Okay. All right. Good morning, still, I guess, everybody. Thank you for being here. My name is Manav Patnaik. I cover business and information services for Barclays. We are very pleased to have with us today from S&P, Eric Aboaf, who is the CFO. Thank you for being here, Eric. Eric, maybe just a place to start would be, you have been now, I think, at the company about a year and a half almost. Just talk about what has kind of surprised you, both positive or negative in the year and a half, and perhaps what have you brought to the table differently?
Yeah. I think I spent, as you know, 20 years in banking in your corner of the world, and it has been really exciting to come to S&P Global. I have worked with S&P Global as a partner, a supplier, a vendor, whether it is around ratings, benchmarks for asset management, market data. Energy data is probably the one area that I spent less time on before coming. What I found is, much as I had expected, just a set of growth businesses focused on transparency, clarity, scenarios, and what can make financial institutions, corporations, and energy companies even more successful. That is where I spend my time is where do we grow, where can we accelerate, what is next? There is a great innovation engine, which I think is a little different than what you see in banks, because banks have to be constrained by definition, and innovation is at the heart of what we do.
The areas I focus the most is around creating really transparency and MIS into our commercial activities. Some of how we think about pipeline, some how we think about sales, some how we think about segments and targeting different segments. How we think about product offerings in one area that supports a different group of clients. As we have become larger and larger, there is so much to bring to our clients. What we have to do over time is measure and operate at scale, and that requires a set of insights. Over time you can launch campaigns, you can roll out products more quickly, you can drive more productivity over time, so that then we can deliver the margin expectations that our shareholders have, that we have for ourselves while we reinvest in the business.
Got it. Like yourselves, there has been a lot of new management across the company as well. Maybe just some insights into how that shapes up today and looking forward.
I think Martina and the team have brought a lot to the company over the last two years. Really thinking about, we've had a great run, five, 10 years. Really thinking about how do we drive the next round of growth, the creation of the Chief Commercial Officer organization, where we cover 130 clients, which are the top third of our revenue base, is really a sea change for how we operate. What we found is it's brought our product lines together at a level of sophistication and seniority, where now we're having discussions in the boardroom with CEOs about the wide range of what they're facing out in the marketplace. You think about all the hyperscaler issuances, for example. You've got CEOs of enormous banks like yours, thinking about, what does that mean for underwriting a hyperscaler issuance?
We've got our ratings, understanding, and insights there. Some of that's in the public domain, some of it's in the private domain. What kind of market data do I need to really understand that? How do energy supply chains and electricity grids and so forth in different parts of the world play out? How do I want to underwrite electricity prices, which are inherent portions of datacenters which support those hyperscalers and those AI companies? There's a wide range of activities that I think Martina has really thought about. How do we bring together to our clients that they can really value? That's really an opportunity, one that we think is unique to us, because without the fortitude and the depth in each of those areas, we wouldn't be in the C-suite, right?
We'd be working with the CEOs of divisions or COOs of various divisions, but that client connectivity really is an opportunity. What we find is that the stature, the sophistication, the trust that they have in S&P Global is just second to none.
Got it. Okay. Let's move on to, I guess, touch on the segments of the business. Maybe the first question to get it out of the way, there was some market rumors about you potentially considering the Capital IQ Pro business up for review. Just your comments on that.
Well, there's always been speculation, just about every industry I've been in, probably you've been in, and it's a matter of principle. We're just not going to comment on unwarranted rumors. Just not helpful. I would say that right now, as we said, as late as our second quarter earnings, we're highly focused on growth in MI. We've had a very strong, I'd say, solid start to the year. Growth is up north of 6%, comfortably within our guidance of 5.5%-7% for the year. And we feel comfortable in delivering on that. And I think importantly, we've also said, "Look, we'll selectively trim elements of that portfolio," but we talked about small sub-scale product lines, which is the kind of thing we've done before.
We've done it recently in the energy business, where we thought that kind of software layer wasn't as valuable, because in truth, we're really a data company, and what we're really doing is trying to find a share of benchmarks and data to our business.
Got it.
Our clients.
And some of those underperforming areas that you called out, any examples or which broader categories they would fall in, or is it just on the software side, given the analogy to energy?
It is actually not analogous to energy because the Market Intelligence data business is really quite strong. As I said, growth of north of 6% top line first half of the year and comfortably within our guide. Continued growth in platforms, including some big announcements we made in the second quarter around clients. Enterprise Solutions, which is not just software, it is really system-of-record software solutions with a data component. That grew 10% year-over-year in the first two quarters of the year. So we are seeing real momentum there that is important. In the data space, we are growing at high single digits, low double digits, depending on which quarter we are looking at. We are signing up more clients for MCP connectors. We are up to 500, which is 50% more than the prior quarter. And data usage rates through API and LLM call volume is up 5X.
5X Q1 to Q2, and it was 5X for 4Q to 1Q. Think about the economic value that we are bringing to clients. Just recently, we have continued the integration of S&P data into the ChatGPT financial services workflows. Just last week, OpenAI released a study of those workflows and shared how error rates with the trusted proprietary branded S&P Global data are below 3%. Our nearest competitor was at just around 6.5% errors. It is something that clients have been telling us over the year, which is that our data is particularly valuable. They trust in it because of its quality. They can ingest it and process it in ways that are, in many cases, better than our peers and brings immediate value.
I think there is a lot to come over the coming quarters and year as we see AI develop, interfaces for clients develop, either within their own organizations, through new channels that they are ingesting data for. But that is going to be the heart of growth of MI.
Okay. Just a few follow-ups on that. But before we get into that, you used the mobility spinoff to re-segment some of the numbers. Within MI, can you just remind us again what the new segmentation is and kind of why did you bucket those in such a way?
Yeah. MI is segmented in a pretty straightforward way. We've got the Kensho Data Platforms product line, which is about two-thirds of MI. A third of it is the Enterprise Solutions, which is that workflow software. We did it that way because in Kensho Data Platforms, what we have is some unique platforms that have been deeply embedded in client workflows. Think about the client franchise that we have there is exceedingly deep and broad at the same time. Kensho, over the years, has brought a set of data and MCP connectivity and so forth to that client base. What we want to do is accelerate that. Because we're happy for clients to connect to us through our proprietary platform, but also every other platform that exists out there.
We want to be on the forefront of any evolution that's playing out while we modernize and improve and so forth our own platforms. Then there's Enterprise Solutions, which is a great. It's not just a software business. It's a system-of-record software business, which is critical to workflows for loan syndications, loan trading, private markets activity with iLEVEL as an example. It creates an area for clients not only to operate their businesses, but to record their data, ingest our data and unique data that we pool across clients, and creates real value and real growth for us.
Got it. The segmentation, I think, makes sense. But help us, I think you had different leaders for each segment. I think you had Bhavesh on Kensho Data and et cetera. Why separate leadership, or is it just? Are they still talking to each other a lot, I suppose?
Oh, they're definitely talking avidly. What we have is we have integrated multi-product sales force that is really, from a go-to-market standpoint, holistic in how it approaches financials, corporates, even energy clients within MI. The product set has some uniqueness, and so you want to create innovation and feature functionality and even new products within that product set. That is why you have that line up. We, from an internal standpoint, look at our business from a client lens, client segments, the CCO clients, and then all the other groupings of clients of mid-size and small clients. We look at a product lens, and we look at a regional lens. There are a couple others, but let me just stick to those three. That lets us find opportunities.
It lets us spot execution successes in areas of further opportunity, and a good way for us to run the business.
Got it. Moving on to the AI aspect of things, you talked about 500 MCP connectors now, the OpenAI partner, et cetera. Impressive numbers, good growth. Can you just help us appreciate the monetization model? How is that going to convert into revenues, and what are the pluses and minuses of that?
For us, AI is an accelerant. Monetization will come over time. What we want to do is be there for our clients as they are expanding and experimenting. We talked about how some of the client discussions are even taking a little longer. Why? Because we are talking with them about not only our value-based pricing, but also experimenting with some volumetric pricing. Clients, on the other hand, are thinking to themselves, "Wow, I need even more of this data from S&P Global. I trust it. It is branded, it is reliable, it has a curation that is unique." They want to make sure that they can get as much of that as possible for a reasonable price as well.
I think there is a development of an economic model, or maybe I will say we have an economic model around value pricing, which is around what clients use, and how much they use, and how many people use, and what products they are engaged in, that is pretty sophisticated. I think over time, that will evolve probably a little more towards usage. That transition will come over time, because clients first need to actually experiment and experience it. You have read about how folks are monitoring token usage and so forth, that is, within their own environment. Typically, we provide the product, the datasets behind that for clients. As clients work through that evolution, they will want us to be fair with them, and that will come with time.
I think for now, we are extremely willing to encourage and help them take full advantage with our data, so long as they do it on our terms. Our terms are our data is proprietary, it is behind our paywall. It is not to be used for training. It is quite unique in ways, and we will maintain that, and at the same time, evolve the economic models that make sense.
Got it. One of the concerns, I think, with the whole MCP and the AI connections is that customers might use it a la carte or whatever you want to call it, or MCP, and that will come at the expense of your platform that they might have subscribed to. Are you seeing some of that trend, or is that something the MCP pricing might take, offset? Just curious your thoughts on the pluses and minuses there.
I am smiling because we are not seeing an either/or. We are actually seeing folks continuing to re-up on some of our proprietary platforms and ask for even more data. The data business is growing much more quickly, which we are thrilled at. In truth, we are agnostic. We would love to grow the data business, not just high single digits, but mid double-digit teens. We would like to accelerate it through the breadth of channels. Over time, that is our expectation of what is likely to happen. If that means that some of the platform revenue is replaced with data revenue, that is great. If the platform revenue continues to grow, which is what it is doing today, and we get data revenue on top of that is great as well. So there is a variety of different scenarios that we are looking towards.
But in every one of those, there's an economic foundation of where we are today. There's a trusted brand of where we are today. There's control of our data, including audit rights and protections that we're going to ensure we have while we continue to serve our clients and see them grow with us.
Got it. You mentioned token costs. I think one of the things investors are trying to figure out also is who's controlling token costs and how. So maybe a two-parter, like specific to MI, and then even just broadly stepping back for all of S&P Global, just some thoughts on what the token costs look like and how you control that.
Yeah. Let's maybe take it from the sort of client side, and then we'll talk a little bit about internally. Clients of S&P Global, whether they're MI clients or energy clients or what have you, especially the largest clients, are building their own environments for large language models within their ecosystems, right? With harnesses and layers and so on and so forth. And they're trading off one model for another and optimizing in open source and so on and so forth. And what they're doing is we're connecting to them through our energy datasets or financial datasets or corporate datasets, and making sure they can access our data in a highly efficient manner and scaled manner. As they do that, it's quite natural for them to incur the token cost because it's within their environment. For us, we're just fulfilling data. So primarily, it's a client question.
We want to make sure that our data gets to them in a highly efficient way and a highly effective way so that they're not maxing out of their own cost. So that's the primary area where it comes to the fore. The other client area that has some importance is we're building AI functionality within our products, in our energy ecosystem, our MI ecosystem. Some of our ratings data is deployed through that. Configuring indices in our index business can be done by clients. And the AI of drivers and feature functionality of those products. Those tend to be on us, but they're small scale in relation to just enormous amount of data pulling. Then finally, we're using AI internally on productivity opportunities, whether it's data operations, software development speed, whether it's research that we provide.
There you would expect the CFO to do what he or she should be doing, which is just monitoring token costs and seeing who is using it and how much, then asking why. If why has a good answer, great. Let us do more of that because there are paybacks. If why does not have such a hot answer, let us go and look again.
Got it. I am sure the other thing you are focusing a lot on is all these productivity initiatives are probably creating a margin opportunity. You guys already have pretty healthy margins, but how should we think about if we will see some of that in the numbers, or you put that all back into reinvestment? Just some thoughts there.
I think you will see both. I think you will see continued margin expansion and reinvestment into our products, feature functionality, geographic growth, and so forth. I think what we are finding with AI, it is just another in the long list of tools that we can put to use in data operations, where we now see our way to 20% reduction in costs across a $500 million area. Now the discussion is with even the more advanced AI and AI quantitative models, can we go after the next 5%, 10%, 15%, 20% in data operations? That is the discussion we are having right now as part of our budget cycle for 2027, 2028, and 2029. As an example, how exactly we will get there, we will figure out over time.
Our view is that for a company of our scale, productivity matters, reinvestment matters, and we have continued confidence we can continue to deliver at the margin expansion of the 50 basis points - 75 basis points across the company, and we have even said even higher in certain divisions.
Got it. And just on that comment, maybe just help reiterate kind of the divisional qualitative guidance you gave at Investor Day in terms of margins. Where are the bigger opportunities?
Yeah. Let me take it from two directions. We said that margin expansion will typically be 50 basis points -75 basis points for our divisions over time, on average, and so forth, right? They will probably depend on where we are in the revenue cycles, but we see that with confidence. We also said that MI, just because it is a higher proportion of the expense base, will be typically at the upper end of that. And to be honest, you look at the first- half results, we had, what, 75 basis points or more growth in margins in energy and index. We had more than 100 basis points growth in margin in MI, and we had more than 200 basis points so far growth in margin in ratings.
Now, half a year to make a year, but it just gives you a sense for our ability to drive not only top line, but also margin expansion, including in areas where we are seeing both acceleration of cycles as well as some other scenarios. So it has been a good year, and we will continue to do that.
Got it. Before we move on to some of the other segments, and you mentioned obviously all the leaders within MI are talking a lot to each other, but how is the communication between the leadership of your four different segments? How closely integrated are those conversations?
It's become increasingly vivid and intense, and maybe I'll do it from a couple vantage points. For example, in our S&P Global Energy , we have our supply chain assets and products that we've begun to knit together in a much more holistic offering. That can go to our energy clients, to our corporate clients, to our financial clients who are looking at the downstream implications of supply chains on the assets they've been underwriting. It's that kind of connectivity that the Chief Commercial Office has brought together and said, "Look, we have a client need out there. Where do we have products?" It doesn't matter which division it is. We have other areas that are just coming together because, as I mentioned, some of the largest banks are deeply interested in ratings of the debt and companies that they're supporting.
They're deeply interested in how those ratings compare to benchmarks relative to others, and we've been building partnerships and expanding our own datasets there. They're deeply interested in kind of supply chain commodity dependency, including around trade for those underwriting. I think the depth that we're seeing has really been multiplied by the focus on some of our largest clients and all their needs.
Got it. Okay, let's move to the S&P Global Ratings business next. I suppose first question is just around the—can you remind us of what your issuance guidance was or is for the second half of the year? I think from the data we saw July was up 8% based on the number you disclosed, at least. Just how that flows into kind of the guide for the year.
Yeah. The guide for the year started off in the low single digits for billed issuance . Now it's the mid to high single digits. We'll see exactly how it plays out. Remember last year had some patterning to it. The first quarter was strong, second quarter, a lot of concerns, plus some of the trade discussions, so very low issuances. Some of that got delayed into third and fourth quarter. This year, I think, is a little more consistent across the quarters in dollar terms. As a result, we've had a good first quarter, a very strong year-on-year compare in the second quarter. Because of the very strong third and fourth quarter last year, while we'll have, I think, a very good third and fourth quarter, obviously market dependent, the year-on-year compare will actually flip just because of the size of the upticks last year.
Got it. And I think one of the things, at least so far this quarter, it's been driven a lot by IG, and high yield has been a little bit weak. Can you just help us how we should think about the mix of issuance coming in and how that might impact how we should model the business?
Yeah. Year to date, we've had very strong hyperscaler issuance within the investment-grade envelope.
Yeah.
But if you actually look at the data, we're in the 40%-45% range for investment-grade issuance this year. That's along the lines of the 45%-ish that we've seen, 40%-45%-ish that we've seen through the last five, 10 years. So it's roughly in line. I think what we're seeing is a little more hyperscale or maybe a little less in other areas, but investment grade is doing quite well. Like you say, we're seeing not the same kind of momentum in high yield, but that comes and goes. What we do know is the refinancing walls for high yield, for bank loans, and so forth are quite strong. And I think there's also a bit of playing the interest rate rise and credit spreads. Clients are trying to see when they want to issue. Do they want to issue in advance or afterwards? And that'll play out.
I think what we have also seen is we've seen, in addition to strong refinancing walls and pipelines coming through this year, we've also seen good M&A activity, both announced and actually closed. That's been supportive environment. So while there's a lot of talk about the hyperscaler issuances, I think it's been a pretty broad-based year and one that we feel good about. We talk about structured finance volumes, private markets volumes, public and private ratings are both up very significantly. So I'd say a really nice year, and every indication is that kind of momentum should continue. Obviously, we'll see what the markets and rates, how they play out. But that should continue in various ways.
Got it. Just one follow-up on the hyperscaler issuance. Obviously, they've been dominating the big headlines. I know you said the growth has been even broader than hyperscaler, but maybe just for perspective, how much is hyperscaler issuance in your mix? Then the follow-up is just how is the monetization of that? Is that close to what a frequent issuer deal looks like? Because these are big jumbo deals, almost for the most part, right?
Yeah. It's been helpful to the growth rate, but it's not been dispositive, right? This is a piece of many portions of the issuance environment around the world and across industry sets. The issuance is different than a frequent issuer program, and they are not in our frequent issuer program. Those tend to be reserved for some of the financials who need to just issue for funding purposes. These are just classic investment-grade issuances. Because they're so large, price realization's a little lower because we price that way for typically across the investment-grade environment. But it's one where we've gotten very healthy realization that we're pleased with. It's in line with what we've seen over the years for large-scale deals, and it's a place we can be supportive. What's interesting is it's not just vanilla bonds, it's structured finance, it's project finance.
That's an area where two, three years ago, we had really innovated and developed a set of methodologies that are particularly pertinent to the market. I think we led the market in that regard with methodologies that were deep and robust and rigorous. So now clients come to us very quickly and say, "Hey, can you help us with a rating?" Obviously, analytics and commercial are completely separate. But it's an area where we built the depth and capability that both public and private issuers are looking.
Got it. Just on the margin side and ratings, super impressive margins, super high incremental margins. It sounds like there's almost no ceiling. But how do you manage what the opportunity there is? Is there a kind of a range of margins that you try and make sure you're modeling to it?
I think about it in two perspectives. One is as part of Investor Day back in November, we talked about 60 basis points - 75 basis points of margin expansion across our various product lines and divisions. That includes S&P Global Ratings. We think that there's a continuing opportunity there. At the same time, when we have very substantive growth in S&P Global Ratings, just like in any division, we think about how do we reinvest that, right? Part of it is we're doing a lot of work, or we describe it as the analysts of the future. How do we leverage our analysts and help them get to all of our clients faster response times? How do we automate some of their surveillance work to make it even more efficient for them? That lets us add more analytic talent back into areas that are developing.
One of the ways we funded a lot of the structured finance work is we found ways to automate other categories and then add analytical horsepower and capacity in some of these newer market areas. Or we'll reinvest by cross-training our analysts so they cover multiple zones. So there are ways we do that, and then it also gives us the opportunity to flex and think about where are there areas to tactically expand. You saw us do this small bolt-on of a Nigerian and African rating service. That supplements what we have. It's not only through acquisition, but there's a set of organic investments that we've been deploying and building, and that we'll continue to do so that the franchise has the same robustness five, six, seven, 10 years from now as it does today by getting ahead of those opportunities.
Got it. Maybe just a broader question. I think we've seen it on the S&P Global Ratings side, where your headcount has been almost flattish, and I'm guessing AI productivity, all that stuff helps. Is that a trend we should expect for the rest of the organization as well?
I think you'll see more limited headcount growth than we have before. We've talked about in some of our areas, the enterprise data organization, we've reached peak headcount, and now headcount will actually trend down as we just don't need to do as much hiring. We have just natural turnover that we can take advantage of in general, and selectively, we'll adjust proactively. But the tool set has been so effective in that area in particular that we can see headcount trends actually coming down. There are other areas where we're just seeing much more productivity. Software development's one that I think many industries are seeing. Researching is another. Analytical work. But we don't need to add headcount each year to actually service growth because we're doing it through productivity.
I think we'll see more and more of that, and I think S&P Global Ratings, as you described, is a good indicator of that across the franchise. One that we're working towards as we think about planning each year. Right now, we're starting to plan for 2027. We're thinking about all the areas of top-line opportunity, as well as all the areas of productivity, and thinking about it now so that we can plan, put in place programs, and actually get the outcomes that we'd like.
Got it. Okay. We have about six minutes left, so maybe some rapid fire into the two other segments. Talking about high-margin businesses, indices. Can those margins go higher, or is it a case of reinvesting into what's pretty impressive growth in there?
I think it's both again. Ratings, indices, they're great franchises given the revenue dynamic, the secular expansion of those kind of ecosystems. We continue to do work in indices, for example, work around DeFi, crypto indices, a recent partnership with Kaiko, who's a particularly strong player in that whole ecosystem with infrastructure data and indices where we're partnering with them on. Then we can build packages and products of indices for asset managers who want to create products around those, as an example. That just follows around the innovation indices that we've done around fixed income, around multi-asset, around some of the sustainability indices when that was a particularly strong market, and one where we'll continue. Because what we want to do is build that industry and that business for the coming years as well as deliver on the current margins.
We'll be able to do both.
Got it. All right. Thank you. You addressed my revenue question there. Maybe let's just touch on energy real quick. Because of all the geopolitical issues, I think you had lowered the guidance there. Unfortunately, it's continuing. Can you remind us what you had assumed in that guide in terms of how long the conflict continues? I think you had guided to a return to trend next year. Is that still kind of in line with what you're thinking?
Yeah, that's what we're thinking. We started the year with somewhat higher guidance. Right now, we're about top line growth of 4.5%-6%. First half of the year to come in just around 4%. We said in our last earnings call that we thought that second quarter would be the low point and we'd see some acceleration. We'll see that both on a half-to-half as well as a quarter-to-quarter basis. I think what we're assuming is some amount of stabilization in energy markets. Now, stabilization in energy markets may be stalemate. We're open to that environment, and we're seeing our energy clients adapt. They're highly resilient. They've historically been very large long-term thinkers because of the asset intensivity of their businesses. We see them adapting to this environment.
What we've said is that next year we expect to come back into our medium-term targets of 6%-8% for the S&P Global Energy division. I think you'll see us build into that in the second half of the year. We also see that we won't be lapping some of the current sanctions, which are probably worth about 75 basis points across the S&P Global Energy division over the last couple of quarters. That'll also be a headwind we won't have to address.
Got it. Does the recent sale of the software assets, SLB, does that help the mix in terms of revenue growth and margins as well?
It does, because it was just a software slice of the value chain that we were engaged in. It wasn't at the heart of what we did within the Platts benchmarks and then the data and research around that. It didn't have the very good growth dynamics. By exiting and at the same time partnering in that area, we've got now a new partner through which we can actually distribute our proprietary data. It actually makes it even more comfortable for us to sell our data across the ecosystem of other software providers and platforms. It's also an area where we're building out our interface tools so that that data can be distributed even more efficiently and effectively than it has more recently.
Got it. We only have one minute left, but I wanted to ask you a capital allocation question. Then sort of maybe running through the priorities. Just curious, since you've taken over, is there any nuance to that has changed, even if it's just because of the environment out there in terms of what we should expect from S&P Global going forward?
I think we've been clear, at S&P Global, that we want to be stewards of our capital in a couple of ways, right? We want to continue to invest and reinvest in our businesses, primarily on an organic basis. That means creating enough productivity so that investors get both revenue growth driven by investments as well as margin expansion. That's at the heart of capital allocation from an organic standpoint. We said that we're only interested in bolt-ons and smaller acquisitions and nothing transformational. You saw us do a couple of those just earlier this month, right? datacenterHawk, which is a data center power-
Yep.
-and forecasting area. A ratings regional expansion in Africa. That's typical, but also prune on the margin, right? In small sub-scale product lines. Given our scale in half, we want to invest in the bigger and more sustainable areas because they either give us top-line growth or margin expansion capacity or both.
Got it. All right, we'll end it there. Thank you so much, Eric, for being here. Thank you, everybody, as well.
Great. Thank you.