quarter of double-digit top line growth. The midpoint of the guidance implies 6.7% growth for H2. So I'm wondering why you're expecting such a strong slowdown in H2 in Commodity Insights. It seems much more than a tough comp. And if I look at seasonality, it's normally the other way around in the second half is normally stronger than the first half. So can you just address that for me, please? Douglas Peterson Yes. Let me mention, first of all, Commodity Insights has had a really good run. It's an important area for the global markets. You see that everywhere we go, kind of every single conversation I ever have, we're talking about energy transition. We're talking about ESG. We're talking about what's happening the future of metals, mining. As you see, we launched some new products related to egg [ph], beef and poultry benchmarks. But when you look at the overall dynamic in the business, we've had a really, really strong performance in the advisory and transaction services area. It grew at 32% in the quarter. This is an area that is -- it's more volume driven. It's transaction driven. We don't want to necessarily project for the rest of the year that, that kind of level of transaction services is going to continue. So we've guided to the level which is more of a blend of the rates coming from upstream, from price assessments, from energy resources and Data and Insight. So that's what you can see the difference that brought us back down to a level from the 8% to 9%. Thanks, Russell. Thank you. Our final question will come from Surinder Thind with Jefferies. Your line is open. Surinder Thind Thank you. Just a big picture question on terms of when you put together guidance overall, how do you think about visibility in the current environment relative to maybe where it's been in years past? Is client behavior a bit more difficult to project across some of the different line items? Or how should we think about the quality of the forecast at this point? Douglas Peterson Well, I think that's half a year left. We believe that we've got a pretty good view on what the pipeline is for the rest of the year. As I mentioned throughout, there are certain factors which are maybe a little bit more market driven like interest rates and M&A. There's always going to be uncertainty around that. We have to work closely with our analysts that are close to the market. There's analysts that are working all the time with the buy side, the sell side. We get feedback from them. We also have relationships directly with bankers to understand what they're seeing in their pipelines of debt capital markets, equity capital markets, M&A. So we have an informal and formal way to gather information to use for our guidance for the rest of the year, and we look very carefully at that. And it's something that we've built into this year. You see the results of that. Overall, we're incredibly pleased with where we are. But with that, Surinder, thank you very much for joining the call. And let me wrap it up and close the call. And I want to thank everyone again for joining the call today and for your questions. I also want to thank Martina for joining us. Martina, thank you very much for being on the call. I want to congratulate her here, she's in the room, for appointment as the next CEO of S&P Global. At the next earnings call, you're going to hear a lot more about the transition, which is starting to take place, and it's going incredibly well. I also want to thank all of our people, as always. We have tremendous people in this company that delivered a strong quarter. We've got incredible, really good initiatives that we're developing and delivering in energy transition, sustainability with private markets, with generative AI. We continue to make great progress on our synergies from the merger, and we're very pleased with all of that. So I also hope that everybody gets a little bit of time this summer. So enjoy some time over the summer, and I look forward to seeing everyone on the next call. Thank you all very much. That concludes this morning's call. A PDF version of the presenter slides is available for downloading from investor.spglobal.com. Replays of the entire call will be available in about two hours. The webcast with audio and slides will be maintained on S&P Global's website for one year. The audio-only telephone replay will be maintained for one month. On behalf of S&P Global, we thank you for participating, and wish you a good day.

S&P; Global (SPGI) Q2 2024 Earnings Call Transcript | The Motley Fool

Good morning, and welcome to S&P Global's second quarter 2024 earnings conference call. I'd like to inform you that this call is being recorded for broadcast. [Operator instructions] I would now like to introduce Mr. Mark Grant, senior vice president of investor relations for S&P Global. Good morning, and thank you for joining today's S&P Global second quarter 2024 earnings call. Presenting on today's call are Doug Peterson, president and chief executive officer; and Chris Craig, interim chief financial officer. For the Q&A portion of today's call, we will also be joined by Martina Cheung, president 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 filings with the U.S. Securities and Exchange Commission, including our most recently filed Form 10-K. In today's press release and during the conference call, we're providing non-GAAP adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the company's operating performance between periods and to view the company's business from the same perspective as management. The press release contains financial measures calculated in accordance with GAAP that corresponds to the non-GAAP measures we're providing, and the press release and the supplemental deck contain 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? Douglas L. Peterson -- President and Chief Executive Officer Thank you, Mark. S&P Global delivered an incredible first half in 2024 as the second quarter saw accelerated revenue growth, significant margin expansion and the highest quarterly adjusted EPS in our company's history. Total revenue increased 16%, excluding the divestiture of Engineering Solutions. Transaction revenue in our Ratings division continues to drive significant outperformance at more than 60% growth. But revenue from all our subscription products across the company also increased 8% year over year in the second quarter despite some of the market headwinds that are common across our industry this year. We delivered 450 basis points of margin expansion year over year and 30% growth in EPS as we captured market demand and contained our expense growth. As you saw last month, we also announced our CEO succession plan, which I'll discuss in a moment. We've been cultivating more than just our leaders at S&P Global, and we're pleased with the product innovation coming to the market in the second quarter. The June release of Cap IQ Pro included significant enhancements, and we launched new benchmarks in Commodity Insights. We continue to accelerate our deployment of generative AI and launched new capabilities both at the division and enterprise level. We also continue to optimize our portfolio of businesses and products with Visible Alpha closing in the second quarter and the recent signing of an agreement to divest Fincentric, which we expect to close in the third quarter. We're excited that we get to cover key developments in each of our five strategic pillars this quarter, beginning with our customers. S&P Global rated more than $1 trillion of billed issuance in the second quarter. Growth was diversified across public and private markets as private market participants increasingly turn to S&P Global for expertise in assessing credit risk. Revenue from rating services in the private markets increased more than 70% year over year in the second quarter. We continue to create new products from the combined data sets and solutions of S&P Global and IHS Markit to create incremental value for our customers. In the second quarter, we achieved nearly $200 million of annualized run rate revenue synergies. As Chris will discuss in a moment, this puts us ahead of the pace to achieve the $150 million in revenue synergies we're targeting in 2026. It's remarkable that we're able to deliver these strong results despite the well-known market headwinds that continue to impact pockets of our business. Our diverse customer base and broad product portfolio provide for more stable financial performance for the company overall as headwinds can often be offset by tailwinds. As an example, while renewal rates were slightly lower than last year in Market Intelligence this quarter, renewal rates were slightly higher than last year in Commodity Insights. These market dynamics are not unexpected, and the financial impact was largely included in our initial guidance. Despite macroeconomic cyclicality, we continue to find ways to help our customers achieve their goals using our differentiated data and product offerings. This ability to align our product innovation and investment with customer needs was further demonstrated in the second quarter by the acceleration in revenue growth from our Private Market Solutions and our Sustainability & Energy Transition offerings. Turning back to billed issuance. It increased 54% year over year in the second quarter. We continue to see tight credit spreads contributing to favorable market conditions. We also saw modest improvement in some of the important macroeconomic indicators, particularly in North America, that have lent strength to the issuance environment. We continue to see particular strength in bank loans and structured finance, along with robust growth in high-yield investment-grade bonds. Refinancing activity was very strong in the quarter as we saw a pull forward of issuance from investment-grade issuers refinancing 2024 maturities, as well as speculative grade issuers refinancing 2024 and future year maturities. This leaves some uncertainty around the back half as we wait to see how much of the out-year refinancings get pulled into 2024. This continues to inform our view that the second half will be softer than the first half in terms of billed issuance and transaction revenue in our Ratings business. With the timing and likelihood of any rate cuts in the U.S. market still uncertain, our base case still assumes a modest year-over-year decline in issuance in the fourth quarter. Turning to Vitality. Newer enhanced products generated $375 million in the second quarter. This represents 11% of our total revenue and an improvement from the 10% we reported last quarter. Key contributors to our Vitality Index are unchanged from last quarter as we see strong demand for CARFAX listings and the CARFAX banking and insurance group. We also see strong growth in energy transition and climate products from our Commodity Insights division and sustainable bonds from Ratings. As you'll recall from last quarter, key contributors from our pricing valuations and reference data, as well as several thematic- and factor-based indices matured out of the Vitality Index at the end of the year. We're encouraged by the continued acceleration of the pace of innovation of S&P Global and look forward to maintaining our Vitality Index at or above the 10% target. As we look to examples of that innovation, a common thread running through many of the products we're bringing to market is our enterprise expertise in generative AI. In the second quarter, we launched Chat AI on Platts Connect. Launched as a new platform combining Platts Dimensions Pro with IHS Connect, the Platts Connect platform provides access to a truly massive amount of data, research and insights to power the global commodity markets. With the depth and breadth of information in the platform, we knew users would need an intuitive way to navigate and find the information that would be critical to their daily workflows. Chat AI is a powerful customer tool developed through a partnership of Kensho and Commodity Insights that uses generative AI models to provide real-time responses to conversational user queries to help them quickly find the necessary data to make informed, faster decisions. In addition to this AI-powered interface, Commodity Insights continues to bring new benchmark price assessments to market. Our Platts team introduced five daily price assessments for beef and four daily price assessments for poultry, as well as a new report with up-to-date coverage of the proteins market. These continue to broaden and strengthen our position in agriculture commodities. We also continue to scale new functionality in our differentiated energy transition offerings. We significantly enhanced our global integrated energy model in the second quarter, which now enables modeling and scenario building for energy demand in over 140 countries using deep data sets going back more than 30 years. With our enterprise focus on artificial intelligence, we've continued to develop internal tools, including new functionality in the S&P Spark Assist platform we introduced earlier this year. Approximately 14,000 of our people are using Spark Assist internally after just a few short months. As we shared with you last quarter, this platform is designed to be cost effective, vendor-agnostic, highly scalable and secure by design. By encouraging collaboration across the enterprise, we're able to quickly iterate on time-saving use cases and share those developments across the company. We're already seeing users leverage S&P Spark Assist to optimize code, rewrite configuration files for software migrations and summarize complex documents. We've also used it to aggregate and digest feedback and ideas that we received through our employee engagement surveys in town halls, empowering leadership to more effectively act on what matters the most to our people. We believe this crowd-sourced approach to developing tools shortens the time to discover and develop new applications using gen AI models. Leveraging LLM from multiple sources allows us to benefit from the rapid innovation taking place across the technology ecosystem without being locked into a single vendor. Lastly, the June release of Cap IQ Pro brought powerful enhancements to the platform that we believe will strengthen our competitive position and create meaningful value for our customers. We fully integrated the fixed income data from IHS Markit, which brings data more than 19 million government agency and corporate fixed income securities and makes it readily available through the Cap IQ platform. This was a tremendous undertaking made possible through the merger that will benefit our existing customers and help potential customers more easily see the incredible value of Cap IQ Pro. The June release also included a complete reimagining of the charting and visualization capabilities within Cap IQ Pro, deploying the technology and expertise that came to us through the ChartIQ acquisition. Back to the theme of generative AI. We also introduced transcript summarization within Cap IQ Pro. This new tool was built organically and not only provides a quick summary of earnings calls, it also organizes topics and sentiment and empowers the user to immediately click through and find the direct quotes behind the summaries. And it's built on a foundation of Scribe, developed by Kensho four years ago. I want to take a moment to discuss an important acquisition that closed in the second quarter. Visible Alpha is well known and highly respected among both our customers and our investors, and we're excited to see the progress the Market Intelligence team has already made since closing the deal in May. Visible Alpha compiles highly detailed financial models via direct feed from over 200 contributing brokers. With over 6,000 contributing analysts, including most of the analysts joining us on this call, Visible Alpha has the most detailed and comprehensive consensus estimates available anywhere in the world. We frequently hear from customers that they could not do their jobs without it. S&P Global's position as a trusted partner across the financial markets is opening doors for Visible Alpha and private equity, banking and consulting and driving further penetration in asset management and research. Leveraging the strength of S&P Global's relationships, brand and commercial teams, we've already seen a 5% increase in the number of contributing brokers in just the last three months. In addition, we've generated over 150 sales leads and closed 10 deals already. We see numerous opportunities to leverage the Visible Alpha platform in conjunction with the differentiated data sets throughout S&P Global to create unique deep sector content. We look forward to sharing new developments in the coming quarters. Now, turning to a very exciting announcement we made in the second quarter that fittingly comes under our four strategic pillar, lead and inspire. In June, we announced that I will be retiring from my role as president and CEO of S&P Global effective November 1. Martina Cheung, the president of Ratings and sponsor of Sustainable1, will become the 11th CEO of S&P Global since we were listed on New York Stock Exchange over 90 years ago. We are very pleased to see our succession plan work the way it was designed, with development of strong internal leaders resulting in a unanimous decision from our board of directors. I'm focused on delivering strong results over the next few months as I work with Martina on a comprehensive transition plan before she takes over November. As you might have seen, I'll stay on the board until the next shareholders meeting and on as an advisor until the end of 2025. Martina has already joined the board of directors and is working hard to get ready for November. We will have more to say on the transition next quarter, but it's been wonderful to see the outpouring of support and appreciation for Martina from customers, employees and shareholders. Turning to our financial results. With strong growth across every division, we continue to meet increasing market demand while maintaining expense discipline. We saw accelerating revenue growth in the quarter. And on a trailing 12-month basis, we have expanded our operating margin by 300 basis points. Now, let me turn to Chris Craig, our interim CFO, to review the financial results. Chris, over to you. Chris Craig -- Interim Chief Financial Officer Thank you, Doug. We finished the second quarter of 2024 with exceptional performance across the entire company with three of five divisions achieving double-digit growth in both revenue and operating profit. Reported revenue grew by 14% year over year to a record $3.5 billion in the second quarter. And while parts of our market-driven businesses benefited from the tailwinds Doug highlighted earlier, we are also seeing strong performance across strategic investment areas, which I'll touch on shortly. Adjusted diluted earnings per share increased 30% year over year to $4.04. This was driven by a combination of our strong revenue growth, margin expansion of 450 basis points and a 2% reduction in fully diluted share count. Now, turning to strategic investment areas, where I'm pleased to report we saw growth accelerate across all initiatives. Sustainability & Energy Transition revenue grew 23% to $87 million in the quarter driven by strong demand for Commodity Insights' energy transition advisory services and subscription offerings. Our Sustainable1 team continues to expand the company's Sustainability & Energy Transition offerings while leveraging cross-divisional industry expertise to provide our customers with broader solutions. In Private Market Solutions, revenue increased by 26% to $134 million. Growth was driven by debt bank loan and CLO ratings and demand for our Private Market Solutions within Market Intelligence, which includes products like Qval and iLEVEL. For revenue synergies, we exited second quarter with an annualized run rate of $199 million. During the quarter, we recognized $54 million in revenue synergies, which came from a mix of cross-sell activity and revenue generated from new products. Turning to our divisions. Market Intelligence revenue increased 7% in the second quarter. Desktop grew 6% or 2% when excluding the impact from the Visible Alpha acquisition. Growth in the quarter was impacted by the continued softness in the financial services end market that we've highlighted previously. Nevertheless, we're focused on adding value for our customers by improving performance and introducing new content and capabilities, including the recent integration of markets fixed income securities data. Data & Advisory Solutions grew 6% driven by expanded coverage and continued investment in the high-growth areas of our market data and valuations and industry and company data product offerings. Enterprise Solutions grew 11% as loan platforms such as ClearPath and our primary markets group were beneficiaries of stronger equity and debt capital market activity in the quarter. For modeling purposes, it's important to note that the Enterprise Solutions business line includes Fincentric. Credit & Risk Solutions grew 5% due to demand for our RatingsXpress and RatingsDirect distribution platforms in North America and Europe. RatingsDirect is also benefiting from user adoption of Capital IQ Pro. Adjusted expenses increased 6% year over year primarily driven by an increase in compensation and the impact of the Visible Alpha acquisition, partially offset by a reduction in expenses associated with headcount and outside services. Operating profit increased 9%, and operating margin increased 60 basis points to 32.9%. Trailing 12-month margins expanded 90 basis points to 33.3%. Now, turning to Ratings, where we saw exceptional revenue growth of 33%, which exceeded our internal expectations. Transaction revenue grew by 63% in the second quarter, fueled by bank loan and bond issuance. Nontransaction revenue increased 9% primarily due to an increase in annual fee revenue and an increase in new mandates particularly from the return of high-yield issuers. Adjusted expenses increased 8% driven by higher compensation, including incentives, as well as investments in strategic initiatives. This resulted in a 52% increase in operating profit and an 810 basis point increase in operating margin to 65.8%. For the trailing 12 months, Ratings margin expanded 570 basis points to 60.9%. And now turning to Commodity Insights. Revenue increased 12% driven by strong performance across all business lines with Price Assessments and Energy & Resources Data & Insights both growing at double digits. Notably, this marks the fifth consecutive quarter of double-digit growth in our Price Assessments business. Price Assessments and Energy & Resources Data & Insights grew 11% and 12%, respectively. Both businesses benefited from strong performance in crude and refined products. In addition, we continue to see favorable commercial conditions across both segments, including strong subscription sales across Middle East, Africa and Asia. Advisory & Transactional Services had an exceptional quarter with revenue growing 32% or 27% when excluding the impact from the World Hydrogen leaders acquisition. This is driven by strong trading volumes across key sectors in Global Trading Services and a pickup in consulting activity, particularly for energy transition-related initiatives. Upstream Data and Insights revenue grew by 5% year over year benefiting from meaningful contribution from organic investments, including our upstream energy transition offerings, as well as continued improvement in retention rates. For the full year, we expect low single-digit growth for upstream. Adjusted expenses increased 8% due to higher compensation costs, ongoing investments in growth initiatives and the acquisition of World Hydrogen leaders. Operating profit for Commodity Insights increased 16%, and operating margin improved by 170 basis points to 47.3%. Trailing 12-month margin increased by 130 basis points to 46.8%. Now, turning to Mobility. Revenue increased 8% year over year or 9% when excluding the impact of the divestiture of the aftersales business. Dealer revenue increased 11% year over year driven by new business growth in products such as new car listings and continued success in CARFAX. Manufacturing declined modestly by 1% driven by a decrease in onetime transaction revenue, particularly in our recall business, which can fluctuate based on the level of recall activity in any given period. This was partially offset by another strong quarter of subscription sales. Financials & Other increased 13% as the business line benefited from historically high underwriting volumes. Adjusted expenses increased 7% due to planned investments in strategic growth initiatives, partially offset by a reduction in incentive compensation expense. This resulted in operating profit increasing by 10% for the quarter, and operating margin improved by 60 basis points to 40.9%. Trailing 12-month margin contracted by 10 basis points to 38.8%. Now, turning to S&P Dow Jones Indices. Revenue increased 12% primarily due to strong growth in asset-linked fees, which benefited from higher AUM and growth in our Data & Custom Subscriptions offerings. Asset-linked fees were up 16% driven by market appreciation and inflows. Impressively, the global ETF market saw record inflows in excess of $300 billion on a trailing 12-month basis, highlighting the continued shift to passive investing and opportunities for future growth. Exchange-Traded Derivatives revenue grew 4% primarily driven by strong volumes across our equity complex products. Data & Custom Subscriptions increased 6% year over year driven by new business growth in end-of-day contracts and real-time data. Expenses increased 4% year over year driven by investments in strategic growth initiatives and an increase in incentive compensation expense. Indices operating profit increased 15%. And impressively, operating margin expanded by 210 basis points to 70.7%. On a trailing 12-month basis, Indices operating margin expanded by 150 basis points to 69.8%. Looking at the quarter holistically, we saw broad strength across the business. Market factors like issuance volumes and asset price appreciation contributed to strong growth in our market-driven businesses. And our subscription business lines benefited from the continued investment in our differentiated data, content and workflow capabilities. We are pleased with the profitable growth delivered by the combination of strong customer demand and disciplined execution in the quarter. And with that, I will now turn it back to Doug to discuss our outlook for the second half of the year. Doug? Douglas L. Peterson -- President and Chief Executive Officer Thank you, Chris. Our financial guidance assumes global GDP growth of 3.3%, U.S. inflation of 3% and an average price for Brent crude of $84 per barrel. We continue to see fluctuations in the market expectations for rate cuts, though our base case still assumes there will be one rate cut in the U.S. in the second half of 2024. While the macroeconomic indicators that help inform our guidance are very similar to last quarter, we're significantly raising our financial outlook for the full year. We're increasing our billed issuance forecast for 2024 by nearly 20 percentage points. Given the dramatic increase in issuance in the first half, we now expect growth in billed issuance to be approximately 25% compared to our prior range of 6% to 10%. In our most recent study of debt financing, we examined the volume of debt set to mature over the next several years. We're presenting this data in a slightly different way than we have in the past in the hopes it's more easily interpreted by analysts and investors. Here, we compare the amount of S&P Global-rated debt set to mature over the next six months, 18 months and so on out more than seven years as of July 1 in each of the last three years. As you can see, there is very little debt set to mature over the second half of 2024, though this is consistent with what we've seen in prior years. On a cumulative basis, the maturity walls coming over the next several years gives us confidence in the long-term strength of our business, though the timing of that refinancing activity remains difficult to predict on a quarter-by-quarter basis. All of these factors impact our new full year guidance calling for higher growth, stronger margins and substantial generation of free cash. This slide illustrates our current guidance for GAAP results. We're once again raising our enterprise outlook for the full year on all headline metrics, given the strength of the second quarter and our improved outlook for the second half. We now expect revenue growth in the range of 8% to 10%, adjusted operating margin expansion of 125 to 175 basis points and adjusted diluted EPS in the range of $14.35 to $14.60, representing a $0.50 increase from our prior guidance. Additional details on our consolidated financial guidance can be found in our press release, but I also wanted to note that we've increased our guidance for adjusted free cash flow to approximately $4.7 billion, up $200 million from our prior guidance and reflecting the strong results year-to-date. Moving to our division outlook. Our revenue guidance for Market Intelligence is unchanged, and we continue to expect revenue growth in the range of 6% to 7.5%. This guidance reflects the contribution from Visible Alpha, which closed in May, largely offset by the loss of revenue following the divestiture of Fincentric later this quarter. Importantly, for models, Visible Alpha is reported in the Desktop business line for Market Intelligence, which should accelerate on a reported basis in the second half, while Fincentric is reported in the Enterprise Solutions business, which should see a corresponding deceleration in the second half following the divestiture, particularly in the fourth quarter. We're raising our outlook for Ratings business substantially following the second quarter performance. We still expect the second half to be softer than the first, reflecting normal seasonality, but exacerbated by the level of pull forward that we believe took place thus far this year. For the second half, the favorable market conditions and improved visibility inform a slightly more optimistic view around the third quarter and a modest year-over-year decline in both billed issuance and Ratings transaction revenue in the fourth quarter. Our revenue guidance for Commodity Insights is unchanged. We're slightly lowering and tightening the guidance range for Mobility revenue growth. As we noted last quarter and this morning, the recall business has been abnormally soft year-to-date, and we expect that softness to continue in the second half. The recall business is nonrecurring and difficult to predict, but the lowered outlook means that the remainder of the revenue is more predictable, recurring subscription, which gives us confidence in the tighter range of 8% to 9% revenue growth compared to the prior range of 8.5% to 10%. We've also seen significant outperformance in our Indices division in the first half, and we're raising our guidance again. We now expect revenue growth in the range of 10% to 12%, up from 9% to 11%. Importantly, this guidance assumes market levels are essentially flat from levels at the end of June. Turning to our margin outlook. For Market Intelligence, while the revenue impacts from Visible Alpha and Fincentric are largely offsetting, the net impact is expected to be modestly dilutive to margins in 2024. As such, we're lowering the margin guidance for Market Intelligence to a range of 33% to 34%. For Ratings, we're raising the margin guidance by 100 basis points to reflect the strong revenue outperformance, partially offset by higher expected incentive compensation expense. Commodity Insights margin guidance is unchanged. For Mobility, given our expectations for softer revenue from the recall business, we now expect margins in the division to be slightly lower in the range of 38.5% to 39.5%, down 50 basis points from prior guidance. Our margin expectations for Indices are unchanged despite the higher expected revenue growth as we plan to continue investing to position the business for growth through 2024 and beyond. With that, I'd like to invite Martina Cheung, president of S&P Global Ratings and executive lead for Sustainable1, to join us. I'll turn the call back over to Mark for your questions. Mark? Mark Grant -- Senior Vice President, Investor Relations Thank you, Doug. [Operator instructions] Operator, we will now take the first question. Operator Thank you. Our first question comes from Ashish Sabadra with RBC Capital Markets. Your line is open. Ashish Sabadra -- Analyst Thanks for taking my question. Congrats to both Doug and Martina. I just wanted to kick off with MI. As we think about -- I was wondering if you could talk about the pipeline there. Also, if you could talk about what you're seeing on the sales cycle trend. And how do we think about the Desktop business going forward? Obviously, we see the acceleration from Visible Alpha, but just underlying growth in that business with the -- getting all the info data there? Douglas L. Peterson -- President and Chief Executive Officer Thank you, Ashish. This is Doug. First of all, thank you for the question. And let me start by mentioning that the softness that we saw was something that we expected. As you know, there were over 60,000 seats that were eliminated from banks and investment banks since the COVID cycle. We saw softness as the interest rates had gone up. They spiked in 2022 under -- with underlying inflation. We do see some of that business starting to come back. You saw very strong debt capital markets, equity capital markets. Some of the investment banks signaled that there was going to be a return of M&A. But we do see that within the large banks, so basically, the sell side that there is some talk about vendor consolidation, there's a slowdown in the negotiation of contracts. So let me talk about a few of the ways we think about it. First of all, as you know, we have enterprise contracts. The enterprise contracts are not negotiated by seat. They're not negotiated every single year. We see that we have a strong opportunity to bring more and more data to the discussion as people look at vendor consolidation. As we enhance our technology, we improve all of our different products and services that we have. You heard us talk about what we've been doing with the Desktop by enhancing it with new services and new products. But let me turn very quickly to a couple of the products themselves. As you know, the Desktop was enhanced with Visible Alpha. Visible Alpha is a must-have product and service. As I said in the prepared remarks, probably everybody on this call is using it. We've seen a great increase in people coming to the product. When we closed the deal, we had 180 contributing brokers. Now, we have over 200. We also saw that with the new release of the Desktop, a really good results from the new visualization tools that we added. Let me mention one other -- one of the other subsegments on Enterprise Solutions, which grew at 11%. That also was very much driven by what we saw happening with the capital markets improving. So we see, as you know, many different aspects to Market Intelligence. The last thing I want to mention is we did reiterate our guidance, which is in line with what we said earlier this year. Thanks for the question. Operator Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is open. Manav Patnaik -- Analyst Thank you. If I could just follow up on that in Market Intelligence. Firstly, could you help us with the annualized contribution both from Visible Alpha and I guess what's lost from Fincentric? And just along those lines, what we should anticipate in terms of your continued participation in this vendor consolidation? And are there other things like Fincentric that could be cleaned up there as well? Douglas L. Peterson -- President and Chief Executive Officer Yes, let me start with what we believe is really important for us is our capital allocation model. As you know, we believe that it's really important to continue to be looking at our portfolio to ensure that everything that's in part of S&P Global contributes to the whole that helps the enterprise be stronger, that we see opportunities for some sort of consolidation either through technology, through sales cycles, through product research, etc. So we believe that this was a -- both of these transactions, Visible Alpha coming in and Fincentric coming -- going out were both really valuable for -- overall for S&P Global. Now, when you think about the modeling that we -- that I mentioned on the prepared remarks, Visible Alpha roughly adds about 1% of growth, and Fincentric basically takes out about 1% of growth. As I mentioned also, they're in different segments. The Visible Alpha is in the Desktop segment and Fincentric is in the Enterprise Solutions segment. So you're going to see a slightly different growth rates in each of those based on Visible Alpha coming in and Fincentric going out. To the second part of your question about vendor consolidation or discussions with the different organizations, we bring incredible strength because of the data and the analytics we have across the entire platform. Not only do we have a traditional Market Intelligence and Financial Services, Desktop and other solutions. We also have information, for example, which we've been investing in private credit, private markets. We have a really strong sustainability platform, which is becoming more and more important. So we can bring data services, data sets from across S&P Global and make it very relevant to any discussion we're having as people look at consolidating their data relationships. Yes. Manav, just to make sure we're really clear here, the percentage points impact that we're talking about were to Market Intelligence revenue growth not to the company as a whole. Thanks. Operator Thank you. Our next question comes from George Tong with Goldman Sachs. Your line is open. George Tong -- Analyst Hi. Thanks. Good morning. You raised your billed issuance outlook from 6% to 10% to about 25% for the full year. In terms of issuance category, where did your outlook for the year changed the most for billed issuance? And what were the drivers? Martina Cheung -- President, S&P Global Ratings Hi, George, it's Martina. Thanks so much for the question. I would say we saw growth in the billed issuance outlook for the full year across all categories, but I would say accelerated growth in high-yield and bank loan ratings. We did see very strong issuance in the first half in investment grade, but that was characterized more by an acceleration in Q1, slightly tapering off in Q2. A lot of that refinancing activity in investment grade was done last year in Q1. So a bit of a taper off there overall. So more modest expectations for investment grade for the full year. High-yield BLR, very strong growth. I would say maybe a couple of sub asset classes to highlight. CLOs is expected to have a very strong year from an issuance standpoint, for example. And a number of other sub-asset classes in structured finance that are seeing quite a bit of growth for example, data center securitizations. I hope that helps. Thank you. Our next question comes from Faiza Alwy with Deutsche Bank. Your line is open. Faiza Alwy -- Analyst Yes. Hi. Good morning. I wanted to ask about the Index business and what you're seeing there specifically with data and subscriptions. I know at one point, we had talked about growth accelerating here. So just curious on what type of trends you're seeing generally in the Index business and on the subscription side? Douglas L. Peterson -- President and Chief Executive Officer Yes. So let me start with what we're seeing thematically. As you know and as Chris mentioned in the prepared remarks, we've seen massive flows from active to passive. That continues to be a trend. And within that space, a lot of the flows go to U.S. equities. And within U.S. equities, S&P Dow Jones Indices picks up the bulk of that. So that -- you've seen that coming through last quarter in terms of volume. There was also some increase in the value, the AUM value. So we benefited from that with the 16% growth in the asset-linked fees. As you know, some of those fees are going to be seen on a lagged basis. So we expect that we built into our guidance the expectation that the market was going to remain flat for the rest of the year, but we would see some increase as those average flows continue to come through the rest of the year. In terms of themes, we continue to see a lot of interest in different types of asset classes. So within even the asset class of the S&P 500 large cap U.S. We've had new partnerships with some large asset managers with new types of S&P 500 funds, the S&P 500 quality, the S&P 500 economic ETF. We also see a lot of innovation around fixed income and credit through the CBOE iBoxx emerging market bond index. We've also seen some really interesting new products coming out that bring in mid-cap using our indices, the Vanguard S&P Global 1200 ADR. So across the board, we're seeing a lot of new interest, asset classes. Another one which we want to mention very briefly relates to the private markets and private credit. This is an area where we have a lead. We already have strong positions in private credit indices. And we'll be building that out much more as we take advantage of this asset class, which has a lot of interest in the market. Thanks, Faiza. Operator Thank you. Our next question comes from Heather Balsky with Bank of America. Your line is open. Heather Balsky -- Analyst Hi. Thank you very much. I was hoping to ask about investment spend, especially given the success you're seeing in terms of your strategic investments. How are you thinking about the pace of spending going forward, especially as issuance continues to recover? Any changes in philosophy there? Douglas L. Peterson -- President and Chief Executive Officer Heather, let me take that. And as you know, we always believe that it's important for us to have investment in new products, new areas, new services. You saw the benefit of many of those this quarter. Our Vitality Index, which is revenue that we start the beginning of the year with about a 10% approach to what we want to see for the percentage of our revenue, that grew this quarter to 11%. That's a very important indicator for us to see growth in the innovation, the investments we're making. As you know, we've been investing in a couple of key areas. Private markets is one. Another relates to Sustainability & Energy Transition. Artificial intelligence is one, and there's many other subcategories that are important for us. We know that the ability to continue to have loyal customers, the ability for us to generate positive pricing is always going to be based on the value that we bring to our markets, the value we bring to our customers. So you're going to see us continuing to set aside capital to invest. And fortunately, we've been very successful in the last few years. That doesn't mean that we are successful with everything we do, but we're very pleased with the track record we have. Thanks so much for the question, Heather. Operator Thank you. Our next question comes from Toni Kaplan with Morgan Stanley. Your line is open. Toni Kaplan -- Analyst Thanks so much. I wanted to ask about AI. You had a very early head start when you bought Kensho, but maybe just talk about how you're viewing the competitive position now. Have competitors closed the gap by working with Microsoft? And also maybe just talk about your opportunity to use your proprietary data within new AI products. Douglas L. Peterson -- President and Chief Executive Officer Thanks, Toni, for that. I'm going to start and then hand it over to Martina, who can give some practical applications. As you know, when we first bought Kensho six years ago, we had a vision that artificial intelligence tools were going to be used by people like us on this call to enhance our decision-making, to make us -- allow us to make decisions faster with more data. And we're seeing that play out, especially now that artificial intelligence has moved into generative AI. As you know, we have in place a system of governance, where we have a chief AI officer for the company. We have an AI Council. We have a system toward ensuring that we have the right kind of training across the entire company. We have an accelerator if we see a really good opportunity that we want to move fast on. But really at the foundation of everything is an open architecture model. We've built something called S&P Spark Assist, which is now used by over 14,000 users. S&P Spark Assist allows us to bring our models into our model garden and use it as a copilot. It means that we can be agnostic toward which model is best. We think that it's bringing us all kinds of new opportunities. You saw this quarter, we announced the launch of Chat AI on Platts Connect. This is a really good product. I actually use myself this quarter the transcript summaries on Cap IQ Pro. Those are really valuable. But I think Martina can add some to this with applications that she's seeing on the ground in Ratings. I would say in Ratings that we've had, like most other organizations, dozens of pilots underway. We're very excited overall about the potential for gen AI to improve quality, to create efficiency and time to market for our core Ratings business. And one example I thought would be interesting is what you've mentioned in the past that we had focused in on a tool to help our CLO credit analyst with making sense of very complex CLO documentation. And that proved to be fortuitous, given the very, very busy year that we've seen so far in CLOs. And we're excited about this tool which we're deploying out into production for our analysts over the second half of the year and its ability to help save time for the analysts so they can focus in on the important jobs of getting the ratings done. Just other minor point for us, more major point for Market Intelligence, but as a rating agency and with a very large pool of credit analysts using RatingsDirect on Cap IQ Pro, we're super excited about the work that Market Intelligence is doing to build out a gen AI interface on RatingsDirect and Cap IQ Pro, and we've been helping them do that as well. Thanks for the question. Thank you. Our next question comes from Alex Kramm with UBS. Your line is open. Alex Kramm -- Analyst Hey. Good morning, everyone. Just wanted to come back to Market Intelligence and the performance there. And I'm particularly interested in the cyclical upside and downside. We obviously all realized that since market came in, the business is a little bit more cyclical. And when I look at this quarter, nonsubscription and recurring variable, both up double digits or more than double digits. So it seems like the cyclical side is helping you a little bit already. So can you maybe just talk about where you think you are on the more cyclical elements in that business? And what the biggest things we should still be looking for, i.e., IPO markets opening up, etc., to drive cyclical upside even higher, and maybe you can dimensionalize that in terms of revenue potential upsides from -- as markets open up. Douglas L. Peterson -- President and Chief Executive Officer Yes. Thanks, Alex. As you know, we already built in our expectation into the guidance that we gave. But when we look at some of the cyclicality that took place, we grew in the Enterprise Solutions subsegment almost 11%. And this included some revenue that came from some nonsubscription revenue, things like we had strong growth in lending solutions and markets. We had very strong growth in regulatory and compliance. And these were -- these are some of the areas that really are driven by volume. If you ask me, what are some of the key factors that we're going to be watching very closely, obviously, interest rates is No. 1. We gave you our expectation of one interest rate decrease of 25 basis points at the end of the year would be in the fourth quarter, more likely toward the end of the fourth quarter. We see that the markets have different views on that. In the recent earnings calls, a couple of banks show that they would have that they would have up to three interest rate declines this year. But we're not including any of that into our own guidance. The other factor we're going to look at quite closely is M&A revenue and M&A activity in the investment banks. M&A is still relatively weak. It's not on a track for what we would normally have seen. It was incredibly strong in 2020, 2021. And ever since then, it's been quite weak. And so, we did see some green shoots of M&A activity this quarter, but there's a lot of pent-up capital, a lot of firepower in private credit, in private equity. There's a lot of private equity that's sitting on the sidelines getting ready for exits. There's a lot of M&A activity that's ready, we believe, from corporates. We're going to be looking at how they're going to be managing their own balance sheets and their own capital positions. So it's our view that over time, these are going to be some tailwinds that would benefit us, but that's not built into our guidance for this year. Thanks, Alex. Operator Thank you. Our next question comes from Scott Wurtzel with Wolfe Research. Your line is open. Scott Wurtzel -- Wolfe Research -- Analyst Hey. Good morning, guys. Thanks for taking my question. I wanted to ask on the revenue synergy side. Obviously, it seems like you're making very good progress there against your targets. I know going back the last few quarters, we've talked about maybe a little bit more shift from cross-sell to new product development. So just wondering if you could maybe help contextualize a little bit more in terms of the synergies that were recognized during the quarter in terms of new product versus cross-sell? Douglas L. Peterson -- President and Chief Executive Officer Thank you, Scott. Let me take that and talk about what we're seeing really are important. We still mostly see cross-sell. That's the most important source of our growth, but we are now very successfully launching new products. We had over 21 products that were launched so far this year in Market Intelligence. We have nine in the Commodity Insights area. And then, we have a good pipeline between the rest of the year of another about 15 between those two divisions. In Indices, we've launched a series of new approach to providing custom indices using the fixed income and credit indices that were from IHS Markit. But as I said, the cross-sell has been really, really important. We probably underestimated the value and the power of the S&P Global brand. And we also probably underestimated the diversified relationships that we have. If you think about the Financial Services business at IHS Markit, it was a Financial Services business. But at S&P Global, we've always had a very strong corporate business, government, academics, all types of financial services. It's buy side, sell side, it's sovereign wealth funds, etc. So we believe that we've had the opportunity to bring that very powerful set of clients, diversified clients and bring them to many, many more products and services for the financial services products. That's been one of the big upsides. But let me just take one step back and point to a couple of things we already talked about. Adding 19.4 million prices, bond prices into Cap IQ Pro, that was one of our synergy opportunities. That's something that's tangible. You can see that. We've also had in Commodity Insights a whole new set of products. We talked earlier about Chat AI, which was added to a feature. So that takes what we have from artificial intelligence layered on top of Commodity Insights platform. That platform was a merger of Platts Dimensions Pro and Connect, which was the IHS Markit platform. So there, you can see it everywhere in the company. We're at $199 million run rate. That was $54 million in the quarter, and we're on track. We're actually ahead of track, and we're very, very pleased with that. And so, keep asking, and we will keep delivering. Thank you so much. Operator Thank you. Our next question comes from Andrew Nicholas with William Blair. Your line is open. Tom Roesch -- William Blair and Company -- Analyst Hi. Good morning. This is Tom Roesch on for Andrew. I want to -- in the first quarter, you guys talked about a number of private deals being refinanced in the public markets. I was wondering if you could provide any color on what you saw this quarter in the sense of refis coming from private to public markets. And if you kind of see that trend continuing where more that is coming from the private markets than the public? Thank you. Martina Cheung -- President, S&P Global Ratings Hey, Tom. This is Martina. Thanks for the question. It's been interesting, certainly some different trends in the two quarters. As you said, we certainly saw more in the first quarter go from private to public. We actually saw going both directions in the second quarter. Some of that we see as being more attractive pricing in the private markets compared to what might have been available in the first quarter. But I think all of this goes to the original thesis and strategy that we've had around private markets, which is, No. 1, we see this opportunity. We've had a very specific strategy around it. And we have continued to say since investor day that we will be ready to serve the debt wherever it comes, whether it's the public market or private markets. And you see that strategy on the private side play out with the results in Q2, the 70% growth in our private market's revenues in ratings obviously, as well as the broader public market bond rating growth that we've seen on the transaction side as well. So this is a good story for us. These two trends are complementary for us. We've got the right capacity. We've got the right expertise around this, and we feel good about our position to serve the debt either way going forward. Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open. Owen Lau -- Oppenheimer and Company -- Analyst Hi. Good morning. Thank you for taking my question. So for rating, one of your competitors guided to high teens growth for the full year, and you have around 14% to 16% growth. I mean, it's not that way off, but I'm curious to see if you have done any analysis to try to understand the delta and different assumptions. And also how much impact for your one run rate cut I think at the end of the fourth quarter assumption would impact your Rating revenue guidance? Martina Cheung -- President, S&P Global Ratings Thanks so much, Owen. As you know, we don't plan with competitors in mind if that's a clear way to say it. We feel very good about the strategy that we set out. Obviously, the overperformance comes in a variety of ways. First, it is a very strong market revenues, but we've also been able to meet that demand either because we've had a specific strategy as in the case of private markets, but also in other cases where we've preserved capacity and expertise over the last couple of years, and we can handle additional volumes. So we feel very good about that. I would say overall, our growth rate with the new guidance 14% to 16% reflects a couple of key drivers that Doug highlighted in his remarks. First is that we continue to hear totally from the market that issuers are avoiding, in particular Q4. And so, that certainly has a tapering effect on the back half of the year for us overall. I would say we've also -- I think you maybe alluded to this a little bit of a tougher comp in the back half, whether it's lapping that onetime revenue from the second half of last year, but also a very, very strong Q4 from last year. And as Doug said, we'd expect a modest year-over-year decline in Q4. But overall, if you look at the full year, we feel really good about it. It reflects growth not just on the transaction side, but on the key strategic areas, strong performance and growth as reflected in the second quarter, things like our annual fees where we continue to align the value with the economics that we have with the customer and good growth in other areas such as new mandates. So a great story for us overall, I think. Thanks for the question. Thank you. Our next question comes from Craig Huber with Huber Research Partners. Your line is open. Craig Huber -- Analyst Great. Thank you. I believe three months ago, you guys said in Market Intelligence that you've expected to perhaps see some improvements in the growth rates of Market Intelligence revenue in the second half of the year. You obviously have your guidance where you kept flat for the revenue outlook for the full year, given what's happened in the first half of the year. Do you still feel it's possible just given the new products you've cited here? Douglas L. Peterson -- President and Chief Executive Officer Craig, it's possible. As you heard in a couple of questions ago, I talked about some of the potential tailwinds that we could see in the business, whether it's related to rates, to M&A activity, but we don't build the guidance based on wishful thinking. We have to build on what we see, what our expectations are. So the guidance is built right now based on what we see in the market, and that's why we've guided for the top line growth to be consistent where it was the last time we provided guidance. Thank you. Our next question comes from Andrew Steinerman with J.P. Morgan. Your line is open. Andrew Steinerman -- Analyst Hi, Doug. On MI, could you just tell us directionally how MI organic ACV growth did in the second quarter compared to the organic revenue growth? And with the possibility of acceleration, my question is, is organic ACV growth at MI accelerating? Douglas L. Peterson -- President and Chief Executive Officer Well, we don't report on ACV. It's not a metric that we use. We report on revenue. We -- obviously, we do look at our sales pipelines. And we're very pleased with what I mentioned earlier with the opportunities we see in cross-sell with the power of the brand, with the ability to open doors for new clients. We have a very strong pipeline of innovation that's coming through. We're incredibly pleased with Visible Alpha. I can't just -- I almost can gush about it, what the opportunities are there, what it means for our ability to cross-sell because of Visible Alpha. So I think that for us to keep looking forward, this is a really powerful franchise, whether it's in the Desktop area, the data and advisory, the industry research that we're providing. It's in the Enterprise Solutions and then in the Credit & Risk Solutions. We know Credit & Risk Solutions is an area that is in growing demand because of what's happening in the volatility of the market. So across the board, we're quite pleased with our progress. You can also see it from what we're delivering from the synergies. But we don't use ASV. That's not one of the metrics that we use for -- that we report on. Thanks, Andrew. Operator Thank you. Our next question comes from Jeff Meuler with Baird. Your line is open. Jeffrey Meuler -- Analyst Yeah. Thank you. I just want to make sure there's nothing in Mobility beyond the recall weakness or variability. I get it. The sales growth looks good. Vitality products sound good. But the reason I ask is you also lowered the segment margin guidance. And I know there's a range of products there, but I think a lot of the recall products are lower margin. So I'm just trying to confirm there wasn't a change in the subs booking trajectory or trends from the CDK ran similar impact on some of your clients or anything else? Chris Craig -- Interim Chief Financial Officer Thanks for your question. Well, for sure, when we look at the subscription growth, it's actually been tremendous this quarter. When you look back, 81% of the revenue is driven out of subscription growth, and that grew 10.5%. In terms of the recall activities, actually very high-margin business that comes through. So when we do see that loss and slowdown in the recall, that actually does impact margins fairly significantly. Thank you. Our next question comes from Jeff Silber with BMO Capital Markets. Your line is open. Jeffrey Silber -- Analyst Thanks so much. I know you don't provide specific guidance by quarter, but I was wondering if you can provide any color between what you're expecting 3Q, 4Q, anything to call out? You mentioned you expect a decline issuance in the fourth quarter, but anything else on the revenue or expense line, that will be helpful for us. Douglas L. Peterson -- President and Chief Executive Officer As you mentioned, we don't provide guidance by quarter. You already mentioned the one thing that we've seen, which relates to some issuance potentially between the third and fourth quarter. But there's nothing else. Chris, do you want to add anything? Thank you. Our next question comes from Russell Quelch with Redburn Atlantic. Your line is open. Russell Quelch -- Redburn -- Analyst Yeah. Hi, guys. In Commodity Insights, this is the fourth quarter of double-digit top line growth. The midpoint of the guidance implies 6.7% growth for H2. So I'm wondering why you're expecting such a strong slowdown in H2 in Commodity Insights. It seems much more than a tough comp. And if I look at seasonality, it's normally the other way around in the second half is normally stronger than the first half. So can you just address that for me, please? Douglas L. Peterson -- President and Chief Executive Officer Yes. Let me mention, first of all, Commodity Insights has had a really good run. It's an important area for the global markets. You see that everywhere we go, kind of every single conversation I ever have, we're talking about energy transition. We're talking about ESG. We're talking about what's happening the future of metals, mining. As you see, we launched some new products related to ag, beef and poultry benchmarks. But when you look at the overall dynamic in the business, we've had a really, really strong performance in the advisory and transaction services area. It grew at 32% in the quarter. This is an area that is -- it's more volume driven. It's transaction driven. We don't want to necessarily project for the rest of the year that that kind of level of transaction services is going to continue. So we've guided to the level which is more of a blend of the rates coming from upstream, from price assessments, from energy resources and data and insight. So that's what you can see the difference that brought us back down to a level from the 8% to 9%. Thanks, Russell. Operator Thank you. Our final question will come from Surinder Thind with Jefferies. Your line is open. Surinder Thind -- Jefferies -- Analyst Thank you. Just a big picture question on terms of when you put together guidance overall, how do you think about visibility in the current environment relative to maybe where it's been in years past? Is client behavior a bit more difficult to project across some of the different line items? Or how should we think about the quality of the forecast at this point? Douglas L. Peterson -- President and Chief Executive Officer Well, I think that's half a year left. We believe that we've got a pretty good view on what the pipeline is for the rest of the year. As I mentioned throughout, there are certain factors which are maybe a little bit more market driven like interest rates and M&A. There's always going to be uncertainty around that. We have to work closely with our analysts that are close to the market. There's analysts that are working all the time with the buy side, the sell side. We get feedback from them. We also have relationships directly with bankers to understand what they're seeing in their pipelines of debt capital markets, equity capital markets, M&A. So we have an informal and formal way to gather information to use for our guidance for the rest of the year, and we look very carefully at that. And it's something that we've built into this year. You see the results of that. Overall, we're incredibly pleased with where we are. But with that, Surinder, thank you very much for joining the call. And let me wrap it up and close the call. And I want to thank everyone again for joining the call today and for your questions. I also want to thank Martina for joining us. Martina, thank you very much for being on the call. I want to congratulate her here, she's in the room, for appointment as the next CEO of S&P Global. At the next earnings call, you're going to hear a lot more about the transition, which is starting to take place, and it's going incredibly well. I also want to thank all of our people, as always. We have tremendous people in this company that delivered a strong quarter. We've got incredible, really good initiatives that we're developing and delivering in energy transition, sustainability with private markets, with generative AI. We continue to make great progress on our synergies from the merger, and we're very pleased with all of that. So I also hope that everybody gets a little bit of time this summer. So enjoy some time over the summer, and I look forward to seeing everyone on the next call. Thank you all very much. Operator That concludes this morning's call. A PDF version of the presenter slides is available for downloading from investor.spglobal.com. Replays of the entire call will be available in about two hours. The webcast with audio and slides will be maintained on S&P Global's website for one year. The audio-only telephone replay will be maintained for one month. On behalf of S&P Global, we thank you for participating, and wish you a good day.

Axos Financial, Inc. (AX) Q4 2024 Earnings Call Transcript

Johnny Lai - Senior VP, Corporate Development and IR Greg Garrabrants - President and CEO Derrick Walsh - EVP and CFO Hello, and welcome to the Axos Financial, Inc. Fourth Quarter 2024 Earnings Call and Webcast [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Please go ahead, Johnny. Johnny Lai Thank you, Kevin. Good afternoon, everyone. Thanks for joining us today for Axos Financial, Inc.'s fourth quarter 2024 financial results conference call. On today's call are the company's President and Chief Executive Officer, Greg Garrabrants; and Executive Vice President and Chief Financial Officer, Derrick Walsh. Greg and Derrick will review and comment on the financial and operational results for the three and 12 months ended June 30, 2024, and we will be available to answer questions after the prepared remarks. Before I begin, I would like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risks and uncertainties, and that management may make additional forward-looking statements in response to your questions. Please refer to the Safe Harbor statements found in today's earnings press release and in our investor presentation for additional details. This call is being webcast and there will be an audio replay available in the Investor Relations section of the company's Web site located at axosfinancial.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release. Before handing over the call to Greg, I'd like to remind listeners that in addition to the earnings press release, we also issued an earnings supplement and 8-K with additional financial schedules for this call. All of these documents can be found on the Axos Financial Web site. With that, I'd like to turn the call over to Greg. Greg Garrabrants Thanks, Johnny. Good afternoon, everyone. And thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the fourth quarter of fiscal 2024 ended June 30, 2024. I thank you for your interest in Axos Financial. We delivered outstanding results in our fiscal fourth quarter of 2024, generating double digits year-over-year growth in earnings per share, book value per share and ending loan balances for a ninth consecutive quarter. We outperformed the majority of our peers primarily due to successful execution of our strategic and operational initiatives. We grew deposits by approximately $256 million linked quarter with growth coming primarily from non-interest bearing deposits. Ending loan balances were up 2.7% linked quarter or 16.9% year-over-year to $19.2 billion. The diversity of our lending and deposit businesses allowed us to grow profitably in the three and 12 months ended June 30, 2024 as evidenced by our 18.8% and 21.6% return on average common shareholder activity respectively. Our strong returns contributed to the 26% year-over-year growth in our tangible book value per share. Other highlights include the following. Net interest margin was 4.65% for the quarter ended June 30, 2024, up 46 basis points from 4.19% in the quarter ended June 30, 2023 and down from 4.87% in the quarter ended March 31, 2024. We carried higher excess liquidity with average interest bearing deposits of approximately $2.7 billion in the fourth quarter of 2024 compared to $2.2 billion in the third quarter of 2024. The excess liquidity had a nine basis points drag on our Q4 2024 net interest margin. Net interest margin in Q3 2024 benefited from a payoff of a loan we purchased from the FDIC. Our credit quality remains strong with net annualized charge-offs to average loans of 5 basis points in the three and 12 months ended June 30, 2024. Total non-performing loans dropped by $9 million linked quarter and non-performing loans and leases to loans fell by 6 basis points to 0.57%. Net income was approximately $105 million in the quarter ended June 30, 2024, up 20% from the corresponding period a year ago. Earnings per share for the three and 12 months ended June 30, 2024 were $1.80 and $7.66, representing year-over-year growth of 23% and 51% respectively. We repurchased $13.2 million of common stock in the fourth quarter ended June 30, 2024 at an average share price of $48. For fiscal year 2024, we repurchased approximately $97 million of common stock at an average share price of $38.18 per share. We still have approximately $106 million remaining in our authorized share repurchase program. Total loan originations for investment were $2.5 billion for the three months ended June 30, 2024, up approximately 11% from the same period a year ago. Strong originations were offset by higher repayments across the majority of real estate backed lending categories. Ending balances for our multifamily term loans and commercial real estate specialty loans declined by approximately $122 million and $31 million respectively in the fourth quarter. We continue to reduce our auto, consumer and select real estate backed loans to tactically manage our interest rate and credit risk. Average loan yields for the three months ended June 30, 2024 were [8.55%], down 10 basis points from 8.65% in the prior quarter and up 104 basis points from the corresponding period a year ago. Average loan yields for non-purchase loans were 8.11% and average yields for purchase loans were 16.59%, which includes the accretion of our purchase price discount. The prepayment of an FDIC acquired loan increased the Q3 2024 average loan yield by 8 basis points. Excluding one time items in the fiscal third quarter of 2024, organic non-purchased loan yields declined by 4 basis points, reflecting a focus on loan verticals that come with compensating non-interest bearing deposits. New loan interest rates were the following; single-family mortgages 8.1%, multifamily 8.5%, C&I 9% and auto 10.4%. Our commercial real estate loans continue to perform well. As we've discussed previously, the structure, duration and exit strategies for commercial specialty real estate loans are significantly different from traditional CRE term loans than most other banks originate and hold. The low loan-to-value and senior structure we have in place for an overwhelming majority of our commercial specialty real estate loans provides with significant downside protection in the event of a deterioration of the borrower's ability or willingness to repay, the valuation of underlying properties or construction project delays. Our CRESL loans or floating rate with contractual maturities generally between two and three years compared to fixed rate loans wit contractual maturities of seven or longer for most commercial real estate loans. Of the $5.1 billion of commercial specialty real estate loans outstanding at June 30, 2024, multifamily was the largest segment representing 37% while hotel and retail represent 21%. On a consolidated basis, the weighted average loan to value of our CRESL portfolio was 40%. Our retail and office segment of our commercial specialty loan book is well secured with weighted average loan to values of 46% and 35% respectively. We have very little office exposure in our commercial real estate specialty loan portfolio with ending balances equal to $302 million or 6% of the total CRESL portfolio. Of these loans secured by office properties, 54% are A notes or note on note structures all with significant subordination with some having recourse to funds or cross collateralization with other asset types from fund partners and mezzanine lenders. Non-performing loans in our commercial specialty real estate portfolio remain unchanged at approximately $26 million, representing 50 basis points of our total book outstanding. These are two loans, a condo building in New York for $15 million and a student housing building in Berkeley for $11 million, which make up the entire non-performing commercial real estate loan portfolio. We do not anticipate incurring a material loss on either of these loans. Non-performing loans in our multi-family mortgage portfolio were approximately $35 million at June 30, 2024, down $3.5 million linked quarter. Of the $35 million, there is one loan on an assisted living property of $25 million that has been reserved for more than a year. The rest of the multifamily term loans are for properties located in California and across the US with recourse and personal guarantees. The average loan to value of our non-performing multifamily mortgages is approximately 57%. We do not expect to incur material loss at any other multifamily loans currently categorized as non-performing. We closed of two loan portfolios with a UPB of $1.25 billion from the FDIC in December 2023. Ending balances decreased by $12 million since March 31, 2024. We do not have any prepayments resulting in discount accretion this quarter in the loans we purchased from the FDIC. All loans purchased from the FDIC are current. Non-performing single family mortgage loans decreased from $51 million at March 31, 2024 to $46 million at June 30, 2024. The weighted average loan-to-value of our non-performing, single family mortgage portfolio was 55% as of June 30, 2024. Given that home values continue to increase in the majority of markets where properties are located, we do not foresee much loss content, if any, in our delinquent single family mortgages. We increased deposits by $256 million in the fourth quarter and by $2.2 billion in fiscal 2024. Demand, money market and savings accounts representing 95% of total deposits at June 30, 2024 grew at 16.5% annualized. We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 62% of total deposits, commercial cash, treasury management and institutional representing 18%, commercial specialty representing 10%, Axos Fiduciary Services representing 6% and Axos Securities, which is our custody and clearing business, representing 4%. Total non-interest bearing deposits were approximately $3 billion, up $220 million quarter-over-quarter. Our balance sheet remains relatively neutral from an interest rate risk perspective given the shorter duration variable rate nature of our loans and the granularity and diversity of our consumer, commercial and securities deposits. As of June 30, 2024 approximately 69% of our loans were floating, 25% were hybrid arms and 6% were fixed. Term deposits were only 4.8% of total deposits at quarter end, providing us flexibility to adjust interest cost if and when rates decline. For the quarter ended June 30, 2024, our consolidated net interest margin was 4.65% while our banking business net interest margin was 4.68%. Our consolidated banking business NIM remains above our guidance of 4.25% to 4.35% despite holding excess liquidity due to strong deposit growth and elevated levels of loan repayments. When we announced the FDIC loan purchase in December 2023, our expectation was that, the transaction would boost our net interest margin by 35 to 45 basis points. One caveat was that any loan prepayments would accelerate the recognition of the purchase discount, boosting our net interest income and net interest margin in the period that the prepayments occurred and reducing both in future periods. Given the prepayments in this portfolio, we now expect our net interest margin benefit to be 30 to 40 basis points for fiscal year 2025. We break out the average balances and loan yields for the purchased and non-purchased loans in our supplement schedules provided as an exhibit to the press release for readers to separate the impact of the loan purchase on net interest margin. Total ending deposit balances at AAS, including those on and off Axos' balance sheet, were relatively flat compared to prior quarter. The rate of decline has troughed and we believe that the pace of cash sorting at AAS has stabilized at or near the bottom, representing 3.3% of assets under custody at June 30, 2024 compared to the historical range of 6% to 7%. We are focused on adding net new assets from existing and new advisors to grow our assets under the custody and cash balances. In addition to our Axos securities deposits on our balance sheet, we had approximately $550 million of deposits off balance sheet at partner banks. Non-interest expense increased $7 million linked quarter, driven by increased salary and benefits, professional service expenses, advertising and promotional expenses and higher FDIC fees. We continue to selectively add talented leaders and team members across various business and functional units to support our existing and future growth initiatives, particularly in treasury management, sales, products and operations where we saw nice growth in non-interest bearing deposits. Some of the elevated professional service expenses pertaining to consulting and legal fees were for specific projects and are not expected to reoccur. We expect the growth in marketing and promotional expenses to moderate given our elevated level of excess liquidity. Our ongoing investments in front and backend systems, product reaches and service offerings and other enterprise software and systems will further optimize our processes and capabilities. We migrated all existing small business deposit customers to our Universal Digital Bank in June. This platform transition provides a better user interface and more self-service capabilities to small business deposit customers that were not available in the prior platform. We continue to add enhancements in UDB to leverage data we have on existing and prospective consumer clients in order to further drive cross sell of banking, lending and security services. Feedback on our white label RIA banking from introducing broker dealers has been encouraging. We will refine the platform based on our feedback to ensure that we have the features and ease of use that will drive adoption and usage once we roll this out to all existing and new custody and clearing clients. Axos Clearing, which includes our correspondent clearing and RIA custody business continues to make steady progress. Total deposits at Axos Clearing were $1.3 billion as of June 30, 2024, roughly flat from where they were at March 31, 2024. Of the $1.3 billion of deposits from Axos Clearing, approximately $750 million was on our balance sheet and $550 million held at partner banks. Net new assets from the custody business increased by approximately $256 million in the fourth quarter. We had positive net new asset growth in our custody business in every month since March 2024. Total assets under custody were $35.7 billion at June 30, 2024, up slightly from $35 billion at the end of the March quarter. The sales team continues to make solid progress on-boarding assets from new advisory firms, offsetting the decline in some of Axos Advisory Services' historical turnkey asset management clients. The pipeline for new custody clients remains healthy and we expect continued AUM growth in Axos Advisory Services. From an operational perspective, we have identified dozens of straight through processing and system implementation improvements that we are starting to implement. We believe that sustained new asset growth, a normalization in cash balances and operational productivity initiatives will drive positive operating leverage in our clearing and custody business in the medium to long term. I'm pleased with how we performed in fiscal 2024 from a growth risk management and capital allocation perspective. We are well positioned to maintain net interest margin and returns above our long term target in fiscal 2025. Our asset based lending philosophy with conservative loan to values and prudent structures coupled with our strong capital and liquidity put us in a favorable position. As we continue to evaluate various organic and inorganic growth initiatives, we will remain opportunistic with respect to capital deployment. I firmly believe that our prudent investment in the businesses, systems and processes and people that we've made will generate attractive future returns for our shareholders. Now I'll turn the call over to Derrick who'll provide additional details on our financial results. Derrick Walsh Thanks, Greg. To begin, I'd like to highlight that in addition to our press release an 8-K with supplemental schedules was filed with the SEC today and are available online through EDGAR or through our Web site at axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details. Our loan growth outlook is consistent with what we have guided to in recent quarters. We believe that we will be able to grow loan balances organically by high single digits to low teens year-over-year for the next few quarters, excluding the impact of the loan portfolio purchased from the FDIC or any other potential loan or asset acquisitions. Our ending loan balances will continue to be impacted by the pace and timing of payoffs in any given quarter. Demand in our ABL, lender finance and capital call lines and select C&I lending categories remain solid where we continue to manage our credit and interest rate risk in jumbo single family mortgage, multi-family, CRESL and small balance commercial real estate, auto and personal unsecured lending businesses. Our loan pipeline remains solid at $1.9 billion as of July 26, 2024, consisting of $270 million of single family residential jumbo mortgage, $58 million of gain-on-sale mortgage, $26 million of multifamily and small balance commercial, $26 million of auto and consumer and $1.5 billion across the broader commercial categories. Our provision for credit losses was $6 million in the three months ended June 30, 2024, matching our provision for credit losses in the corresponding period one year ago. Our allowance of credit losses to total loans held for investment was 1.34% compared to 1% at June 30, 2024. We remain well reserved relative to our low historical and current credit loss rates. Non-interest income was approximately $31 million for three months ended June 30, 2024, down marginally from the $32.7 million in the corresponding period a year ago. Higher mortgage banking and service rights income and higher advisory fees from our custody business were offset by lower broker dealer fee income and prepayment penalty fees. Based on our loan growth and our return outlook, we expect to build additional for excess capital. Our priority for excess capital remain organic loan growth and investments in new businesses and operational and technology initiatives. We will continue to evaluate opportunistic stock buybacks and accretive asset or business acquisitions. With that, I'll turn the call back over to Johnny. [Operator Instructions] Our first question is coming from David Feaster from Raymond James. David Feaster I wanted to start on the deposit side and touch on some of the deposit initiatives and where you're seeing success. You talked about some new hires within treasury management. Curious how do you think about deposit growth and some of the other initiatives that you're working on, such as securities business and deposits from there and then business and entertainment management, just other things you guys are working on? Greg Garrabrants So we have been investing fairly significantly in treasury management teams. We're trying to do it in a way that allows us to integrate those teams, so not making hires that are 30 or 40 team hires a quarter like some of the banks that have done as they're repositioning and basically taking advantage of some of the opportunities for some of the movement that's happening in the banking business right now. But we've been adding three and four person teams that are deposit focused, very operating deposit focused. Also, as our loan portfolio continues to evolve into more C&I related loan categories, including fund finance, those loans are generating higher levels of operating deposits as well. So we've had to add teams that are focused on treasury management product and delivery and those sorts of folks. So that's what's going on there. I'll stop if there's anything you want to follow-up on there. David Feaster And you saw a lot of growth on the consumer direct side. I'm curious how pricing is trending? Just I guess, broadly on the funding side. Hearing some others talk about potential improvements or at least stabilization in funding costs, especially at the top end and maybe start to reprice some deposits lower? Just kind of wanted to get a sense of how funding costs are trending from your perspective. Greg Garrabrants We see that too. We definitely think they're trending down a bit. We've been able to cut our rates a little bit, and we're definitely not seeing as much pressure. There may be a variety of factors as to why, but I do agree with that general statement that you had. David Feaster And just kind of maybe a bit high level. You're very forward-looking and constantly leveraging technology in some pretty neat ways. I guess, first, what's the early feedback on the UDB rollout? And then AI is obviously kind of a buzzword these days and a huge focus. Curious, what are some opportunities that you guys may have with that to whether leverage across your existing footprint or maybe ways that you can deploy that into new verticals that maybe have been less attractive historically? Greg Garrabrants So we've had two specific rollouts. One was the conversion of our small business clients onto UDB and that's gone very well. They're really enjoying the platform. We're getting some cross sell on the consumer side now that those platforms are together and we're seeing good account growth there. That's always been a steady, well -- good cost of funds, relatively small accounts, but quite a lot of diversity, so that's gone well. On the white label rollout, we've done that with a selected group of the RIA firms. They generally have liked what they've seen. There's a one touch SBLOC product in there. There's also a variety of complexity with respect to where we are in the spectrum of getting access to those clients. In some cases, we have a client that's a firm, that's a TAM, that has other firms, which are clients of our clients, which then have end clients. We're making this not only about banking products but more about cash management and then about facilitating transactional capabilities and ease of operations. And so there's a lot of positive feedback and a lot of excitement. And I'd say, sign ups are going pretty well but it's still early to say if that's going to result in a material amount of deposits, although, I think certainly it's helping ease operational burdens over time from a document delivery perspective and essentially -- eventually the ability to have people be able to deposit checks and those kind of things. So there's a lot of change management there, but I am optimistic about where that will go. And then on your question around the AI side of things, there's a number of -- that's a fairly complex question, because obviously there's a lot of different areas that we're currently utilizing some form of AI or working to use it. There's areas where it's been very impactful, such as our utilization and chat bot functionality to divert calls from our call center, that functionality is diverting around 80% of calls right now and resolving those calls satisfactorily. That is the utilization of a vendor that has incorporated artificial intelligence into those answers. So you have a set of vendors that are utilizing artificial intelligence and we're utilizing those vendors and those vendors are point solutions to particular types of issues that the institution has or opportunities the institution has. Copilot from Microsoft utilized across all of our development is also another area. We're seeing other AI tools that are being utilized to speed development. So that's another area. We think there's a lot of opportunity on the software side. There is obviously other opportunities for Gen AI and marketing. And then we have an AI task force that is not only looking for opportunities and spending time working on the broader strategy but then also making sure that when one group is having success in a particular use case for AI that we are bringing that across the board. I guess the final thing I'd say there is that we're doing a lot of work on the underlying data layer and preparation for more robust use of artificial intelligence. So obviously, making sure that you've got your data digitized, organized in the right way and accessible across the board over time is very important. And so we're spending a lot of time on interoperability of our data to make sure that we have strong data governance, data warehouses, things like that, that then AI tools, as they develop, can continue to be laid on top of that data infrastructure. Next question is coming from Gary Tenner from D. A. Davidson. Gary Tenner I wanted to ask about kind of the broker dealer fee income line down a bit this quarter, down year-over-year. Is that sort of the bottoming out of the cash balances? I think you referenced to 3.3% relative to AUC in the quarter. Is that reference to that or are there any kind of rate paid or anything like that? Greg Garrabrants No, we think that's sort of at the relative low point, it certainly is from an historic perspective. It's obviously always possible that it goes down, but it is stabilized quarter-over-quarter. There were some one time items that sort of hit those broker dealer fees this quarter. It's about... Yes, some other fees was about $1.5 million, something like that, or is it a little bit lower? So there were some one time items that kind of came through the broker dealer side. But as I've talked about before, I think it's interesting when you look at how let's just take the AAS side, how much in new assets they've brought in, which is close to like $5 billion but they haven't grown as much, because that business is really cycling through and changing from a TAMP oriented business to a more direct business with underlying RIAs, not because -- we don't like half of those clients, some of them were just losing assets. And so we do expect that to stabilize and continue to grow. We are getting efficiencies out of our operations there but we're also investing a lot in the technology and product. We really do see a lot of opportunities there but there's just a lot of tech and product investment going on right now in both the clearing and the custody side there. So I don't expect it to be a massive grower from a fee income perspective but I do think if we could -- what would make it much better grower is if we can get the TAMP size stabilized, because we are bringing in a lot of assets. The sales team is doing a very good job. It's just that they are -- it seems like they're running in place a little bit, although, we did have some growth over the last two quarters but just not what we'd want it to be. Gary Tenner The follow-up really on the broker dealer question around the cash sorting fees is really some of the industry commentary recently, Wells, BAML, Morgan Stanley talking about their intent to increase sweeping interest rate. So can you talk about kind of the competitive dynamics or potential regulatory impact if there could be any and how that would impact Axos from the fee side as well as any cash balances over in Axos [Invest]? Greg Garrabrants We're not really seeing a lot of that right now. I mean we, obviously, have a pretty open platform. So folks are -- obviously have the ability to move the monies around. And so that's trading cash, it's at a low level and that's really where that is right now. So we're not -- I don't think we have any plans to do anything particular with it. Our next question is coming from Andrew Liesch from Piper Sandler. Andrew Liesch Just a question on the margin here. First of all, your plan to keep that excess liquidity and then if we go -- if not, I mean, it's like resets 9 bps higher or so. Do you think the margin kind of trended down from there? It sounds like you're getting a little more -- that yields are coming down a little bit. Greg Garrabrants Well, yes. I think that's true. But I also think that what we are seeing is that some of the rotation into fund finance, for example, as a product that's grow from a growth perspective that does have lower yields than, let's say, commercial specialty real estate. Conversely, it generates nice offsetting non-interest bearing deposit balances. And so that you saw that a little bit this quarter we had much better non-interest bearing growth, but there was a little compression on the loan yield side. So I do think that that's one dynamic you're seeing. But in general, I would say that spreads are tighter than they've been previously, just in general. Why that is? Maybe it's fewer deals, it's more competition but I do think spreads have declined a bit. So that is something we have to keep in mind as we're looking at what we're doing. Obviously, part of what we're trying to do is continue to expand our treasury management vertical so we get more non-interest bearing deposits. But I do think it's a little bit tougher to get yield than it has been, let's say, in the last calendar year. Andrew Liesch And then on the consumer direct deposit side, it seems like there might be some complexity out of the FDIC about whether these consumer direct deposit channels can still count as core, maybe they might have to count as brokered. I mean, does that impact your strategy going forward? Greg Garrabrants No, not the way we do it. I mean those are direct consumer relationships with respect to for us and they're not sourced in the manner that would implicate that from our perspective. Andrew Liesch And then just one other one from me. Again this last quarter there was a short report on some of the commercial real estate you guys originate. I guess, has there been any like sort of regulatory reach out to you guys? And if there is or even if there hasn't been, I mean would you assist them in any investigation on -- that they might have on maybe on your stock versus general? Right. And there's been other ones over the years but really just kind of that one and that sort of response... Greg Garrabrants Yes. I wouldn't want to comment on any assistance we provide with respect to things like that. I know that there's obviously been the Andrew Left situation that's in the news. And I'm sure that -- obviously, it's a fairly -- people make up as you saw from our response, there's a lot of inaccuracies in there and then there are also trading at high volumes the same day before you can even you can get a response up. So hopefully, looking at those things is something that ends up happening but I can't comment on anything with respect to that, any communications in that regard. I appreciate the revised color on the accretable contribution to margin. I believe in the past you said that the core margin excluding that would be in the 4.25% to 4.35% range. I'm wondering if you have any color kind of putting together some of the comments you had if there's any update on how you're thinking about the core margin range on a go forward basis, as well as how we should be thinking about the incremental impact of rate cuts here? Greg Garrabrants Yes, I think that that's still good guidance roughly. Maybe it will be -- and I think it was, I'd say, 4.31%-ish this quarter or something like that. I think that's not bad guidance going forward. We think that -- obviously, we do have some tailwinds with respect to some hybrid loans that are repricing, but I also think there's some potential headwinds with respect to maybe some yield compression and some rotation in the balance sheet mix to some products that are more lower yielding with higher deposit balances. So that's going to all have to work itself out but I don't think that's bad guidance. Kelly Motta And I know you have a fairly significant floating rate loan portfolio. Can you remind us any swaps you have against that, as well as when rates are cut, how we should be thinking about the repricing on the funding side of things? Greg Garrabrants So what we're contemplating is that we have commercial deposits that are tied to Fed funds and then we also have the ability to cut rates on our consumer portfolio, which is, as we stated on the prepared remarks, not term oriented. So I think the question will be how those rate cuts are absorbed and can we -- are we faster, slower than loan repricing. And I think that's going to be the question. And I think we feel pretty good about our ability to do that, we positioned ourselves that way. But what we have not done in general is go out and do a lot of sort of floating to fixed swapping of our loan book. And part of the reason why is that we have pretty decent movement in our loan book. And so unless you're doing that on the borrower side and the borrower is interested then you're sort of -- you're just taking some gambles on how good you are at estimating the forward curve. And so what we do is we have a good naturally matched off book right now, and we think we will be able to go through that. I think one of the good things is that we do have -- obviously, we have our lower cost funds through all the different channels we discussed. We also have a higher cost consumer deposit base that also we expect will be able to be repriced in a lower short term rate environment. Kelly Motta I appreciate the commentary around capital. Your ratios are strong, you do have a pretty strong loan growth outlook. Just given the run-in the stock price here, can you remind us any of guideposts in terms of valuation or earn back that you guys look to when thinking about engaging in the buyback at the price? Greg Garrabrants We look at it as an NPV on earnings. And so we look at that and we look at it as a relative value with respect to what's out there from an acquisition perspective and what's out there from a loan growth perspective and other operational investments and try to balance that out. So yes, obviously, the stock price is up but earnings are up. It just really is a decision that we make and we utilize. We take our earnings forecasts and we can apply NPVs to them and look at whether capital is best allocated to loan growth or other strategic investments or buybacks. Next question is coming from Edward Hemmelgarn from Shaker Investments. Edward Hemmelgarn Just one -- or a couple of questions dealing with loan growth. I mean, I think you mentioned in last quarter's call that you got a fairly significant amount of repayments early on in this quarter of loans. And that was I'm assuming that was one of the reasons what caused the excess liquidity. Is that what happened? Greg Garrabrants We did have -- I think, we had some loan repayments that we did not expect and they did come a little bit earlier. We also had maybe a little bit better deposit growth than we expected to. So the combination of those two led to excess liquidity relative to our expectations. Edward Hemmelgarn What's the loan climate like right now, I mean, in terms of... Greg Garrabrants I think, I'd it's relatively mediocre in comparison to where it was, let's say, last year. And I think we have a lot of diversity in our book and so we still have good pipeline. So we're still expecting loan growth. But I think that our spreads have definitely tightened and loan growth is just a little bit more difficult. I think there's fewer projects, there's fewer investments going on. And I think maybe some of the other banks have kind of emerged from whatever issues they were dealing with. But look we still expect to have good loan growth. Derrick talked about those targets. Hopefully, we can beat those by some but it is a little bit more difficult. And we're also seeing -- the book continues to have repayments, which is always good. But in some cases they're strategically -- we're strategically allowing that to happen. If you look, for example, to multi-family portfolio where mostly those loans adjust they're mostly all paying off and competitors are refinancing those in six handles for five year durations, that's not that interesting to me. I still want to see -- there's other things I want to see before I start taking 6% and 6.5% five year duration risk. So I think some of this is just letting -- some of it is our own risk management perspective on what we're interested in doing right now, both from a credit and risk perspective -- and rate perspective. And look, I think we're still going to have a good growth. I think this quarter is shaping up to be pretty decent on the loan growth side. But obviously, we have to see if -- it's easy to have prepayments come in and move those numbers around a bit too. Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments. Greg Garrabrants Thank you everybody for your interest and we'll talk to you next time. Thank you. Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Earnings call: S&P Global reports an increase in total revenues of 16% By Investing.com

S&P Global (NYSE: SPGI) has released its financial results for the second quarter of 2024, showcasing a strong performance with a 16% increase in total revenue, excluding the divestiture of engineering solutions. The company's transaction revenue from the ratings division was a standout, surging over 60%, while subscription products across the company saw an 8% year-over-year increase. S&P Global also announced a change in leadership, with CEO Doug Peterson set to retire and Martina Cheung to take over as CEO starting November 1st. The company continues to innovate with a focus on product development, generative AI, and has successfully completed the acquisition of Visible Alpha. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights S&P Global's robust second-quarter performance and optimistic outlook for the remainder of 2024 indicate a strong position in the market. The company's strategic focus on AI and product innovation, coupled with the successful acquisition of Visible Alpha, positions it well for future growth. With the upcoming leadership transition and continued emphasis on sustainability and energy transition, S&P Global is poised to maintain its momentum in the evolving financial landscape. InvestingPro Insights S&P Global (NYSE: SPGI) has not only demonstrated a strong financial performance in their recent earnings report but also exhibits a stable investment profile according to the latest data from InvestingPro. The company has a robust market capitalization of $153.27 billion and maintains a high Price/Earnings (P/E) ratio of 54.7, which indicates investor confidence in its future earnings potential. Notably, the P/E ratio has adjusted slightly lower to 46.87 over the last twelve months as of Q1 2024, possibly reflecting market adjustments to the company's earnings growth expectations. InvestingPro Tips highlight that S&P Global has raised its dividend for 10 consecutive years, showcasing a commitment to returning value to shareholders. Additionally, the company has sustained dividend payments for an impressive 54 consecutive years, which may appeal to income-focused investors. Analysts have also revised their earnings upwards for the upcoming period, suggesting that the company's financial health and growth prospects are recognized positively by market experts. For investors seeking more detailed analysis and additional InvestingPro Tips, there are currently 16 more tips available for S&P Global, which can be accessed by signing up for InvestingPro. Use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, offering a valuable resource for investors looking to make informed decisions based on comprehensive data and expert insights. Full transcript - Mcgraw-hill (SPGI) Q2 2024: Operator: Good morning, and welcome to S& P Global's Second Quarter 2024 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. All participants are in a listen-only mode. We will open the conference to questions and answers after the presentation and 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's second quarter 2024 earnings call. Presenting on today's call are Doug Peterson, President and Chief Executive Officer; and Chris Craig, Interim Chief Financial Officer. For the Q&A portion of today's call, we will also be joined by Martina Cheung, President 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 filings with the U.S. Securities and Exchange Commission, including our most recently filed Form 10-K. 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 press release and the supplemental deck 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. S&P Global delivered an incredible first half in 2024 as the second quarter saw accelerated revenue growth, significant margin expansion, and the highest quarterly adjusted EPS in our company's history. Total revenue increased 16%, excluding the divestiture of engineering solutions. Transaction revenue in our ratings division continues to drive significant outperformance at more than 60% growth. The revenue from all our subscription products across the company also increased 8% year-over-year in the second quarter despite some of the market headwins that are common across our industry this year. We delivered 450 basis points of margin expansion year-over-year and 30% growth in EPS as we captured market demand and contained our expense growth. As you saw last month, we also announced our CEO succession plan which I'll discuss in a moment. We've been cultivating more than just our leaders at S&P Global and we're pleased with the product innovation coming to the market in the second quarter. The June release of CapIQ Pro included significant enhancements, and we launched new benchmarks and commodity insights. We continue to accelerate our deployment of generative AI and launch new capabilities both at the division and enterprise level. We also continue to optimize our portfolio of businesses and products, with Visible Alpha closing in the second quarter and the recent signing of an agreement to divest Fincentric, which we expect to close in the third quarter. We're excited that we get to cover key developments in each of our five strategic pillars this quarter, beginning with our customers. S&P Global rated more than $1 trillion of billed issuance in the second quarter. Growth was diversified across public and private markets, as private market participants increasingly turned to S&P Global for expertise in assessing credit risk. Revenue from rating services in the private markets increased more than 70% year-over-year in the second quarter. We continue to create new products from the combined data sets and solutions of S&P Global and IHS Market to create incremental value for our customers. In the second quarter, we achieved nearly $200 million of annualized run rate revenue synergies. As Chris will discuss in a moment, this puts us ahead of the pace to achieve the $350 million in revenue synergies we're targeting in 2026. It's remarkable that we're able to deliver these strong results despite the well-known market headwinds that continue to impact pockets of our business. Our diverse customer base and broad product portfolio provide for more stable financial performance for the company overall, as headwinds can often be offset by tailwinds. As an example, while renewal rates were slightly lower than last year in market intelligence this quarter, renewal rates were slightly higher than last year in commodity insights. These market dynamics are not unexpected, and the financial impact was largely included in our initial guidance. Despite macroeconomic cyclicality, we continue to find ways to help our customers achieve their goals using our differentiated data and product offerings. This ability to align our product innovation and investment with customer needs was further demonstrated in the second quarter by the acceleration in revenue growth from our private market solutions and our sustainability and energy transition offerings. Turning back to billed issuance, it increased 54% year-over-year in the second quarter. We continue to see tight credit spreads contributing to favorable market conditions. We also saw modest improvement in some of the important macroeconomic indicators, particularly in North America, that have lent strength to the issuance environment. We continue to see particular strength in bank loans and structured finance, along with robust growth in high-yield investment-grade bonds. Refinancing activity was very strong in the quarter as we saw a pull forward of issuance from investment-grade issuers refinancing 2024 maturities, as well as speculative-grade issuers refinancing 2024 and future-year maturities. This leaves some uncertainty around the back half as we wait to see how much of the out-year refinancings get pulled into 2024. This continues to inform our view that the second half will be softer than the first half in terms of billed issuance and transaction revenue in our ratings business. With the timing and likelihood of any rate cuts in the U.S. market still uncertain, our base case still assumes a modest year-over-year decline in issuance in the fourth quarter. Turning to Vitality, newer enhanced products generated $375 million in the second quarter. This represents 11% of our total revenue and an improvement from the 10% we reported last quarter. Key contributors to our Vitality Index are unchanged from last quarter as we see strong demand for CARFAX listings and the CARFAX Banking and Insurance Group. We also see strong growth in energy transition and climate products from our Commodity Insights Division and Sustainable Bonds from Ratings. As you'll recall from last quarter, key contributors from our pricing valuations and reference data, as well as several thematic and factor-based indices, matured out of the Vitality Index at the end of the year. We're encouraged by the continued acceleration and the pace of innovation of S&P Global and look forward to maintaining our Vitality Index at or above the 10% target. As we look to examples of that innovation, a common thread running through many of the products we're bringing to market is our enterprise expertise in generative AI. In the second quarter, we launched ChatAI on Platts Connect. Launched as a new platform combining Platts Dimensions Pro with IHS Connect, the Platts Connect platform provides access to a truly massive amount of data, research, and insights to power the global commodity markets. With the depth and breadth of information in the platform, we new users would need an intuitive way to navigate and find the information that would be critical to their daily workflows. ChatAI is a powerful customer tool developed through a partnership of Kensho and Commodity Insights that uses generative AI models to provide real-time responses to conversational user queries to help them quickly find the necessary data to make informed, faster decisions. In addition to this AI-powered interface, Commodity Insights continues to bring new benchmark Price Assessments to market. Our Platts team introduced five daily Price Assessments for beef and four daily Price Assessments for poultry, as well as a new report with up-to-date coverage of the protein's market. These continue to broaden and strengthen our position in agriculture commodities. We also continue to scale new functionality in our differentiated energy transition offerings. We significantly enhanced our global integrated energy model in the second quarter, which now enables modeling and scenario building for energy demand in over 140 countries using deep data sets going back more than 30 years. With our enterprise focus on artificial intelligence, we've continued to develop internal tools, including new functionality in the S&P Spark Assist platform we introduced earlier this year. Approximately 14,000 of our people are using Spark Assist internally after just a few short months. As we shared with you last quarter, this platform is designed to be cost effective, vendor agnostic, highly scalable, and secure by design. By encouraging collaboration across the enterprise, we're able to quickly iterate on time-saving use cases and share those developments across the company. We're already seeing users leverage S&P Spark Assist to optimize code, rewrite configuration files for software migrations, and summarize complex documents. We've also used it to aggregate and digest feedback and ideas that we receive through our employee engagement surveys in town halls, empowering leadership to more effectively act on what matters the most to our people. We believe this crowd-sourced approach to developing tools shortens the time to discover and develop new applications using GenAI models. Leveraging LLMs from multiple sources allows us to benefit from the rapid innovation taking place across the technology ecosystem without being locked into a single vendor. Lastly, the June release of CapIQ Pro brought powerful enhancements to the platform that we believe will strengthen our competitive position and create meaningful value for our customers. We fully integrated the fixed income data from IHS market, which brings data on more than 19 million government agency and corporate fixed income securities and makes it readily available through the CapIQ Pro platform. This was a tremendous undertaking made possible through the merger that will benefit our existing customers and help potential customers more easily see the incredible value in CapIQ Pro. The June release also included a complete reimagining of the charting and visualization capabilities within CapIQ Pro, deploying the technology and expertise that came to us through the Chart IQ acquisition. Back to the theme of generative AI. We also introduced transcript summarization within CapIQ Pro. This new tool was built organically and not only provides a quick summary of earnings calls, it also organizes topics and sentiment and empowers the user to immediately click through and find the direct quotes behind the summaries. And it's built on a foundation of Scribe developed by Kensho four years ago. I want to take a moment to discuss an important acquisition that closed in second quarter. Visible Alpha is well known and highly respected among both our customers and our investors. And we're excited to see the progress the market intelligence team has already made since closing the deal in May. Visible Alpha compiles highly detailed financial models via direct feed from over 200 contributing brokers. With over 6,000 contributing analysts including most of the analysts joining us on this call, Visible Alpha has the most detailed and comprehensive consensus estimates available anywhere in the world. We frequently hear from customers that they could not do their jobs without it. S&P Global's position as a trusted partner across the financial markets is opening doors for visible health and private equity, banking and consulting, and driving further penetration and asset management and research. Leveraging the strength of S&P Global's relationships, brand and commercial teams, we've already seen a 5% increase in number of contributing brokers in just the last three months. In addition, we've generated over 150 sales leads and closed 10 deals already. We've seen numerous opportunities to leverage the Visible Alpha Platform in conjunction with the differentiated datasets throughout S&P Global to create unique, deep sector content. We look forward to sharing new developments in the coming quarters. Now, turning to a very exciting announcement we made in the second quarter that fittingly comes under our four strategic pillars, Lead and Inspire. In June, we announced that I will be retiring from my role as President and CEO of S&P Global effective November 1st. Martina Cheung, the President of Ratings and Sponsor of Sustainable1, will become the 11th CEO of S&P Global since we were listed on the New York Stock Exchange over 90 years ago. We are very pleased to see our succession plan work the way it was designed, with development of strong internal leaders resulting in a unanimous decision from our board of directors. I'm focused on delivering strong results over the next few months as I work with Martina on a comprehensive transition plan before she takes over November. As you might have seen, I'll stay on the board until the next shareholders meeting and on as an advisor until the end of 2025. Martina has already joined the board of directors and is working hard to get ready for November. We will have more to say on the transition next quarter, but it's been wonderful to see the outpouring of support and appreciation for Martina from customers, employees, and shareholders. Turning to our financial results, with strong growth across every division, we continue to meet increasing market demand while maintaining expense discipline. We saw accelerating revenue growth in the quarter, and on a trailing 12-month basis, we have expanded our operating margin by 300 basis points. Now let me turn to Chris Craig, our interim CFO, to review the financial results. Chris, over to you. Chris Craig: Thank you, Doug. We finished the second quarter of 2024 with exceptional performance across the entire company, with three of five divisions achieving double-digit growth in both revenue and operating profit. Reported revenue grew by 14% year-over-year to a record $3.5 billion in the second quarter. And while parts of our market-driven businesses benefited from the tailwinds Doug highlighted earlier, we are also seeing strong performance across strategic investment areas, which I'll touch on shortly. Adjusted diluted earnings per share increased 30% year-over-year to $4.04. This was driven by a combination of our strong revenue growth, margin expansion of 450 basis points, and a 2% reduction in fully diluted share count. Now, turning to strategic investment areas, where I'm pleased to report we saw growth accelerate across all initiatives. Sustainability and Energy Transition revenue grew 23% to $87 million in the quarter, driven by strong demand for Commodity Insights Energy Transition Advisory Services and subscription offerings. Our Sustainable1 team continues to expand the company's sustainability and energy transition offerings, while leveraging cross-divisional industry expertise to provide our customers with broader solutions. In Private Market Solutions, revenue increased by 26% to $134 million. Growth was driven by debt, bank loan, and CLO ratings, and demand for our private market solutions within market intelligence, which includes products like Qval and iLEVEL. For revenue synergies, we exited the second quarter with an annualized run rate of $199 million. During the quarter, we recognized $54 million in revenue synergies, which came from a mix of cross-sell activity and revenue generated from new products. Turning to our divisions, Market Intelligence revenue increased 7% in the second quarter. Desktop grew 6% or 2% when excluding the impact from the Visible Alpha acquisition. Growth in the quarter was impacted by the continued softness in the financial services end market that we've highlighted previously. Nevertheless, we're focused on adding value for our customers by improving performance and introducing new content and capabilities, including the recent integration of markets' fixed income securities data. Data Advisory Solutions grew 6%, driven by expanded coverage and continued investment in the high-growth areas of our market data and valuations and industry and company data product offerings. Enterprise solutions grew 11% as loan platforms such as ClearPar and our primary markets group were beneficiaries of stronger equity and debt capital market activity in the quarter. For modeling purposes, it's important to note that the enterprise solutions business line includes Fincentric. Credit and risk solutions grew 5% due to demand for our RatingsExpressed and RatingsDirect distribution platforms in North America and Europe. RatingsDirect is also benefiting from user adoption of Capital IQ Pro. Adjusted expenses increased 6% year-over-year, primarily driven by an increase in compensation and the impact of the Visible Alpha acquisition. Partially offset by reduction in expenses associated with headcount and outside services. Operating profit increased 9% and operating margin increased 60 basis points to 32.9%. Trailing 12-month margins expanded 90 basis points to 33.3%. Now turning to Ratings where we saw exceptional revenue growth of 33% which exceeded our internal expectations. Transaction revenue grew by 63% in the second quarter, fueled by increased bank loan and bond issuance. Non-transaction revenue increased 9%, primarily due to an increase in annual fee revenue and an increase in new mandates, particularly from the return of high-yield issuers. Adjusted expenses increased 8%, driven by higher compensation, including incentives, as well as investments in strategic initiatives. This resulted in a 52% increase in operating profit and an 810 basis point increase in operating margin to 65.8%. For the trailing 12 months, Ratings margin expanded 570 basis points to 60.9%. And now, turning to Commodity Insights, revenue increased 12%, driven by strong performance across all business lines, with price assessments and Energy and Resources Data and Insights both growing at double digits. Notably, this marks the fifth consecutive quarter of double-digit growth in our Price Assessments business. Price Assessments and Energy and Resources Data and Insights grew 11% and 12% respectively. Both businesses benefited from strong performance in crude and refined products. In addition, we continue to see favorable commercial conditions across both segments, including strong subscription sales across Middle East, Africa, and Asia. Advisory and Transactional services had an exceptional quarter, with revenue growing 32% or 27% when excluding the impact from the World Hydrogen Leaders acquisition. This is driven by strong trading volumes across key sectors in global trading services and a pickup in consulting activity, particularly for energy transition-related initiatives. Upstream Data and Insights revenue grew by 5% year-over-year, benefiting from meaningful contribution from organic investments, including our Upstream Energy Transition offerings, as well as continued improvement in retention rates. For the full year, we expect low single-digit growth for Upstream. Adjusted expenses increased 8% due to higher compensation costs, ongoing investments in growth initiatives, and the acquisition of World Hydrogen Leaders. Operating profit for Commodity Insights increased 16%, and operating margin improved by 170 basis points to 47.3%. Trailing 12-month margin increased by 130 basis points to 46.8%. Now, turning to Mobility. Revenue increased 8% year-over-year, or 9% when excluding the impact of the divestiture of the after-sales business. Dealer revenue increased 11% year-over-year, driven by new business growth in products such as new car listings and continued success in CARFAX. Manufacturing declined modestly by 1%, driven by a decrease in one-time transaction revenue, particularly in our recall business, which can fluctuate based on the level of recall activity in any given period. This was partially offset by another strong quarter of subscription sales. Financials & Other increased 13% as the business line benefited from historically high underwriting volumes. Adjusted expenses increased 7% due to planned investments in strategic growth initiatives, partially offset by a reduction in incentive compensation expense. This resulted in operating profit increasing by 10% for the quarter, and operating margin improving by 60 basis points to 40.9%. Trailing 12-month margin contracted by 10 basis points to 38.8%. Now, turning to S&P Dow Jones indices. Revenue increased 12%, primarily due to strong growth in asset-linked fees, which benefited from higher AUM and growth in our data and custom subscriptions offerings. Asset-linked fees were up 16%, driven by market appreciation and inflows. Impressively, the Global ETF market saw record inflows in excess of $300 billion on a trailing 12-month basis, highlighting the continued shift to passive investing and opportunities for future growth. Exchange-Traded derivatives revenue grew 4%, primarily driven by strong volumes across our equity complex products. Data and custom subscriptions increased 6% year-over-year, driven by new business growth in end-of-day contracts and real-time data. Expenses increased 4% year-over-year, driven by investments in strategic growth initiatives and an increase in incentive compensation expense. Indices operating profit increased 15% and impressively operating margin expanded by 210 basis points to 70.7%. On a trailing 12-month basis, indices operating margin expanded by 150 basis points to 69.8%. Looking at the quarter holistically, we saw broad strength across the business. Market factors like issuance volumes and asset price appreciation contributes to strong growth in our market driven businesses. And our subscription business lines benefited from the continuing investment in our differentiated data, content, and workflow capabilities. We are pleased with the profitable growth delivered by the combination of strong customer demand and disciplined execution in the quarter. And with that, I will now turn it back to Doug to discuss our outlook for the second half of the year. Doug? Doug Peterson: Thank you, Chris. Our financial guidance assumes Global GDP growth of 3.3%. U.S. inflation is 3% and an average price for Brent crude of $84 per barrel. We continue to see fluctuations in the market expectations for rate cuts. Though our base case still assumes there'll be one rate cut in the U.S. in the second half of 2024. While the macroeconomic indicators that help inform our guidance are very similar to last quarter, we're significantly raising our financial outlook for the full year. We're increasing our build issuance forecasts for 2024 by nearly 20 percentage points. Given the dramatic increase in issuance in the first half, we now expect growth in build issuance to be approximately 25% compared to our prior range of 6% to 10%. In our most recent study of debt financing, we examined the volume of debt set to mature over the next several years. We're presenting this data in a slightly different way than we have in the past in the hopes it's more easily interpreted by analysts and investors. Here, we compare the amount of S&P global rated debt set to mature over the next six months, 18 months, and so on out more than seven years as of July 1st in each of the last three years. As you can see, there is very little debt set to mature over the second half of 2024, though this is consistent with what we've seen in prior years. On a cumulative basis, the maturity walls coming over the next several years gives us confidence in the long-term strength of our business. Though the timing of that refinancing activity remains difficult to predict on a quarter-by-quarter basis, all of these factors impact our new full-year guidance calling for higher growth, stronger margins, and substantial generation of free cash. This slide illustrates our current guidance for GAAP results. We're once again raising our enterprise outlook for the full year on all headline metrics given the strength of the second quarter and our improved outlook for the second half. We now expect revenue growth in the range of 8% to 10%, adjusted operating margin expansion of 125 basis points to 175 basis points, and adjusted diluted EPS in the range of $14.35 to $14.60, representing a $0.50 increase from our prior guidance. Additional details on our consolidated financial guidance can be found on our press release, but I also wanted to note that we've increased our guidance for adjusted free cash flow to approximately $4.7 billion, up $200 million from our prior guidance, and reflecting the strong results year-to-date. Moving toward division outlook, our revenue guidance for Market Intelligence is unchanged, and we continue to expect revenue growth in the range of 6% to 7.5%. This guidance reflects the contribution from Visible Alpha, which closed in May, largely offset by the loss of revenue following the divestiture of Fincentric later this quarter. Importantly for models, Visible Alpha is reported in the desktop business line for Market Intelligence, which should accelerate on a reported basis in the second half, while Fincentric is reported in the enterprise solutions business, which should see a corresponding deceleration in the second half following the divestiture, particularly in the fourth quarter. We're raising our outlook for Ratings Business substantially, following the second quarter performance. We still expect the second half to be softer than the first, reflecting normal seasonality, but exacerbated by the level of pull forward that we believe took place thus far this year. For the second half, the favorable market conditions and improved visibility and form a slightly more optimistic view around the third quarter in a modest year-over-year decline in both build issuance and ratings transaction revenue in the fourth quarter. Our revenue guidance for commodity insights is unchanged. We're slightly lowering and tightening the guidance range from ability revenue growth. As we noted last quarter in this morning, the recall business has been abnormally soft year-to-date, and we expect that softness to continue in the second half. The recall business is non-recurring and difficult to predict, but the lowered outlook means that the remainder of the revenue is more predictable, recurring subscription, which gives us confidence in the tighter range of 8% to 9% revenue growth compared to the prior range of 8.5% to 10%. We've also seen significant outperformance in our indices division in the first half, and we're raising our guidance again. We now expect revenue growth in the range of 10% to 12%, up from 9% to 11%. Importantly, this guidance assumes market levels are essentially flat from levels at the end of June. Turning to our margin outlook, for Market Intelligence, while the revenue impacts from Visible Alpha and Fincentric, are largely offsetting, the net impact is expected to be modestly dilutive to margins in 2024. As such, we're lowering the margin guidance for Market Intelligence to a range of 33% to 34%. For Ratings, we're raising the margin guidance by 100 basis points to reflect the strong revenue outperformance, partially offset by higher expected incentive compensation expense. Commodity Insights margin guidance is unchanged. For Mobility, given our expectations for softer revenue from the recall business, we now expect margins in the division to be slightly lower in the range of 38.5% to 39.5%, down 50 basis points from prior guidance. Our margin expectations for Indices are unchanged despite the higher expected revenue growth as we plan to continue investing to position the business for growth through 2024 and beyond. With that, I'd like to invite Martina Cheung, President of S&P Global Ratings and Executive Lead for Sustainable1, to join us. I'll turn the call back over to Mark for your questions. Mark? Mark Grant: Thank you, Doug. [Operator Instructions] Operator, we will now take the first question. 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. Congrats to both Doug and Martina. I just wanted to kick off with MI. As we think about, I was wondering if you could talk about the pipeline there. Also, if you could talk about what you're seeing on the sales cycle trend. And how do we think about the Desktop business going forward? Obviously, we see the acceleration from Visible Alpha, but just underlying growth in that business with getting all the info data there? Thanks. Douglas Peterson: Thank you, Ashish. This is Doug. First of all, thank you for the question. And let me start by mentioning that the softness that we saw was something that we expected. As you know, there were over 60,000 seats that were eliminated from banks and investment banks since the COVID cycle. We saw softness as the interest rates had gone up. They spiked in 2022 under with underlying inflation. We do see some of that business starting to come back. You saw very strong debt capital markets, equity capital markets. Some of the investment banks signaled that there was going to be a return of M&A. But we do see that within the large banks, so basically, the sell side that there is some talk about vendor consolidation, there's a slowdown in the negotiation of contracts. So let me talk about a few of the ways we think about it. First of all, as you know, we have enterprise contracts. The enterprise contracts are not negotiated by seat. They're not negotiated every single year. We see that we have a strong opportunity to bring more and more data to the discussion as people look at vendor consolidation. As we enhance our technology, we improve all of our different products and services that we have. You heard us talk about what we've been doing with the Desktop by enhancing it with new services and new products. But let me turn very quickly to a couple of the products themselves. As the Desktop was enhanced with Visible Alpha. Visible Alpha is a must have product and service. As I said in the prepared remarks, probably everybody on this call is using it. We've seen a great increase in people coming to the product. When we closed the deal, we had 180 contributing brokers. Now we have over 200. We also saw that with the new release of the Desktop, a really good results from the new visualization tools that we added. Let me mention one other sub segments on Enterprise Solutions, which grew at 11%. That also was very much driven by what we saw happening with the capital markets improving. So we see, many different aspects to Market Intelligence. The last thing I want to mention is we did reiterate our guidance, which is in line with what we said earlier this year. Thanks for the question. Operator: Thank you. Our next question comes from Manav Patnaik with Barclays (LON:BARC). Your line is open. Manav Patnaik: Thank you. If I could just follow up on that in Market Intelligence. Firstly, could you help us with the annualized contribution both from Visible Alpha and I guess what's lost from Fincentric? And just along those lines, what we should anticipate in terms of your continued participation in this vendor consolidation? And are there other things like Fincentric that could be cleaned up there as well? Douglas Peterson: Yes, let me start with what we believe is really important for us is our capital allocation model. As we believe that it's really important to continually be looking at our portfolio to ensure that everything that's in part of S&P Global contributes to the whole, that helps the enterprise be stronger, that we see opportunities for some sort of consolidation either through technology, through sales cycles, through product research, etcetera. So we believe that this was both of these transactions, Visible Alpha coming in and Fincentric going out, were both really valuable overall for S&P Global. Now when you think about the modeling that I mentioned on the prepared remarks, Visible Alpha roughly adds about 1% of growth and Fincentric basically takes out about 1% of growth. But as I mentioned also, they're in different segments. The Visible Alpha is in the desktop segment and the Fincentric is in the enterprise solution segment. So you're going to see a slightly different growth rate in each of those based on the Visible Alpha coming in and Fincentric going out. To the second part of your question about vendor consolidation or discussions with the different organizations, we bring incredible strength because of the data and the analytics we have across the entire platform. Not only do we have the traditional market intelligence and financial services, desktop and other solutions, we also have information, for example, which we've been investing in private credit, private markets. We have a really strong sustainability platform which is becoming more and more important. So we can bring data services, data sets from across S&P Global that make it very relevant to any discussion we're having as people look at consolidating their data relationships. Mark's going to add to this. Mark Grant: Yes, Hey Manav, just to make sure we're really clear here, the percentage points impact that we're talking about were to market intelligence revenue growth, not to the company as a whole. Thanks. Operator: Thank you. Our next question comes from George Tong with Goldman Sachs (NYSE:GS). Your line is open. George Tong: Hi, thanks. Good morning. You raised your build issuance outlook from 6% to 10% to about 25% for the full year. In terms of issuance category, where did your outlook for the year change the most for build issuance and what were the drivers? Martina Cheung: Hi, George. It's Martina. Thanks so much for the question. I would say we saw growth in the build issuance outlook for the full year across all categories, but I would say accelerated growth in high yield and bank loan ratings. We did see very strong issuance in the first half in investment grade, but that was characterized more by an acceleration in Q1, slightly tapering off in Q2. A lot of that refinancing activity in investment grade was done last year and in Q1. So a bit of a taper off there overall. Some more modest expectations for investment grade for the full year. High yield at BLR, very strong growth. I would say maybe a couple of sub-asset classes to highlight. CLOs is expected to have a very strong year from an issuance standpoint, for example, and a number of other sub-asset classes in structured finance that are seeing quite a bit of growth, for example, data center securitizations. Hope that helps. Thanks for the question. Faiza Alwy: Yes. Hi. Good morning. I wanted to ask about the index business and what you're seeing there specifically with data and subscriptions. I know at one point we had talked about sort of growth accelerating here. So just curious on what type of trends you're seeing generally in the index business and on the subscription side. Doug Peterson: Yes. So let me start with what we're seeing thematically. As you know and as Chris mentioned in the prepared remarks, we've seen massive flows from active to passive. That continues to be a trend. And within that space, a lot of the flows go to U.S. equities. And within U.S. equities, S&P, Dow Jones indexes picks up the bulk of that. So you've seen that coming through last quarter in terms of volume. There was also some increase in the value, the AUM value. So we benefited from that with the 16% growth in the asset linked fees. As some of those fees are going to be seen on a lagged basis. So we expect that we built into our guidance the expectation that the market was going to remain flat for the rest of the year. But we would see some increases, those average flows continue to come through the rest of the year. In terms of themes, we continue to see a lot of interest in different types of asset classes. So within even the asset class of the S&P 500 large cap U.S., we've had new partnerships with some large asset managers with new types of S&P 500 funds. The S&P 500 quality, the S&P 500 economic ETF. We also see a lot of innovation around fixed income and credit through the Cboe iBoxx emerging market bond index. We've also seen some really interesting new products coming out that bring in mid-cap using our indices, the Vanguard S&P Global 1200 ADR. So across the board, we're seeing a lot of new interest, asset classes. Another one which we want to mention very briefly relates to the private markets and private credit. This is an area where we have a lead. We already have strong positions in private credit indices. And we'll be building that out much more as we take advantage of this asset class, which has a lot of interest in the market. Thanks, Faiza. Operator: Thank you. Our next question comes from Heather Balsky with Bank of America (NYSE:BAC). Your line is open. Heather Balsky: Hi, thank you very much. I was hoping to ask about investment spend, especially given the success you're seeing in terms of your strategic investments. How are you thinking about the pace of spending going forward, especially as issuance continues to recover? Any changes in philosophy there? Douglas Peterson: Heather, let me take that. And as you know, we always believe that it's important for us to have investment in new products, new areas, new services. You saw the benefit of many of those this quarter. Our Vitality Index, which is revenue that we start the beginning of the year with about a 10% approach to what we want to see for the percentage of our revenue, that grew this quarter to 11%. That's a very important indicator for us to see growth in the innovation, the investments we're making. We've been investing in a couple of key areas. Private markets is one. Another relates to Sustainability & Energy Transition. Artificial intelligence is one, and there's many other subcategories that are important for us. We know that the ability to continue to have loyal customers, the ability for us to generate positive pricing is always going to be based on the value that we bring to our markets, the value we bring to our customers. So you're going to see us continuing to set aside capital to invest. And fortunately, we've been very successful in the last few years. That doesn't mean that we are successful with everything we do, but we're very pleased with the track record we have. Thanks so much for the question, Heather. Operator: Thank you. Our next question comes from Toni Kaplan with Morgan Stanley (NYSE:MS). Your line is open. Toni Kaplan: Thanks so much. I wanted to ask about AI. You had a very early head start when you bought Kensho, but maybe just talk about how you're viewing the competitive position now. Have competitors closed the gap by working with Microsoft? And also maybe just talk about your opportunity to use your proprietary data within new AI products. Thanks. Douglas Peterson: Thanks, Toni, for that. I'm going to start and then hand it over to Martina, who can give some practical applications. As you know, when we first bought Kensho six years ago, we had a vision that artificial intelligence tools were going to be used by people like us on this call to enhance our decision-making, to make us -- allow us to make decisions faster with more data. And we're seeing that play out, especially now that artificial intelligence has moved into generative AI. As you know, we have in place a system of governance, where we have a Chief AI Officer for the Company. We have an AI Council. We have a system towards ensuring that we have the right kind of training across the entire company. We have an accelerator if we see a really good opportunity that we want to move fast on. But really at the foundation of everything is an open architecture model. We've built something called S&P Spark Assist, which is now used by over 14,000 users. S&P Spark Assist allows us to bring our models into our model garden and use it as a copilot. It means that we can be agnostic towards which model is best. We think that it's bringing us all kinds of new opportunities. You saw this quarter, we announced the launch of Chat AI on Platts Connect. This is a really good product. I actually use myself this quarter the transcript summaries on CapIQ Pro. Those are really valuable. But I think Martina can add some to this with applications that she's seeing on the ground in Ratings. Martina Cheung: Yes. Great. Thanks, Doug. Thanks for the question. I would say in Ratings that we've had, like most other organizations, dozens of pilots underway. We're very excited overall about the potential for GenAI to improve quality, to create efficiency and time to market for our core Ratings business. And one example I thought would be interesting is what you've mentioned in the past that we had focused in on a tool to help our CLO credit analyst with making sense of very complex CLO documentation. And that proved to be fortuitous, given the very, very busy year that we've seen so far in CLOs. And we're excited about this tool which we're deploying out into production for our analysts over the second half of the year and its ability to help save time for the analysts so they can focus in on the important jobs of getting the ratings done. Just other minor point for us, more major point for Market Intelligence, but as a rating agency and with a very large pool of credit analysts using RatingsDirect on CapIQ Pro, we're super excited about the work that Market Intelligence is doing to build out a GenAI interface on RatingsDirect and CapIQ Pro, and we've been helping them do that as well. Thanks for the question. Douglas Peterson: Thanks, Toni. Operator: Thank you. Our next question comes from Alex Kramm with UBS. Your line is open. Alex Kramm: Hey good morning everyone. Just wanted to come back to Market Intelligence and the performance there. And I'm particularly interested in the cyclical upside and downside. We obviously all realized that since market came in, the business is a little bit more cyclical. And when I look at this quarter, non-subscription and recurring variable, both up double digits or more than double digits. So it seems like the cyclical side is helping you a little bit already. So can you maybe just talk about where you think you are on the more cyclical elements in that business? And what the biggest things we should still be looking for, i.e., IPO markets opening up, etcetera, to drive cyclical upside even higher, and maybe you can dimensionalize that in terms of revenue potential upsides from as markets open up. Thank you. Douglas Peterson: Yes. Thanks, Alex. As you know, we already built in our expectation into the guidance that we gave. But when we look at some of the cyclicality that took place, we grew in the Enterprise Solutions sub segment almost 11%. And this included some revenue that came from some non-subscription revenue, things like we had strong growth in lending solutions and markets. We had very strong growth in regulatory and compliance. And these were -- these are some of the areas that really are driven by volume. If you ask me, what are some of the key factors that we're going to be watching very closely, obviously, interest rates is number one. We gave you our expectation of one interest rate decrease of 25 basis points at the end of the year would be in the fourth quarter, more likely towards the end of the fourth quarter. We see that the markets have different views on that. In the recent earnings calls, a couple of banks show that they would have that they would have up to 3 interest rate declines this year. But we're not including any of that into our own guidance. The other factor we're going to look at quite closely is M&A revenue and M&A activity in the investment banks. M&A is still relatively weak. It's not on a track for what we would normally have seen. It was incredibly strong in 2020, 2021. And ever since then, it's been quite weak. And so we did see some green shoots of M&A activity this quarter, but there's a lot of pent-up capital, a lot of firepower in private credit, in private equity. There's a lot of private equity that's sitting on the sidelines getting ready for exits. There's a lot of M&A activity that's ready, we believe, from corporates. We're going to be looking at how they're going to be managing their own balance sheets and their own capital positions. So it's our view that over time, these are going to be some tailwinds that would benefit us, but that's not built into our guidance for this year. Thanks, Alex. Operator: Thank you. Our next question comes from Scott Wurtzel with Wolfe Research. Your line is open. Scott Wurtzel: Hey good morning guys. Thanks for taking my question. I wanted to ask on the revenue synergy side. Obviously, it seems like you're making very good progress there against your targets. I know going back the last few quarters, we've talked about maybe a little bit more shift from cross-sell to new product development. So just wondering if you could maybe help contextualize a little bit more in terms of the synergies that were recognized during the quarter in terms of new product versus cross-sell? Thanks. Douglas Peterson: Thank you, Scott. Let me take that and talk about what we're seeing really are important. We still mostly see cross-sell. That's the most important source of our growth, but we are now very successfully launching new products. We had over 21 products that were launched so far this year in Market Intelligence. We have 9 in the Commodity Insights area. And then we have a good pipeline between the rest of the year of another about 15 between those 2 divisions. In Indices, we've launched a series of new approach to providing custom indices using the fixed income and credit indices that were from IHS Markit. But as I said, the cross-sell has been really, really important. We probably underestimated the value and the power of the S&P Global brand. And we also probably underestimated the diversified relationships that we have. If you think about the Financial Services business at IHS Markit, it was a Financial Services business. But at S&P Global, we've always had a very strong corporate business, government, academics, all types of financial services. It's buy side, sell side, it's sovereign wealth funds, etcetera. So we believe that we've had the opportunity to bring that very powerful set of clients, diversified clients and bring them to many, many more products and services for the financial services products. That's been one of the big upsides. But let me just take one step back and point to a couple of things we already talked about. Adding 19.4 million prices, bond prices into CapIQ Pro, that was one of our synergy opportunities. That's something that's tangible. You can see that. We've also had in Commodity Insights a whole new set of products. We talked earlier about ChatAI, which was added to a feature. So that takes what we have from artificial intelligence layered on top of Commodity Insights platform. That platform was a merger of Platts Dimensions Pro and Connect, which was the IHS Markit platform. So there, you can see it everywhere in the company. We're at $199 million run rate. That was $54 million in the quarter, and we're on track. We're actually ahead of track, and we're very, very pleased with that. And so keep asking, and we will keep delivering. Thank you so much. Operator: Thank you. Our next question comes from Andrew Nicholas with William Blair. Your line is open. Thomas Roesch: Hi, good morning. This is Tom Roesch on for Andrew. I want to -- in the first quarter, you guys talked about a number of private deals being refinanced in the public markets. I was wondering if you could provide any color on what you saw this quarter in the sense of refis coming from private to public markets. And if you kind of see that trend continuing where more that is coming from the private markets than the public? Thank you. Martina Cheung: Hey Tom, this is Martina. Thanks for the question. It's been interesting, certainly some different trends in the two quarters. As you said, we certainly saw more in the first quarter go from private to public. We actually saw going both directions in the second quarter. Some of that we see as being more attractive pricing in the private markets compared to what might have been available in the first quarter. But I think all of this goes to the original thesis and strategy that we've had around private markets, which is, number one, we see this opportunity. We've had a very specific strategy around it. And we have continued to say since Investor Day that we will be ready to serve the debt wherever it comes, whether it's the public market or private markets. And you see that strategy on the private side play out with the results in Q2, the 70% growth in our private market's revenues and Ratings obviously, as well as the broader public market bond rating growth that we've seen on the transaction side as well. So this is a good story for us. These two trends are complementary for us. We've got the right capacity. We've got the right expertise around this, and we feel good about our position to serve the debt either way going forward. Thanks for the question. Douglas Peterson: Thanks, Tom. Operator: Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open. Owen Lau: Hi, good morning. Thank you for taking my question. So for Rating, one of your competitors guided to high teens growth for the full year, and you have around 14% to 16% growth. I mean it's not that way off, but I'm curious to see if you have done any analysis to try to understand the delta and different assumptions. And also how much impact for your one run rate cut I think at the end of the fourth quarter assumption would impact your Rating revenue guidance? Thanks. Martina Cheung: Thanks so much, Owen. As you know, we don't plan with competitors in mind if that's a clear way to say it. We feel very good about the strategy that we set out. Obviously, the over performance comes in a variety of ways. First, it is a very strong market revenues, but we've also been able to meet that demand either because we've had a specific strategy as in the case of private markets, but also in other cases where we've preserved capacity and expertise over the last couple of years, and we can handle additional volumes. So we feel very good about that. I would say overall, our growth rate with the new guidance 14% to 16% reflects a couple of key drivers that Doug highlighted in his remarks. First is that we continue to hear totally from the market that issuers are avoiding, in particular Q4. And so that certainly has a tapering effect on the back half of the year for us overall. I would say we've also -- I think you maybe alluded to this a little bit of a tougher comp in the back half, whether it's lapping that onetime revenue from the second half of last year, but also a very, very strong Q4 from last year. And as Doug said, we'd expect a modest year-over-year decline in Q4. But overall, if you look at the full year, we feel really good about it. It reflects growth not just on the transaction side, but on the key strategic areas, strong performance and growth as reflected in the second quarter, things like our annual fees where we continue to align the value with the economics that we have with the customer and good growth in other areas such as new mandates. So a great story for us overall, I think. Thanks for the question. Douglas Peterson: Thanks, Owen. Operator: Thank you. Our next question comes from Craig Huber with Huber Research Partners. Your line is open. Craig Huber: Great. Thank you. I believe three months ago, you guys said in Market Intelligence that you've expected to perhaps see some improvements in the growth rates of Market Intelligence revenue in the second half of the year. You obviously have your guidance where you kept flat for the revenue outlook for the full year, given what's happened in the first half of the year. Do you still feel it's possible just given the new products you've cited here? Douglas Peterson: Craig, it's possible. As you heard in a couple of questions ago, I talked about some of the potential tailwinds that we could see in the business, whether it's related to rates, to M&A activity, but we don't build the guidance based on wishful thinking. We have to build on what we see, what our expectations are. So the guidance is built right now based on what we see in the market, and that's why we've guided for the top line growth to be consistent where it was the last time we provided guidance. Thanks, Craig. Operator: Thank you. Our next question comes from Andrew Steinerman with JPMorgan (NYSE:JPM). Your line is open. Andrew Steinerman: Hi Doug, on MI, could you just tell us directionally how MI organic ACV growth did in the second quarter compared to the organic revenue growth? And with the possibility of acceleration, my question is, is organic ACV growth at MI accelerating? Douglas Peterson: Well, we don't report on ACV. It's not a metric that we use. We report on revenue. We -- obviously, we do look at our sales pipelines. And we're very pleased with what I mentioned earlier with the opportunities we see in cross-sell with the power of the brand, with the ability to open doors for new clients. We have a very strong pipeline of innovation that's coming through. We're incredibly pleased with Visible Alpha. I can't just, I almost can gush about it, what the opportunities are there, what it means for our ability to cross-sell because of Visible Alpha. So I think that for us to keep looking forward, this is a really powerful franchise, whether it's in the Desktop area, the data and advisory, the industry research that we're providing. It's in the Enterprise Solutions and then in the Credit & Risk Solutions. We know Credit & Risk Solutions is an area that is in growing demand because of what's happening in the volatility of the market. So across the board, we're quite pleased with our progress. You can also see it from what we're delivering from the synergies. But we don't use ASV. That's not one of the metrics that we use for -- that we report on. Thanks, Andrew. Operator: Thank you. Our next question comes from Jeff Meuler with Baird. Your line is open. Jeffrey Meuler: Yes, thank you. I just want to make sure there's nothing in Mobility beyond the recall weakness or variability. I get it. The sales growth looks good. Vitality products sound good. But the reason I ask is you also lowered the segment margin guidance. And I know there's a range of products there, but I think a lot of the recall products are lower margin. So I'm just trying to confirm there wasn't a change in the subs booking trajectory or trends from the CDK ran similar impact on some of your clients or anything else? Thank you. Christopher Craig: Thanks for your question. Well, for sure, when we look at the subscription growth, it's actually been tremendous this quarter. When you look back, 81% of the revenue is driven out of subscription growth, and that grew 10.5%. In terms of the recall activities, actually very high-margin business that comes through. So when we do see that loss and slowdown in the recall, that actually does impact margins fairly significantly. Douglas Peterson: Thanks, Jeff. Operator: Thank you. Our next question comes from Jeff Silber with BMO Capital Markets. Your line is open. Jeffrey Silber: Thanks so much. I know you don't provide specific guidance by quarter, but I was wondering if you can provide any color between what you're expecting 3Q, 4Q, anything to call out? You mentioned you expect a decline in issuance in the fourth quarter, but anything else on the revenue or expense line, that will be helpful for us. Thank you. Douglas Peterson: As you mentioned, we don't provide guidance by quarter. You already mentioned the one thing that we've seen, which relates to some issuance potentially between the third and fourth quarter. But there's nothing else. Chris, do you want to add anything? Operator: Thank you. Our next question comes from Russell Quelch with Redburn Atlantic. Your line is open. Russell Quelch: Yes, hi guys. In Commodity Insights, this is the fourth quarter of double-digit top line growth. The midpoint of the guidance implies 6.7% growth for H2. So I'm wondering why you're expecting such a strong slowdown in H2 in Commodity Insights. It seems much more than a tough comp. And if I look at seasonality, it's normally the other way around in the second half is normally stronger than the first half. So can you just address that for me, please? Douglas Peterson: Yes. Let me mention, first of all, Commodity Insights has had a really good run. It's an important area for the global markets. You see that everywhere we go, kind of every single conversation I ever have, we're talking about energy transition. We're talking about ESG. We're talking about what's happening the future of metals, mining. As you see, we launched some new products related to egg [ph], beef and poultry benchmarks. But when you look at the overall dynamic in the business, we've had a really, really strong performance in the advisory and transaction services area. It grew at 32% in the quarter. This is an area that is -- it's more volume driven. It's transaction driven. We don't want to necessarily project for the rest of the year that, that kind of level of transaction services is going to continue. So we've guided to the level which is more of a blend of the rates coming from upstream, from price assessments, from energy resources and Data and Insight. So that's what you can see the difference that brought us back down to a level from the 8% to 9%. Thanks, Russell. Operator: Thank you. Our final question will come from Surinder Thind with Jefferies. Your line is open. Surinder Thind: Thank you. Just a big picture question on terms of when you put together guidance overall, how do you think about visibility in the current environment relative to maybe where it's been in years past? Is client behavior a bit more difficult to project across some of the different line items? Or how should we think about the quality of the forecast at this point? Douglas Peterson: Well, I think that's half a year left. We believe that we've got a pretty good view on what the pipeline is for the rest of the year. As I mentioned throughout, there are certain factors which are maybe a little bit more market driven like interest rates and M&A. There's always going to be uncertainty around that. We have to work closely with our analysts that are close to the market. There's analysts that are working all the time with the buy side, the sell side. We get feedback from them. We also have relationships directly with bankers to understand what they're seeing in their pipelines of debt capital markets, equity capital markets, M&A. So we have an informal and formal way to gather information to use for our guidance for the rest of the year, and we look very carefully at that. And it's something that we've built into this year. You see the results of that. Overall, we're incredibly pleased with where we are. But with that, Surinder, thank you very much for joining the call. And let me wrap it up and close the call. And I want to thank everyone again for joining the call today and for your questions. I also want to thank Martina for joining us. Martina, thank you very much for being on the call. I want to congratulate her here, she's in the room, for appointment as the next CEO of S&P Global. At the next earnings call, you're going to hear a lot more about the transition, which is starting to take place, and it's going incredibly well. I also want to thank all of our people, as always. We have tremendous people in this company that delivered a strong quarter. We've got incredible, really good initiatives that we're developing and delivering in energy transition, sustainability with private markets, with generative AI. We continue to make great progress on our synergies from the merger, and we're very pleased with all of that. So I also hope that everybody gets a little bit of time this summer. So enjoy some time over the summer, and I look forward to seeing everyone on the next call. Thank you all very much. Operator: That concludes this morning's call. A PDF version of the presenter slides is available for downloading from investor.spglobal.com. Replays of the entire call will be available in about two hours. The webcast with audio and slides will be maintained on S&P Global's website for one year. The audio-only telephone replay will be maintained for one month. On behalf of S&P Global, we thank you for participating, and wish you a good day.