S&P Global Inc. (NYSE:SPGI) Q1 2024 Earnings Call Transcript

S&P Global Inc. (NYSE:SPGI) Q1 2024 Earnings Call Transcript April 25, 2024

S&P Global Inc. beats earnings expectations. Reported EPS is $4.01, expectations were $3.68. S&P Global Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to S& P Global’s First 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 first 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 Adam Kansler, President of S&P Global Market Intelligence; and Martina Cheung, President of S&P Global Ratings. We issued a press release with our results earlier today. In addition, we have posted a supplemental slide deck with additional information on our results and guidance. If you need a copy of the release and financial schedules, or the supplemental deck, they can be downloaded at investor.spglobal.com. The matters discussed in today’s conference call, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections estimates and descriptions of future events.

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

The financial metrics we’ll be discussing today refer to non-GAAP adjusted metrics unless explicitly noted otherwise. I would also like to call your attention to certain European regulations. Any investor who has or expects to obtain ownership of 5% or more of S&P Global should contact Investor Relations to better understand the potential impact of this legislation on the investor and the company. We are aware that we have some media representatives with us on the call. However, this call is intended for investors, and we would ask that questions from the media be directed to our Media Relations team whose contact information can be found in the release. At this time, I would like to turn the call over to Doug Peterson. Doug?

Doug Peterson: Thank you, Mark. S&P Global is off to a tremendous start for 2024. Total revenue increased 14%, excluding the divestiture of engineering solutions. Transaction revenue in our Ratings Division drove much of the upside, but importantly, subscription revenue across the entire company increased 8% year-over-year as well. Strong growth across the enterprise contributed to quarterly revenue of nearly $3.5 billion, representing the highest quarterly revenue we’ve ever generated in the history of our company. Execution was a theme in the first quarter, and our efforts to capture market opportunities, combined with discipline on the expense side, led to more than 350 basis points of adjusted operating margin expansion year-over-year, and adjusted EPS growth of 27%.

In addition to the stellar financial results in the first quarter, we continued to demonstrate our leadership across global markets. Capital markets were vibrant in the first quarter, and customers turned to S&P Global to help power their investment, funding, and trading activities. Equity markets saw strong volumes from both IPOs and M&A, and we saw the highest level of debt issuance since 2021. As the globe grapples with the future of energy security and energy transition, it’s no coincidence that this conversation took place on the stage of S&P Global’s CERAWeek Conference and other S&P events around the world. As we power global markets in equity, fixed income, commodities, derivatives, and in many industrial verticals, our innovation drives customer value.

We’ll continue to innovate and invest in our leading data technology and workflow tools to drive growth. And we’ll highlight some of that innovation today. As we look to the five strategic pillars we outlined for you in our Investor Day, we’re pleased with the progress we’ve made across the board. While that fifth pillar of execute and deliver is on full display this quarter with the strength of our financial results, we continue to invest in customer relationships, innovation, technology, and our people. Beginning with our customers, we saw nearly $1 trillion of billed issuance in the first quarter. This represents the dollar value of debt issued by our customers, for which they actively sought out a rating from S&P Global. Issuers know that an S&P Global rating provides a credible, trusted, and objective measure of their credit risk.

And they know that we have the capacity, even in a very active market, to fully meet their needs. When we look at the broader financial services landscape, we’re certainly not back to what we would consider normal levels in the capital markets overall, but we did see improvement. With the macro and geopolitical uncertainties still facing our customers through this year, we continue to hear some concern about the back half, and many market participants are still carefully evaluating expenses for 2024. All of this is consistent with what we shared in February regarding our expectation that ratings would see a stronger first half than second half, while market intelligence would likely start to see improvements in the growth rates in the back half.

Energy customers from all of our divisions and from around the globe converged once again in Houston, Texas for our Annual CERAWeek Conference. We’re thrilled that customers, partners, regulators, government officials, and global thought leaders view S&P Global CERAWeek as the premier event of the year. Customer engagement remains vital for S&P Global, and in the first quarter, we had well over 100,000 calls and meetings with customers, in addition to the thousands of meaningful interactions our ratings colleagues had with fixed income investors. Build issuance increased 45% year-over-year in the first quarter. Tight spreads and stabilizing risk appetite in the market created favorable conditions for issuers. We saw investment grade, high yield, and bank loan volumes all increase as issuers took full advantage to raise debt early in the year.

We do expect much of this strength was pulled forward from later in 2024, reinforcing our continued view of a stronger first half than second half in issuance volumes. The strength in build issuance in the quarter also underscored the importance and advantages of a robust public debt market. We saw tremendous growth over the last two years in private debt markets, but we began to see early signs of some of that debt being refinanced in the public markets in the first quarter. While this private to public refinancing activity only represented a low single digit percent of build issuance, we’ve heard from customers that they’re saving up to 150 to 200 basis points in their interest rates by refinancing the public markets. We expect the private markets to play an important role going forward as well.

We’re working with major private debt partners to deliver risk analytical solutions. Private markets revenue in our ratings division increased 30% year over year in the first quarter. Turning to Vitality. We’re pleased to see that our Vitality Index continues to account for 10% of our total revenue, despite the fact that several strong and fast growing products matured out of Vitality Index at the end of 2023. As we’ve called out in the past, this index is meant to highlight the contributions from new or enhanced products. So as products mature, they will no longer be part of the Vitality Index, even if they continue to grow rapidly. 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 remain committed to that 10% target as a steady stream of new innovation takes the place of any products that graduate from the index. That was the case this quarter as products that contributed roughly $80 million of revenue to the Vitality Index in the first quarter of 2023 were no longer in the Vitality Index this quarter. We expect the Vitality Index to increase as a percent of total revenue as we progress through the remainder of the year. Turning to some examples of that innovation. In the first quarter, our commodity insights team launched a new food and agriculture commodities dashboard, providing a comprehensive view on commodity data, as well as new reports and research on energy. Additionally, we launched new price assessments for renewable energy, as well as new benchmark prices for the Middle East and Asia.

Our energy transition and climate products continue to show rapid growth, nearly 30% year over year in the first quarter, supported by the continued innovation and price assessments, new and enhanced datasets and crucial insight solutions. We also introduced an exciting innovation in market intelligence. We’ve spoken at length about the tools and datasets available through our market intelligence marketplace. But in the first quarter, we introduced what we are calling blueprints. These blueprints are packages of datasets and tools combined based on specific customer personas and workflows, such as private markets performance analytics. We introduced the first five blueprints in the first quarter, with plans to add more in the coming months.

These intuitive combinations allow customers to easily discover how our data and tools can work together to facilitate analytics and workflows in new ways. We’re also pleased to see early results from the enterprise AI initiatives we outlined for you last quarter. By elevating artificial intelligence to a position of enterprise wide strategic focus, we’re accelerating the development of new tools, deploying common capabilities across multiple divisions and increasing the value we create for our customers and our shareholders. With our in-house expertise, we’ve developed tools to help market participants benchmark performance of large language models, specifically for business and finance use cases. The S&P AI Benchmarks by Kensho is a project informed by our world-class data and industry expertise.

The questions in our benchmark are designed to assess the ability of large language models to understand and solve realistic finance problems, and each question has been verified by an experienced domain expert. Lastly, we introduced a remarkable tool we call S&P SPARK Assist. This is a co-pilot platform developed jointly between Kensho and our other internal technology teams. We’re deploying this platform throughout the organization to improve productivity, facilitate more rapid innovation and reduce the time necessary to accomplish many routine tasks. Because of our proprietary data, the tools and expertise developed through Kensho and the remarkable technologists we have working throughout S&P Global, we were able to develop S&P SPARK Assist chat interface without relying on a third party vendor.

As a result, we’re delivering the power of generative AI to our people in an easy to use platform at the cost of less than $1 per user per month. We’re incredibly excited about what this tool can do for our people, and we’ll provide more details around use cases and productivity as we progress through the year. Turning to our financial results, Chris will walk through the first quarter results in more detail in a moment, but we have had an incredible start to 2024. With strong growth across every division, we continue to balance the need to invest for future growth with the opportunity to deliver margin expansion and earnings growth this year. Revenue grew double digits as reported, but excluding the impact from the engineering solutions divestiture, revenue increased an impressive 14%.

Trailing 12 month margins improved 170 basis points to nearly 47%. Now we’ll turn to Chris Craig, our interim CFO to review the financial results. Chris, welcome to the call, over to you.

Chris Craig: Thank you, Doug. 2024 got off to a strong start as we saw three of five divisions achieve double digit growth. As Doug mentioned, reported revenue grew 10% in the first quarter, and excluding the impact of the engineering solutions divestiture, revenue growth was 14%. Adjusted expenses grew by only 3% year-over-year as we continue to focus on disciplined execution and benefiting from the engineering solutions divestiture. Strong growth and solid execution combined to deliver more than 350 basis points of adjusted margin expansion in the quarter. With our commitment to capital returns over the last 12 months, we’ve reduced the fully diluted share count by 3% year-over-year. This led to adjusted earnings per share increasing by 27% year-over-year to $4.01.

Now turning to strategic investment areas. Sustainability and energy transition revenue grew 15% to $78 million in the quarter, driven by strong demand for commodity insights energy transition products and benchmark offerings, as well as EV transition related consulting in mobility. We are continuing to invest in our energy transition offerings where we see opportunities across our divisions. Moving to private market solutions, revenue increased by 16% year-over-year to $116 million. Growth was driven by debt and bank loan ratings, as well as continued strength in I-level and other private market solutions within market intelligence. We continue to build momentum in our revenue synergies and are ahead of schedule toward our $350 million target.

We exited the first quarter with an annualized run rate of $184 million. During the first quarter alone, we recognized $56 million in revenue synergies. While the majority of this was from cross-sell initiatives, we are beginning to gain traction with new products as well. As of the end of Q1, we have launched 25 new products through our revenue synergy initiatives, and we plan to launch more than 15 additional synergy products by the end of 2024. Turning to our divisions, market intelligence revenue increased 7% in the first quarter, with all business lines growing in the mid-to-high single digit range. Desktop grew 5% as we continued to focus on speed, performance improvements, and the introduction of new content and capabilities, including the expansion of our collection of premium broker research providers with in after market research.

Data advisory solutions grew 7% driven by expanded coverage and continued investment in high growth areas of our company information and analytics, and market data and valuation product offerings. Enterprise solutions benefited from an increase in issuance volumes in the debt and equity capital markets and grew over 8% in the quarter. Credit and risk solutions grew 6%, supported by strong new sales and price realization, particularly for Ratings Express Subscriptions. We saw solid growth in market intelligence in Q1, that was in line with our expectations and consistent with what we signaled on our fourth quarter earnings call. Adjusted expenses increased 6% year-over-year, primarily due to an increase in compensation expense, cloud costs, and royalties, partially offset by reduction in outside services expense.

Operating profit increased 9% and the operating margin increased 70 basis points to 32.7%. Trailing 12-month margins expanded 50 basis points to 33.1%. Now, turning to ratings. As Doug mentioned earlier, we saw issuers take advantage of favorable financing conditions, which led to strong refinancing and opportunistic issuance in the first quarter. Ratings revenue increased 29% year-over-year, exceeding our internal expectations. Transaction revenue grew by 54% in the first quarter, as heightened refinancing activity increased bank loan and high yield issuance. Non-transaction revenue increased 8%, primarily due to an increase in annual fee revenue and strong demand for our rating and valuation service and issuer credit rating products. Adjusted expenses increased 9%, driven by higher compensation, including incentives, as well as increased T&E expense, as our commercial and analytical teams were actively meeting with issuers to help drive the strong growth we saw in the quarter.

This resulted in a 43% increase in operating profit and a 640 basis point increase in operating margin to 64.7%. For the trailing 12 months, Ratings margins expanded 290 basis points to 58.5%. And now, turning to Commodity Insights. Revenue increased 10% following the fourth consecutive quarter of double-digit growth in both Price Assessments and Energy and Resources Data and Insights. Price Assessments and Energy and Resources Data and Insights grew 14% and 12% respectively. We continue to see commercial momentum across both business lines, as our established benchmark data and insights products have driven customer conversations about our emerging offerings. Advisory and Transactional services revenue grew 10%, driven by strong trading volumes across key sectors in Global Trading Services and an excellent turnout at our Premier Global Energy Conference, CERAWeek.

Upstream data and insights revenue grew by 2% year-over-year, benefiting from demand for our carbon emissions monitoring offerings, as well as improvement in retention rate. The business line continues to prioritize growth in its subscription base. Adjusted expenses increased 7% due to higher compensation costs and ongoing investment in growth initiative. Operating profit for commodity insights increased 13% and operating margin improved by 110 basis points to 47.2%. The trailing 12-month margin increased by 120 basis points to 46.4%. Now turning to mobility, revenue increased 8% year-over-year. The dealer segment marked its fifth consecutive quarter of double-digit growth, and we also saw solid performance from our financials and other business lines.

Dealer revenue increased 12% year-over-year, driven by new business growth in products such as new car listings and CARFAX for Life, as well as the addition of market scan. Manufacturing declined by 3%, driven by a decrease in one-time transactional revenue, particularly in our recall and marketing businesses, which was partially offset by growth in subscription sales. It’s important to understand that revenue from Recall products will fluctuate based on the level of activity in any given period. Financials and other increased 12% as the business line benefited from strong underwriting volumes and price increases. Adjusted expenses increased 10% due to both planned investments and strategic growth initiatives and the full quarter impact of the Market Scan acquisition.

While this resulted in 100 basis points of margin contraction to 38.1% for the quarter and a 70 basis point reduction to 38.6% for the trailing 12 months, operating profit for mobility increased by 5% year-over-year. Now turning to S&P Dow Jones Indices, revenue increased 14% primarily due to strong growth in asset-linked fees, which benefited from higher AUM and continued strength in Exchange Traded derivative revenue. Revenue associated with asset-linked fees was up an impressive 16% in the first quarter. This was driven by higher ETF and mutual fund AUM benefiting from both market appreciation and net inflows. We also saw an increase in revenue for OTC products. Exchange Traded derivatives revenue grew 12%, primarily driven by strong volumes in SPX products and price realization.

Data and custom subscriptions increased 6% year-over-year driven by new business growth in end-of-day contracts. Expenses increased 9% year-over-year primarily due to increased investments in strategic growth initiatives as well as an increase in compensation expense. Indices operating profit increased 15% and operating margin expanded 110 basis points to 72.9%. On a trailing 12-month basis, margins expanded by 30 basis points to 69.3%. In the aggregate, our businesses demonstrated exceptional revenue and margin growth while at the same time permitting us to invest in our strategic growth initiatives during the quarter, giving us a strong start to 2024. And with that, I will now turn it back to Doug to discuss our outlook for the remainder of the year.

Doug?

Doug Peterson : Thank you, Chris. We’ve updated our outlook reflecting our economist view of the most important economic and market factors that will impact 2024, as well as the outperformance against our internal estimates during the first quarter. Our financial guidance assumes global GDP growth of 3.2%, U.S. inflation of 2.8%, and an average price for Brent crude of $85 per barrel. All three of these figures are slightly higher than we originally assumed in our outlook in February. Additionally, our original macroeconomic view included the base case assumption for three rate cuts by the U.S. Fed, beginning no earlier than June. As we’ve seen over the last three months, market expectations around interest rates have shifted.

And while our economists have not formally updated the number of rate cuts in their base case scenario, our financial guidance now assumes fewer than three rate cuts in 2024. We’re increasing our billed issuance forecast for 2024 by approximately three percentage points, to a range of 6% to 10%. As we noted last quarter, our initial outlook for 2024 assumed a stronger first half of the year for issuance. Even with that assumption, the first quarter outperformed our expectations, though we believe much of that outperformance is pull forward as issuers look to take advantage of very favorable market conditions. All of these factors impact our new full year guidance calling for higher growth and stronger margins. This slide illustrates our current guidance or GAAP results.

For our adjusted guidance, we’re now expecting revenue growth in the range of 6% to 8%, reflecting the outperformance in Ratings and Indices in the first quarter, partially offset by slightly softer expectations for issuance in the second half of the year. Excluding the impact of 2023 divestitures, we expect revenue growth to be slightly more than 1 percentage point higher than reported revenue growth. We also now expect to deliver stronger margins in 2024 with margin expansion in the range of 100 to 150 basis points compared to our prior guidance of approximately 100 basis points. We’re taking a balanced approach to reinvesting for future growth while still expanding margins and remain on track to achieve the Investor Day targets from 2022.

We now expect to deliver adjusted EPS for the full year in the range of $13.85 to $14.10, which represents 11% growth at the midpoint. This represents a $0.10 increase from our prior range driven by the increased revenue and profitability outlook for the year. We’re also increasing our outlook for adjusted free cash flow, excluding certain items, by $100 million despite modestly higher expected CapEx. Higher expected net income and disciplined management of working capital both contribute to the higher expected cash flow for the year. Moving to our division outlook. We’re reiterating our revenue growth expectations for Market Intelligence, Commodity Insights and Mobility. And we’re increasing the growth outlook for Ratings and Indices based on the strength in the first quarter.

We’re also raising the margin outlook for Indices to reflect the very strong performance year-to-date. While margins were also very strong in our Ratings division in the first quarter, we’re reiterating the range for full year margins, which implies approximately 150 basis points of margin expansion at the midpoint. Since much of the revenue outperformance in Q1 likely came from pull forward, our full year guidance assumes year-over-year declines in Ratings transaction revenue in the fourth quarter as we begin to lap much stronger comps from last year. As a result, we expect margins to be softer in the back half of the year than in the first half in Ratings. With that, I’d like to invite Adam Kansler, President of S&P Global Market Intelligence; and Martina Cheung, President of S&P Global Ratings and Executive Lead for Sustainable1 to join us.

I’ll turn the call back over to Mark for your questions. Thank you.

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

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Q&A Session

Operator: Our first question comes from Toni Kaplan with Morgan Stanley. You may proceed.

Toni Kaplan: Thank you so much. I wanted to focus on Market Intelligence. We’ve heard some negative commentary from others in the market, which made it sound like this past quarter was particularly challenging. So I wanted to see if that was your experience as well? And also if the large investment bank consolidation impact was in this quarter or if it hasn’t hit yet. And then I know you’re talking about Market Intelligence being better in the back half. And so wanted to just flesh out what gives you the confidence that, that happens.

Adam Kansler: Toni, it’s Adam. Thank you for the question. So yes, we’re seeing many of the things that others are seeing in our markets, particularly for our financial services customers. We’re seeing that particularly in the smallest of those customers, and that’s probably comparable to what some others are seeing. But for us, that’s really where the concentrations are. The specific consolidation that you’re talking about in terms of the overall scale of our division, it’s not something that impacts us in a material way. That — some of that has already been absorbed. Some will continue to come. But all of that has been anticipated by us in the guidance and the view that we’ve given you forward. We do view what’s going on in the market today is very much a cyclical headwind.

But the secular tailwinds that we see in our businesses, particularly in our core areas of focus like private markets, the expansion of our Desktop, you see some of the improvements in the investment we’ve made over the last 2 years. That gives us a lot of confidence in achieving our long-term goals and the continued growth of the business, confidence in what we’ve explained we expect to do for the current year and in delivering against the longer-range Investor Day targets that we set out in 2022.

Doug Peterson: Thank you, Toni.

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

Manav Patnaik: Thank you. I just wanted to ask on Market Intelligence as well. Just in terms of the strategy going forward, obviously, tough budget environment. Competitors are probably sharpening their pencils too. Just can you help us with the strategy there? And also kind of tied to that is the — when does Visible Alpha close? How should we think about the contribution and also the divestiture that you were planning? Like what else is in there?

Adam Kansler: Okay. Thanks, Manav, and thank you for the question. Let me just start with the last piece, Visible Alpha. We do expect that transaction to close here in the second quarter. We’re quite excited about it. I think it’s an important part of one of our strategic areas, which is the continued expansion and improvement in quality of the Cap IQ Pro set of solutions that we offer to the market. As we highlighted, I think really as far back as Investor Day, we have a few core areas of focus that we do think we’ll continue to grow. And that really shapes our strategic focus. Those are in areas like private markets, sustainability of the supply chain, the expansion of our Desktop, the ability to deliver our data and solutions to customer in as easy a way as possible.

These are things that our largest customers are looking for as they go through consolidations of vendors. That’s where the scale and breadth of services that we’re able to offer through Market Intelligence and of course, across the broader S&P Global enterprise really has impact. We’ll be laser-focused on that strategy. And as you’ve seen when we announced at our last call, we’ll look at those businesses where we see underperformance or lack of strategic fit, and we’ll make decisions on those. And where we see opportunities to acquire unique assets that are high growth or have particular proprietary value companies like Visible Alpha, the one you mentioned, quite excited to get that integrated. We’re going to take advantage of our position and our opportunity to bring them into the business.

So thanks again, Manav.

Doug Peterson: Thanks, Manav.

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

Heather Balsky: I’d love to hear more about how — you talked about a pull forward in issuance into the first quarter. Can you just talk a little bit about, on a regular basis, how much visibility do you have as you look three quarters out? And how do you think about taking some level of conservatism, given we’re in an election year, there’s an uncertain rate environment. Just how are you positioning yourself with regards to the guidance, given what you saw in the first quarter? Thanks.

Martina Cheung: Heather, it’s Martina. Thanks very much for the question. So we look at a variety of factors to give us a good sense for the issuance pipeline in the immediate time frame. Typically, we would look at 180-day pipelines, for example, as well as more near term, but also throughout as much as we can, next 9 to 12 months. Those factors, macro factors, GDP inflation rates, geopolitical factors, which, of course, is something we’re paying very close attention to this year. But we also look, as we’ve mentioned in the past, obviously, at maturity walls, the pace of refinancing as well as growth and investor interest in different asset classes such as private markets, sustainable finance, structured finance, infrastructure, et cetera.

So the — those factors give us a very good sense at any point in time for where we are with respect to the year. If you look at what we saw in Q1 of this year in terms of billed issuance, we saw a very high volume of refinancing of maturity walls in high-yield and bank loan. 2/3 overall the issuance activity that we saw was related to refinancing. That was a combination of heavy refinancing at ’24, but we also saw some ’25 and ’26 refinancing quarter as well. So that’s really the key area of outperformance from an issuance standpoint in Q1. And we would expect that activity to continue in bank loan and high yield through the second quarter and then taper off a little bit, largely because we’ve been hearing consistently even since before our last call that high yield and bank loan issuers as well as, to some extent, investment-grade issuers are wanting to really get ahead of any volatility you see in the back half of the year and take advantage of the relative market stability and favorable spreads that we’re seeing at this time.

Now in investment grade, a very strong quarter, but we think a lot of that investment-grade issuance is pulled forward in the second half of the year. There were a handful of several large M&A deals there as well but not enough volume for us to really change our view for investment-grade issuance for the rest of the year. So I hope that helps. And happy to take any more questions on issuance.

Doug Peterson: Thank you, Heather.

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

Faiza Alwy: Good morning. Thank you so much. Wanted to follow up on the Ratings and maybe more on the margin front. So while you’re increasing the revenue outlook, margins — you haven’t increased margins. So I’m curious if it’s mix of business or any investment sort of how we should think about the margin performance through the rest of the year?

Martina Cheung: Thanks for the question. Well, as you know, we’ve said numerous times in the past, we’re solving for long-term sustainable margin in the Ratings business. And we are a very disciplined steward of capital in the business. So our guidance for the year, which we reiterated at 57.5 to 58.5, as Doug said in his remarks, at the midpoint represents about 150 basis points of margin expansion year-over-year. We can do a lot with the base that we have. So the reason why I say that is because we have this incredible blockbuster quarter from an issuance standpoint without having to add tremendous amounts of additional staff to meet that need. And that is really, I think, reinforcement of the capacity preservation strategy that we initiated a couple of years ago.

So we’re very pleased with how we’re operating from an expense management, capacity management standpoint and very comfortable with the margin range that we have right now as we — as it relates to the full year.

Operator: Our next question comes from Andrew Steinerman with JPMorgan.

Andrew Steinerman: Martina, it’s Andrew. I just wanted to ask you a little bit about issuance pull forward. Just you’re talking so much about it intra-year kind of second half pull forward to first half. Just broadly, aren’t we still in the midst of a pretty large issuance recovery after the big declines of ’22?

Martina Cheung: Andrew, thanks very much for the question. I would say a couple of things. So the context on a lot of my commentary on intra-year I would say I’d lean more on the investment-grade side, where we think we saw a 2H pull forward. I think we did see pull forward of ’25 and ’26 maturities, for example, on the refinancing front for high yield and bank loans. So a little bit of a mix there between the spec-grade asset class and investment-grade asset class. I think to your broader point, yes, we are and continue to be in midst of recovery, notwithstanding the very steep growth rates, for example, in high yield and investment grade. We’re still not seeing the issuance volumes back to anything close to what we might have characterized as market highs for example, in the past, or even market averages that we might have seen in the past.

So there’s still room to go here throughout the next several years. This is something that we’ve commented on since ’22, believing that it was going to take some years to come back to it. But of course, the maturity walls themselves are quite a large factor here. And on the spec-grade asset classes, high-yield and BLR, jointly, we’ve got about $1.1 trillion in maturities still outstanding for us in ’25 and ’26. So we’re monitoring very, very closely and tightly the indicators that would give us a sense for the pace and timing of those maturities.

Doug Peterson: Thank you, Andrew.

Operator: Our next question comes from Alex Kramm with UBS. Your line is open.

Alex Kramm: Yes, hi. Good morning, everyone. Just another one on the margin actually, but more on the outlook for the full company and nice to see the margin outlook being raised. But just wondering, is this just a business mix driven upside? Or is there anything else going on, and I’m asking particularly since you mentioned execution in your prepared remarks. So just wondering, is this just execution on the sales and revenue side or following last year’s, I guess, disappointments a couple of times, if you take a little bit of a harder look at the cost base and where you can be more efficient.

Doug Peterson: Thank you, Alex. Well, as you know, we run the company with an approach to budgeting and management, where we always start the year with a positive jaw. That’s just our philosophy. We look and see how we’re going to do in our core businesses. We go out to see our customers. We understand what we can build as a forward-looking pipeline, forward-looking expectations for the market. We then ourselves say, what would be the expense level that we want to have to support that growth. On top of that, we then come back and say, how much can we afford to invest. As you saw in this quarter, our expenses grew 3%. That’s a result of very, very strong execution coming out of 2023. We’re ensuring that we can have very clear tracking of all of our expenses.

It’s just part of our philosophy of how we run the company. Going forward for the rest of the year, you see that we’re going to continue that approach. But we think that this is part of the way we manage the company. We’re always looking at being very tight on understanding our revenue sources and then moving forward to have a tight approach to our expenses. Thanks, Alex.

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

Ashish Sabadra: I just wanted to drill down further on Market Intelligence, both the recurring variable and the subscription growth. We’ve seen some really strong 13% growth in recurring variable last 2 quarters. How should we think about those tailwinds there? And is that mostly contributed from IP and WSO going forward? And then on the subscription side, the 6% growth, that moderated a bit. But how should we think about those momentum as we get — go through the year?