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

Good morning. And thank you for joining today’s S&P Global first quarter 2023 earnings call. Presenting on today’s call are Doug Peterson, President and Chief Executive Officer; and Ewout Steenbergen, Executive Vice President and Chief Financial Officer. For the Q&A portion of today’s call, we will also be joined by Saugata Saha, President of S&P Global Commodity Insights; and Dan Draper, CEO of S&P Dow Jones Indices. 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 most recent Form 10-K filed with the U.S. Securities and Exchange Commission. In today's earnings release and during the conference call, we're providing non-GAAP adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the company's operating performance between periods and to view the company's business from the same perspective as management. The earnings release contains financial measures calculated in accordance with GAAP that corresponds to the non-GAAP measures we’re providing and the earnings release and the supplemental deck contain reconciliations of such GAAP and non-GAAP measures. I would also like to call your attention to a specific European regulation. Any investor who has or expects to obtain ownership of 5% or more of S&P Global should contact Investor Relations to better understand the potential impact of this legislation on the investor and the company. We're aware that we have some media representatives with us on the call. However, this call is intended for investors, and we would ask that questions from the media be directed to our media relations team whose contact information can be found in the press release. At this time, I would like to turn the call over to Doug Peterson. Doug?

Thank you, Mark. As we look at this quarter's highlights, I want to remind you that the financial metrics we'll be discussing today refer to the non-GAAP adjusted metrics for the current period and for 2023 adjusted guidance and non-GAAP pro forma adjusted metrics in the year ago period, unless explicitly called out as GAAP. We're pleased to report 3% revenue growth in the first quarter compared to pro forma results in the year ago period. We continue to generate substantial synergies and manage our other expenses with discipline, as demonstrated by the 1% growth in total adjusted expenses in the first quarter. Our focus on top line growth and expense management resulted in an expansion more than 100 basis points in the adjusted margin and a 9% year-over-year growth in adjusted EPS. In addition to our strong financial results, we also made progress on many of the strategic initiatives we laid out for you at Investor Day. We continue to prioritize innovation in our technology budgets, and reached important milestones in our cloud migration. We also hosted a record-breaking CERAWeek in the first quarter, and we also expanded our lead in AI with Kensho releasing two more commercially available products built on our proprietary AI and machine learning platforms. We'll discuss these important highlights in more detail in a moment. One of the key messages from our Investor Day last December was the introduction of the five pillars that drive our strategy of powering global markets. Beginning this quarter, we’ll be discussing our results using that same framework. We use these pillars as a lens to inform our decisions on capital allocation and organic investment that impact our people, our customers and the communities in which we live and work. First, I want to start with our customers. Delivering…

Thank you, Doug. As a reminder, the financial metrics that we will be discussing today refer to non-GAAP adjusted metrics for the current period and for our 2023 adjusted guidance and non-GAAP pro forma adjusted metrics in the year ago period, unless explicitly called out as GAAP. For the first quarter of 2023, adjusted earnings per share increased 9% year-over-year. This growth was driven by a combination of 3% revenue growth, 100 basis points of operating margin expansion and an 8% reduction in the fully diluted share count. This is an excellent example of strong execution and prudent capital management combining to create long-term shareholder value, and we're pleased with the start to 2023. Revenue growth in the quarter was driven by growth in market intelligence and strong performance in commodity insights and mobility. This was offset by a lower issuance environment compared to the first quarter of last year, though issuance improved sequentially from the fourth quarter. We'll walk through the deficients in more detail in a moment. Adjusted expenses were up only 1% year-over-year, driven by cost synergies and other operational efficiencies. Adjusted operating profit increased 5% year-over-year, as margins expanded to 46.2%. I'm pleased to report a sustainability and energy transition revenue increase of 27% to $69 million in the quarter, driven by strong demand in sustainability products in MI's climate and physical risk products and CI's energy transition products. Private market solutions revenue remained at the $100 million level, as growth in products from market intelligence were offset by declines in ratings due to the timing of private market issuance. We still expect growth in private markets this year to be in line with the targets laid out at Investor Day. Vitality revenue, which is the revenue generated by innovation through new or enhanced products from…

Our first question comes from Manav Patnaik with Barclays. Your line is open.

Good morning. Doug, upfront you mentioned retention rates and mobility were declining modestly. I was just hoping you could provide a little bit more color there, perhaps with some numbers. But is that a trend you're seeing across your segments just given the uncertain macros out there?

Good morning. Thank you, Manav, for joining the call. The mobility question you have relates to some of the changes that are happening at a structural level in the mobility and transportation business. If you recall the last couple of years, we saw all of the used cars became a very large sales aspect for the dealers and the automotive manufacturers. The OEMs were struggling to actually meet demand. So we're seeing a shift away from used cars to new cars. And we actually expect that there's going to be a lot of growth in the sales of automotive products around the globe this year. And where we're seeing some of the slowdown in subscription relates to dealers, as dealers don't have necessarily the same margin, they might be changing some of their approach to how they're working with the sales force they have. So we're seeing that that's one of the areas where we see some disruption in some retention rates that have started to drop. Other than that across the board and the rest of the company, we do not see any changes whatsoever to retention rates.

Got it. Thank you. And Ewout, just on the ratings guidance, apologies if I missed this. I think you said more transactional revenue but offset by two items. I was just hoping you could elaborate what those offsets were?

Sure, Manav. Good morning. If you look at the dimensions with respect to market issuance and built issuance, actually we're seeing exactly the opposite of the pattern of 2022. So there are two large categories in market issuance that are down more that are not included in built issuance. So this is unrated debt, as well as frequent issuer. So frequent issuers, we don't have in build issuance because as you know they're on the fixed fee construction up to a certain level of volume. So therefore, we expect build issuance to be significantly higher than market issuance for the full year 2023.

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

Thanks for taking my question. I just wanted to focus on the individual segment guidance. You raised the guidance for commodity insights, mobility and indices. I understand MI is more towards the lower end. But even on the ratings front, it looks like the build issuance guidance was raised by almost 1 point. Earlier was 2 to 6, now it's 3 to 7. But you reiterated the full year guidance, so I was just wondering within the full year guidance, do you have increased confidence on the range? Any color on that front will be helpful. Thanks.

Thank you. Good morning, Ashish. We are overall really confident around the outlook for the full year. We are very pleased, of course, with the results in the first quarter, and then also the confidence around what we are going to achieve for the full year. And you see that reflected in the overall guidance that as you have noted is unchanged. But you have to realize that we're taking out two months of engineering solutions revenues and earnings. So you could say implicitly, we've slightly raised our full year guidance. And then by deficient, as you were asking for, the changes are due to the following. If you look at commodity insights, that is driven really by the outperformance of revenue growth in the first quarter. If you look at mobility, strong growth in the first quarter, but also the acquisition of Market Scan is helping there from a revenue perspective. And indices as well, what we're seeing there is also a very strong first quarter, and that is therefore also reflected in the full year revenue growth outlook. In terms of ratings, there is a shift that we have told you, a little bit higher transactional revenue, but a little bit lower non-transactional revenue. So net-net is still the same. But there is a shift in those two underlying categories. And then with respect to margins, mobility has been tuned down a bit. That is the dilutive effect of the acquisition. But on the flipside, for the indices business, we see that the margins are actually up, given the strong performance in the first quarter again. With respect to market intelligence, we have said that we come in more at the lower end of the ranges, both for revenues and margins. And that has to do with the macro environment, a bit of the uncertainty, the fact that we expect some of the capital markets products, more to come back later in the year, because now we assume the recession is somewhere mid of this year, as well as some of the impacts of the banking crisis, although we think that impact will be really minimal for market intelligence.

That was very helpful color. And maybe as a follow up, if I can follow up on the mobility front. Manufacturing in particular was very strong. Overall growth in mobility was very strong, but manufacturing historically which has been more in the 3% to 4% range was up 11% this quarter. So I was wondering has anything changed there structurally, which is driving significantly stronger growth in that segment? Thanks.

Yes. Thank you, Ashish. What's driving growth in that segment, if you recall over the last couple of years, there was -- the supply chains had been disrupted. There were no access to different types of chips, which are used in the automotive sector, including even things like key fobs. And you also saw a lot of disruption demand from the market as people were looking for cars, but they couldn't get them. So we're seeing that manufacturing is up. In fact, our total vehicle sales globally, we're seeing very strong sales coming up in the U.S., over about 7.5% growth in China, about 6% growth in Asia, including Japan and South Korea, about 6.5% growth and in Europe about 7.5% growth. So across the board, we see a lot of growth in production as well as coming from a very, very depressed base. But at the same time, it puts some pressure because the demand is starting to decrease as well, given the inflation, given interest rates are going up. So we see that right now, there's a lot of demand for information from our mobility team, because we provide the forecasting, we provide the information about the changes going on in the industry, as well as the day-to-day dynamics. But we're shifting the dynamics from what had been a supply constrained market to a richer approach to more supply in the market and shifts in customer demand that all of this benefits our mobility business because they provide the data and analytics that dealers and OEMs and suppliers need to make decisions.

Thanks, Doug. That was very helpful color, and congrats on such a strong momentum in the business. Thank you.

Thank you.

George Tong with Goldman Sachs, your line is open.

Hi. Thanks. Good morning. I wanted to focus on the rating side of the business. The revenues there declined mid-single digits year-over-year, and that came in much better than your main competitor, which saw an 11% decline. What are some of the factors that you believe drove this outperformance in delta in the quarter? And can these factors persist over the remainder of this year?

Thank you, George. Well, first of all, this was a very lumpy quarter when you look at the issuance. It started out quite strong of issuance. Investment grade had started off strong, but through the quarter in the U.S. it declined 14%, in Europe it increased 3%. A high yield increase in the U.S. 20% but it decreased in Europe 2% and structured finance in the U.S. decreased 48%. And in Europe, it increased 7%. So this was an incredibly lumpy quarter for us. But we've been very adamant about having our sales people and our commercial people out in the markets. We keep our finger to the pulse of what's happening across the markets. We've been involved in supplying information for the structured credit, an area in particular CLOs. We've been strong in the CLO market in the last quarter. We see going forward we think that for the rest of the year that it's going to be mostly refinancing that's going to drive what we see is the issuance. If you take a step back and last quarter, we issued a slide which we show once a year, which is the pipeline of refinancing, which is on the balance sheet of companies, financial institutions and other organizations over the next 5 to 10 years. And you can see there was a lot of financing that took place over the last 10 years with typically five, seven, sometimes up to 10-year maturity. That's starting to mature now. And we're starting to see some of that pull forward. And the question is, what are the right conditions for people to come back to the market? And that's something we're watching very closely, because there is a very, very large pipeline of refinancing that's going to be coming over the next three to five years, and we're going to watch that carefully including what's going to be coming this year.

Got it. That's helpful. And then wanted to ask about your synergy realization. You realized run rate synergies on the cost side of a little over 550 million, and then 50 million plus on the revenue side. Can you dive into where you're seeing most traction with revenue and cost synergy realization, and how you expect the progression to continue over the course of this year?

Of course, George. Thank you so much, and good morning. We are, of course, very pleased with the progress we're making with synergies. This is really a statement of execution of the whole team, of the whole company and the speed of the implementation of all of our programs is really impressive from my perspective. So we are at 550 million run rate cost synergies at this moment. These are cost synergies we're doing in all the categories that we have outlined before. There's of course organizational and duplication of roles that we're taking care of. Then there's real estate consolidation, vendor consolidation, and several other categories. This is all linked to integration. So we like to get the integration behind us as quickly as possible, and that we can fully operate as a combined company going forward. And we're very close to that point now. And that is expressed by the progress we have made with cost synergies, and getting really now not too far away anymore from the 600 million cost synergy mark. And so this is all across the company. With respect to revenue synergies, we see very nice progress in the divisions. The largest growth there we see in market intelligence and commodity insights, but contributions by all of the divisions. We have always said from the beginning that revenue synergies will take more time. At this moment, the focus is mostly on cross sell. And then later this year and the next few years, we will shift to new product development. But obviously the lead time to develop new products into the system, enhancement for that will take a bit longer. But both on cost and revenue synergies we're very pleased where we are at this moment.

Thanks, George.

Thank you.

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

Thanks so much. I wanted to talk about ESG first. Thanks for the quarterly disclosure. We have seen some slowdown in new sales from a competitor of yours talking about the political and regulatory landscape. Have you also noticed any change in investor behavior in ESG, particularly in the new sales, any areas that are slower versus more resilient, because I know it's sort of a topic that spans your whole business. So maybe there are some areas that are doing fine and resilient versus others that maybe you are noticing a new sales change? Thanks.

Thank you, Toni. I'm going to start and then hand it over to Ewout. If you take a step back and you think about something like the ESG sustainability, climate markets, they go back the last five, six, seven years. And if you look at our company, we have products that go back 50, 65, 100 years. And the experience of a market like this, it's really changing rapidly. And fortunately, because of our Sustainable 1 organization and the way that we've been investing in sustainability products, energy transition climate, ESG across our entire company and coordinating it through S1, we're seeing strength across pretty much the entire portfolio. And in particular, we're seeing a shift away from ESG to climate in the U.S. and around the rest of the globe. One of the things that I always say is that the train has left the station on this. This is an area that's going to be growing very quickly. It's high demand, it's coming from corporates, it's coming from governments, from regulators, from financial institutions, every part of the financial institution area. And we have products from Trucost, our ESG data suite. We've got bond referencing prices, physical risk, we're in the middle of what I'd say is one of the most important dialogues taking place with regulators around the globe about disclosure. But let me hand it over to Ewout to talk a little bit more about the numbers.

Toni, when we look at the first quarter revenues for sustainability and energy transition, we actually think that this is really strong for the company. And we are still confident that for the full year outlook, the growth will be in line with our medium-term expectations. And the reason for that is, as Doug outlined, that we have very diverse revenue streams underneath sustainability and energy transition, and all of our decisions contribute to the progress and to the growth. So think about, for example, in mobility what is happening, the huge transformation of the industry around electrification, move to EVs and what that means for the OEMs with respect to thinking about supply chains and new manufacturing and where they sourced the batteries, what is happening in the commodity space with energy transition, what is happening with new price assessments around hydrogen and carbon and biofuels and recycled plastics, what is happening in the rating space with second party opinions? And then Doug already mentioned climate, really there's so much focus now about climate; climate analytics, climate credit analytics, climate data. Just to give you one data point, Trucost actually grew more than 50% in the quarter. So overall, if we added up, I think we have very strong revenue streams. And therefore we are confident about our future growth in this industry and this particular growth area.

Perfect. And hoping you could on another topic just give us an update on how you're utilizing AI or any of your other advancements in technology, whether it be through Kensho or other areas as well?

Toni, the way how we look at it is, we really believe we're ahead of the game here. We did the acquisition of Kensho five years ago when just very few people were thinking about artificial intelligence. We have already embedded a lot of Kensho's products and tools within our businesses over the last few years. And our intention is really to stay ahead and to really make sure that we continue to implement this and be one of the winners in this market. We told you this morning we have not five Kensho products that are in the market, that's just for external customers. But internally, there are many more products. And actually the efficiency opportunities that Kensho has created for the deficients is very large. Maybe if I may expand on this in one particular area. If we think about large language models and generative AI, actually three areas are really critical. It is compute, which is really expensive. Then there are the algorithms which are more open source and generic. And then it is about training data. And training data is really differentiating. And if you have really good training data, you can improve the algorithms and you can drive down the compute cost. We have at S&P Global the largest training data set for financial markets, plus the best team of Kensho that we already outlined. So we have no need to export our data to someone else models or generic large language models. We can do this in-house. And you may expect that we will have more announcements around this later this year.

Thank you, Toni.

Thank you.

Thank you. Our next question comes from Alex Kramm with UBS. Your line is open.

Yes, hi. Hello, everyone. Just wanted to come back to the market intelligence commentary and the outlook there. Clearly, you sound a little bit more cautious. Although, Doug, I think initially you said it should be fine. But I think Ewout's comments are clearly pointing towards the low end. So I guess the question is, what specifically is it that makes this thing a lower end? Is it just an expectation of a slowdown, or is it actually something that you're already seeing in new sales? We're just curious about if this is more an expectation or something you're already seeing in the pipeline I guess, because obviously the uncertain environment? Then specifically, you mentioned the Swiss bank merger, which obviously is something I'm paying attention to as well. Just wondering, you said it wouldn't have an impact, but is it a question about maybe this year not an impact because it may take some time? Or is it just the exposures are very small, just maybe you can dimensionalize it a little bit since it is the first time we've had something like this in like 15 years?

Yes, Alex, good morning. This is Ewout. I will start and then hand it over to Doug. Generally, we are confident about the outlook of market intelligence for the remainder of the year due to a couple of reasons. The first is growth of the subscription book of business, we see some healthy growth. Then we have good revenue synergies that will come in over the next period of time. We're expecting a capital markets recovery at the end of the year. So that should help enterprise solutions. And then also the comps will become easier and FX headwinds will become easier during the course of this year. So those are the elements that will help us to remain confident with the outlook. With respect to the specifics of the banking impact, we think this is overall manageable and not material for market intelligence. And the reason for that is the following. Market intelligence actually has a very diverse customer base. Only 10% of the customer revenue is coming from commercial banks, and these are global commercial banks, so not specifically U.S. or Europe. So that's actually a relatively low percentage. And then we have multiyear subscription contracts with those customers. We have tuned it down in the guidance range to the lower end of the range given the uncertainty, given the fact that we are still expecting a shallow and short recession in the mid of this year, and we want to be cautious. But overall, that's why we still believe we should be able to come in within the range for market intelligence for the full year.

Alex, what I wanted to add is that I've been on the road almost nonstop this year and seeing clients. And it's been incredible the kind of feedback we're getting about the value that the market intelligence team is bringing with the data that's getting built into different platforms. And what Ewout just highlighted that market intelligence customer base is very diversified. We don't just have a financial institution. Client base within financial institutions, we're not just focused on only one single segment. So I've had really interesting conversations with corporates about the data that we have in market intelligence, what we can provide in investor relations coordinator, which is used by different traders, by supply chain. We have a new product which is a supply chain console that corporates are finding incredibly useful for them to understand what would be their needs for managing shipping, supply chain risk, et cetera. So I'm really encouraged by what we're seeing. The client dialogue is what I wanted to highlight.

All right, thanks for that. And then just a very quick one on the rating side, and I asked your primary competitor this also, but maybe have a different view, which is really what's going to happen with lending by regional banks, right? I know they're more focused on middle markets. And that's not really where you play. But if we make the assumptions that these companies are going to be more constrained because of regulation or capital requirements, is there an opportunity for you or are you thinking about an opportunity that could lead to more disintermediation that you actually have a role as that remaining lending in the U.S. may more go to capital markets? Or is it just too small for you and it will go to other channels like private credit, for example?

Yes, thanks for that, Alex. Well, first of all, we have much, much lower exposure to that sector than some of the other competitors in our space. We do watch it very closely, because it does help with some of the -- understanding some of the credit dynamics in the country overall. We do see in the U.S. that there could be some slowdown in credit. And that's one of the reasons that we've been cautious about our own economic forecast for the rest of the year. You heard as Ewout said that we expect that there would be a mild recession or a mild slowdown as we see a dip in the second or third quarter. And we think part of that could be caused by the slowdown in credit. But overall, we have very low exposure to this area. And it's likely that some of the areas that we see that the credit will get picked up by the private markets or securitization, and some of those we might actually benefit from some of the activity on those.

Okay. Thank you very much.

Thanks, Alex.

Thank you. Our next question comes from Craig Huber with Huber Research Partners. Your line is open.

Great, thank you. Can you touch on, if you would, your outlook for bank loan issuance this year and high yield issuance just given the huge uncertainties on the macro side please?

Thanks, Craig. Well, let me give you a broader sense of issuance and just reconcile a little bit what we talked about earlier on the call. As you know, we have our credit research team issues a report on what they see is the full forecast for the year. And right now they're expecting that the range across all of the different areas would be down about 3.5%. And then we've said that we think what the range of build issuance will be up about 3% to 7%. We don't break it out between what would be leveraged loans and high yield. Those are part of that. But in the first quarter, high yield issuance was up about 6% of build issuance and bank loans was down about 33%. In many cases, those are substitutes for each other. Sometimes you can see somebody says, well, am I going to issue a floating rate or a fixed rate, what are the market conditions or I'm going to go to the private markets, which had been quite quick, they're fast, but they also have in some cases, higher spreads on them, as well as maybe more covenants. But we think that there's going to be a very dynamic market. Overall, I think you should focus on the 3% to 7% build issuance up and look at the different components of where we see that's happening. Just as an FYI, in our credit research teams forecast, they see that corporates will be up about 8.5% for the year. So think of that as kind of an anchor. And also remember what I said earlier to one of the earlier questions about the amount of refinancing that it's already taking place. Maybe the last point I'd make is that we see that in this…

Thanks for that. My other question please, mobility obviously had a very strong start to the year with solid outlook for the rest of the year. Can you just touch upon the businesses within that division that you think will help drive it for the rest of the year, and any significant changes from the trend you've saw in the first quarter do you think might go better or worse as the year goes on? Thank you.

Good morning, Craig. We're actually really looking positively for all the underlying revenue drivers within mobility. First, when you look at dealers, you see a little bit two effects going in opposite directions, as Doug explained earlier. So maybe their margins are coming down a bit, inventory levels are going up. So therefore retention is a little bit lower. But on the flipside is that there is more demand for sales and marketing products, because they need to be more proactively reaching out to potential customers in the future. So that is actually driving the growth in the dealership. Moreover, I think CARFAX is super entrepreneurial, really innovative, launching a lot of new products. And that is helping with the growth there as well. Manufacturing, the same thing. Also, there they are exposed to more needs to really reach out to customers through our marketing and sales products. So that is going to be helpful there as well. Plus all the changes that are happening with the transformation to EVs and our planning products, they are helping our OEM customers. And then our data is flowing to insurance companies, to banks and other loan entities that need the data for the pricing of their products. So we expect that to continue to grow as well at healthy levels during the course of this year. So overall, I would say positive momentum for mobility and I have no reason to believe that that would not continue in the future.

Great. Thank you.

Thanks, Craig.

Thank you. Our next question comes from Jeff Silber with BMO Capital Markets. Your line is open.

Thanks so much. I know it's late, I'll just ask one. Nobody's asked about the pricing environment. And I know it varies by the different segments you’re in, but if you can just give us some general comments in terms of the ability to pass through pricing, we'd appreciate it?

Absolutely, Jeff. So the way we look at this is most of our products are must-have products for our customers. We are deeply embedded in their workflows, in their day-to-day activities. Therefore, we add a lot of value to our customers. And that should give us an opportunity to pass on any cost price increases as a result of the inflationary environment in terms of pricing and fees. But obviously, we're doing that in a very responsible way. We're doing that in a very balanced way that will come in gradually over time at the moment of contract renewals. But overall, we think that is reasonable to pass on cost price increases to customers, and therefore we still expect to expand margins in this current environment. I'm looking at maybe one of my colleagues, Dan or Saugata, if you would like to give any particular color for your businesses.

Yes, sure. Jeff, it's Dan. Thank you very much for the question. Look, to echo Ewout's comments that we align pricing with the value we create for our customers. And if you look at something specifically for indices, this massive secular growth trends switch from active to passive management, that's something that we want to be aligned with our clients and ensure that again we're representing the value and really working closely. And I think if you look at the outcome that we estimate over the last 26 years from our three core indices, the S&P 500, 400 and 600 that we saved investors over $400 billion in management fees. So that's benefiting directly savers, retirees, people saving for college education, things like that. So I think pricing is a strategic tool that we look through and really use again to align growth and interests with clients.

All right. Thanks so much for the color.

Thanks, Jeff.

Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open.

Good morning and thank you for taking my question. So going back to Kensho, Doug and Ewout, you mentioned five products are commercially available. Could you please talk about the early traction there and your expectation about these products? Who are your major clients? Would that be banks, or you can expand to other vertical? And also, please remind us the revenue model, mainly subscription-based model? Thank you.

Thanks, Owen. I will give you a more broader perspective and then hand it over to Saugata for some specific Kensho implementations in commodity insights. So overall, Kensho for the last few years has been very much focused on product development, speed to market, new product design, new design of delivery, customer experience within S&P Global, but slowly is now also turning more externally, again, because many of those products that have been developed are also attractive for external customers. Overall, if you look at the value that is generated, it's both value internally and externally. In terms of external customers, we have now more than 50 external customers in areas like asset managers, large banks, hedge funds, and corporates. And this is all the products that we have highlighted before; Link, Nerd, Scribe, Extract and Classify, so many good products. But let me hand it over to Saugata to give you more details about commodity insights.

Thanks, Ewout. And Owen, thanks for the question. I described the work that we do with Kensho and more broadly the concept of AI across commodity insights is a foundational piece of everything that we are doing that's future looking and growth driving. So Kensho, for example, built a tool that we use in our what we call the price assessment process, specifically the market on closed process, wherein we kind of at the end of the day pull together everything we've heard during the closing out of the trading markets to understand what the outlook for price. And Kensho build a tool that compressed the workflow time by about 70%. That frees up time for our researchers, for our price reporters to do other productive thing for our customers, and also helps us get information out to the market faster. In addition, AI is a broader theme. We do a lot of work. And I draw your attention to some of the newer products like Energy Studio Impact, which is essentially 6 million North America wells, of which for about 1 million wells we do real-time live forecasts. And you can imagine that something like that involves more than 1 trillion rows of data, and computing that without leveraging AI and machine learning models, and we have about 4,200 of them in that one product alone would be nearly impossible. And that's just one example where we are using -- just I would say two examples where we are using Kensho and machine learning and artificial intelligence concepts more broadly to develop and demonstrate additional customer value.

Got it. That's very helpful. Thanks a lot. And then on indices on the expense, I think it was lower than our expectation, but the margin was higher. Was it mainly driven by lower comp because your revenue line gets lower? And also, could you please give us an update on your key maybe market and also your investment or expense assumption for the rest of this year on indices? Thank you.

Yes, hi, Owen. Thanks, again, for the question. I think in terms of the performance, as Ewout had mentioned, we had the difficult comps, but also the asset prices and our asset-linked, if you think back, you kind of build that in arrears [indiscernible] quarter was coming off of the market highs at the end of 2021, so comparing that. And also there was some seasonality in products like the S&P 500. You do see the liquidity benefits of that product. I really think inflows late in the year and that can come out in early through the year on that. Where we saw the outperformance was in exchange-traded derivatives. Obviously, we've seen a very fast increase in nominal interest rates. And that's really caused some dislocation in the way that risk premium across asset classes, and so that's obviously increased volatility. So we're so well positioned in this ecosystem we built. What we discussed back in the Investor Day in December, being able to align and provide price discovery, liquidity and crucially for the exchange-traded derivative market being able to manage risks. And so what we're seeing is a combination of secular growth trends there, extended trading hours, shorting down to intraday or even single day types of access to derivative products, but there’s also cyclicality. We do know that over time, volatility will particularly normalize, potentially mean will revert to some degree. So in terms of our outlook, we want to make sure that we manage that appropriately. So if you think about the margin, just kind of looking for the rest of the year, we do like exchange-traded derivatives. They do have a higher gross margin than our asset-linked, but we do expect that mix to change. We do expect, hopefully, the flows to change that. So it's going to be reflected in the revenue mix we have. Also we had some one-time expenses that were non-recurring. And we also had some lapping incentive comp expense reductions last year. But what we really want to do ultimately is to reinvest back into the business. And I think that reflects, again, the way we're thinking about the margin for the rest of the year, and really leaning into again the secular growth trends we have.

Okay, sounds great. Thanks a lot.

Thanks, Owen.

Thank you. Our next question comes from Andrew Steinerman with JPMorgan. Your line is open.

Hi, Ewout, I know this is a small item, but it would help our model. Could you just give us what the total acquired, that's the M&A revenues were in the first quarter? I definitely heard you call out the 1 point of M&A revenues and mobility from Market Scan. But as you know, there's been some other kind of tuck-ins already completed. And if you could also on the same basis with the acquisitions already completed, could you give us of what the M&A revenue assumption is for the '23 guide?

Andrew, we said that for Market Scan, during the quarter, the impact is around 1 point. So it's around $3 million to $4 million. It's overall immaterial for the company as a whole as you understand. The other two sides in ChartIQ really are immaterial for market intelligence. So from a modeling perspective, I wouldn't put any number into your model. But then I would like to point out that the revenues and the earnings were loose in our models. And our plan for the full year by divesting engineering solutions two months earlier is actually net-net going to reduce the overall impact on our plans. So the net of divestiture of engineering solutions and in requisitions is actually a negative, hence my comments earlier during this call that implicitly we're raising the guidance for the full year by holding the range to same for the company as a whole.

Right. But you do account for all of the M&A, right?

Yes, that's correct.

Okay. Thank you very much.

Thanks, Andrew.

Thank you. Our next question comes from Jeff Meuler with Baird. Your line is open.

Yes, thanks. Doug, Ewout, good to hear from you. But I'll try to continue to incorporate some of those other voices. Within indices, maybe if you could talk about, I guess, like your vitality or what new products are really resonating or you think have the highest potential?

Yes. Hi, Jeff. Thanks for the question. In terms of the vitality, we think of that sustainability was a theme. I think Doug and Ewout both kind of emphasized, that's a huge opportunity for us, particularly as we expand to other regions in Europe, Asia, that's always top of mind for us. I'd also say factors schematics [ph], and specifically if you think about the need for income globally. So for us having the leading dividend, equity dividend franchise, our aristocrats, we're seeing a lot of demand there. If you think about in developed markets ageing populations, the need for retirement income, but hey, now there's inflation. So all of a sudden, I need to protect capital and standards of living. So that's where the combination of using, say, our S&P 500 equity franchise to supplement fixed income, that's clearly a big synergy from the IHS Markit, and specifically our IBOX franchise. So what we're seeing now is combining like around the world kind of that dividend franchise we have with credit, and being able to offer now multi-asset solutions. And particularly markets like Japan, one of our largest asset management clients, just launched the first multi-asset ETF in that marketplace. So again, really bringing synergy and capabilities, but I think income leading into that, also in sustainability looking to combine really the partnership within S&P Global. Even Saugata’s business in commodity insights, we've been able to use unique proprietary data sets around the electric vehicles. I think Ewout had mentioned, we came out in partnership again with commodity insights with our GSCI franchise to come out with an electric vehicles metal index. Again, other data sets were Trucost and sustainability. So I think this is really -- as we go back to that 2025, 2026 outlook we gave in Investor Day, this is really looking through increasingly these proprietary data sets, being part of S&P Global to really look at some of these mega trends around the world.

Thank you. And then on commodity insights, there was a comment about an opportunity to further sector leadership. Maybe just a high level comment, like how was CERAWeek different with IHS here being part of S&P now? And then should we look to the event as a meaningful cross-selling catalyst if you just talk about the pipeline build coming out of the event? Thank you.

Jeff, thanks for the question. So just as a reminder, so CERAWeek is a marquee energy event that we hold and it's increasingly broadly more than energy event that you hold in Houston in March every year. It is the premier -- as you point out, it is the premier venue for thought leadership for commodities and everything future looking for the commodities business. This year, we had over 8,000 attendees there, a lot of C-suite executives, important policymakers across the world. And I'd say, if you think about CERAWeek, we obviously want to grow the franchise in a meaningful way that is accretive to the overall business and the business plan that we have laid out. We do get a lot of -- it's not a venue where we sell. It's not designed to be a venue where we sell, but it is a venue where we showcase our thought leadership, showcase our talent, and showcase all of the great work that we are doing and kind of driving answers to some of the most complicated questions out there. And the four teams that came out this year, which also helps us shape the research that we do, because we have this audience where we connect with the community that we have built where we connect with them and that helps us guide research that we want to do, products that we want to do. And I'd say the four things that we took away that's going to help us shape our own strategy; number one is energy transition is here to stay. It's not going away. Number two, energy transition is complicated because customers are trying to balance energy transition, energy security and energy affordability. Third, I’d say customers are upbeat. They are looking for solutions to complex problems, which only data and analytics of the thought that we can provide can help them solve. And the fourth I'd say, we walked away with targeted opportunities that we want to work on and build opportunities to serve clients. So I'd say in summary, Jeff, it's less about the cross-sell opportunity, but more about the sense of community we’ve built, the direct revenues that we generate, and of course what we showcase and what we walk away from the conference in terms of the knowledge that we build and how to shape our business. And the last thing I would add that, of course, CERAWeek is our marquee event, but we also have other leading events like the World Petrochemicals Conference. There's nothing else like this sort for the petrochemicals business, or the London Energy Forum or the newly acquired Fujairah Conference, which we call FUJCON, all of them in combination with especially the merger helps us interact with customers in a way that would not otherwise be possible.

Got it. Thank you.

Thanks, Jeff.

Thank you. Our next question comes from Russell Quelch with Redburn. Your line is open.

Yes. Good morning. Thanks for having me on. Following on from the previous question actually [indiscernible] I haven't seen any new products in the fixed income benchmark index space from S&P yet post the acquisition of IHS. I did hear Dan's comments earlier, but can you be more specific about the time to market for new fixed income index products that are bridging the brand and S&P's rich data set on the corporate side particularly? Do you have sort of aspirations to challenge Bloomberg [ph] in that market? Any sort of further comments you can give there? And I guess the question being how much does new product growth drives the 10% medium-term target in the index business, please?

Yes, hi, Russell. Thanks for the question. No, we actually have hit I think probably one of the most notable products in Europe was our Paris-Aligned & Climate Transition launch in fixed income. And so that aligns already what we've done in equities. So that was something we got to market. And there's now demand, we call it, the PACT Indices to do those in other parts of the world and other kind of regional exposures, whether it be emerging markets, global, what have you. So that was a really important product and index that we got to market. As I mentioned as well, multi-asset is really, really important for us too. So to align, again, the IBOX range, for example, investment grade, high yield, but to put that more intentionally alongside our leading equity franchises. So being able to do that on a channel basis, particularly areas like insurance. If you think about the annuity space, being able to go specifically there where multi-asset demand, it's also a channel historically that's had a lot of active management. So this bigger trend of shifting from active to passive, we are a leader in that space, but it's early days. Can we expand kind of our first mover advantage to again bring the IBOX capabilities? And again, we've already launched products I mentioned in Japan on multi-asset. We have development now moving forward really across the globe. But I'd say insurance is interesting. Retirement, I mentioned as well, another area that in some areas historically have been very actively oriented, again, combining fixed income with equity is where we want to be able to move forward. And it's a competitive place.

And then looking at one part, and that is with respect to the last part of the question around the total contribution of new products to the top line growth of the company, we said at Investor Day, as you might recall, about 80 basis points of contribution to overall growth for the company from the new initiatives. And obviously, our focus is to continue to see that developing further in the future. Therefore, vitality is such an important metric for us, because it is an indicator of a healthy innovation within S&P Global. But I just would like to point out that products will rotate off from the vitality index after three to five years, because at some point, they are not a new product anymore, and they will become business as usual. But the last piece of information I want to give in terms of the health of innovation around vitality is we have seen double digit vitality levels within our businesses this quarter from market intelligence, from mobility, from commodity insights, and from indices. So very positive all across the board.

Thanks. So maybe just as a follow up, I heard all the comments around investment and synergies, particularly Dan's comments around investments. So just wondering if you can speak to the seasonality you expect in the cost line in 2023. Is that likely to be the same as historical average or slightly different to previous years? Thanks.

Russell, there's two kinds of investments in new initiatives. There is investments in our strategic programs, our strategic investment program of $150 million. You should assume that that comes in gradually over time, so no particular seasonality. And then we're making investments, what we called cost to achieve, which are related to revenue synergies and realization of revenue synergies. Those will come in also over time, but those are pulled out from a performance perspective. So those you won't see in the actual performance results, the normal cap results that we're reporting now and in the future.

Thank you.

Thanks, Russell.

Thank you. Our next question comes from Simon Clinch with Atlantic Equities. Your line is open.

Hi, Doug. Hi, Ewout. Thanks for taking my question. I wanted to ask a question really about the competitive environment, and just your comments about your lengthening sales cycles and the stresses that are facing the financial services customers? I was wondering are you seeing any sort of competitive response or would you expect to see any responses on pricing from the industry overall? And how would you expect to fare in, if that were to happen?

Thank you, Simon. This is Doug. Well, first of all, as you know, we've always been in a competitive environment and we also respect our competitors very, very much. This is an environment where, for us, it's up to bringing the most relevant, the newest, the fastest, the highest quality information, being responsive, as you've heard us talk about Kensho, artificial intelligence, machine learning, all of these types of things allow us to bring information and data and analytics and benchmarks to our customers even faster. So it's a very competitive environment. This also puts us on the -- keeps us on our toes. It makes us better because we have to always respond to the demands of the markets, as well as ensuring that we're faster and ahead of all of our competitors.

Okay, thanks. And just as a follow up then, when we think about the revenue synergies and revenue synergies target, I was just wondering in terms of -- should we expect there to be any sort of cyclical puts or takes to those targets over time? Like if we were to endure a prolonged downturn, does that impact I guess the timing of the recognition of those revenue synergies and maybe just some flavor around that would be useful? Thank you.

Yes, we have said revenue synergies, Simon, are coming in over a period of three to five years, about 45% cross sell, which is more the first two years and then 55% coming from new products, which is more year three to five. So you should see this actually -- see that ramping up over the next period during the course of this year, and we saw actually quite a nice jump from the fourth quarter to the first quarter and we're now at that 52 million run rate level. But you see that going up in quite a nice way over the next couple of quarters. But obviously, revenue synergies take more time to accomplish compared to cost synergies.

Thanks.

Thanks, Simon.

Thank you. Our final question will come from Stephanie Moore with Jefferies. Your line is open.

Hi. Good morning. Thank you. Maybe taking a high level view of just this year and your expectations embedded in your guidance, I think you called out that it does call for a bit of a improvement or somewhat of a macro recovery in the back half. Just trying to think of the levers or opportunities you have to pull, say maybe the macro ends up being a bit weaker. Can you talk about some of those levers as well as some of the counter cyclicality of your business in the various segments that would be helpful? Thank you.

Yes. Thanks, Stephanie. Our expectation now in terms of assumptions for the year is the following. Obviously, strong performance in the first quarter, as you have seen, then more a short and shallow recession in second quarter, third quarter. Obviously, we're still very careful what to expect for the year that there's not some unexpected volatility happening in the markets. So we're actually running a very tight ship, very careful from expenses and investments, headcounts very careful. But then we are ready to invest, because the most important is that we are investing in future growth. And hopefully, we'll see somewhere at the end of the third quarter and the fourth quarter really markets coming back in a very strong way. And we're ready to take advantage of that. In terms of downturn levers that we have, it's the usual list that we have always been outlining, and you know that we're on top of our game. And we will pull those levers, if needed. But already today, as you have seen, the cost controls are really very strong and the cost growth is really low. Certainly also if you take into account of that last year, we had actually flat expenses, and now only really minimal expense growth in the first quarter. But the downturn levers are the usual one around variable spend, discretionary spend, hiring, investment spend in other areas. So we're ready to take action, if that's needed. But hopefully, we are more in a position that we can invest in future growth, because that's the real fun part, and the part how we really can deliver shareholder value from a medium and long-term perspective.

Great, thank you so much. Appreciate the color.

Thank you, Stephanie. I'd like to make a quick closing remark. And I want to thank everybody for being on the call today and your excellent questions. I also want to thank Dan and Saugata for joining us in the room. Great answers. It's nice to have you here. And we're also very pleased with how our year has started. As you recall, in December, we had an Investor Day where we launched a new strategy called power in global markets. And it's fantastic to be on such a strong start. And a lot of that has to do with our engagement with our customers. We have been out talking to our customers, listening to them, understanding how they see the combined value of the company. And I personally have been very busy traveling around the world speaking with our key customers from every industry, from all of our businesses, and I'm more confident than ever about our strategy. And their comments provide us further information to validate our priorities, our investment in technology, our investment in AI, the quality of our people, how we see the products that we're developing in the future. And I'm just so confident about what we're seeing out there. I also want to thank all of our people for helping us launch 2023. As always, they are phenomenal and it's why we're off to such a strong start. And so I'm really excited about everything we've achieved this year. I look forward to sharing more on our next earnings call. And again, thank you everyone for joining us today. Thank you very much.

That concludes this morning's call. A PDF version of the presenter slides is available for downloading from investor.spglobal.com. Replay 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 Web site 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.