Earnings Call Transcript - SPGI Q4 2022

Operator, Operator

Good morning. And welcome to S&P Global’s Fourth Quarter and Full Year 2022 Earnings Conference Call. I’d like to inform you that this call is being recorded for broadcast. Operator provided 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, Senior Vice President, Investor Relations

Good morning. And thank you for joining today’s S&P Global fourth quarter and full year 2022 earnings call. Presenting on today’s call are Doug Peterson, President and Chief Executive Officer; and Ewout Steenbergen, Executive Vice President and Chief Financial Officer. For the Q&A portion of today’s call, we will also be joined by Adam Kansler, President of S&P Global Market Intelligence and Martina Cheung, President of S&P Global Ratings. We issued a press release with our results earlier today. If you need a copy of the release and financial schedules, 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. A discussion of these risks and uncertainties can be found in our Forms 10-K, 10-Q and other periodic reports 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 exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with US GAAP. 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?

Doug Peterson, President and Chief Executive Officer

Thank you, Mark. Welcome to everyone joining today's earnings call. We're looking forward to a very exciting and innovative year at S&P Global. As we shared with you at Investor Day, we're accelerating the pace of innovation and taking advantage of all we have to drive profitable growth over the next three to five years. In 2022, we built on our incredible history at S&P Global to position the company to create significant value for our customers, our people and our shareholders in 2023. 2022 was a year of resilience, decisive action and discipline. As we look at our financial highlights, I want to remind you that the financial metrics that we'll be discussing today refer to 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. Adjusted results also exclude the contribution from previously divested businesses in all periods. Adjusted revenue decreased 4% or 3% on a constant currency basis. As everyone on this call knows, we saw dramatic decreases in debt issuance, which drove the decline in our revenue and earnings. But what you would not be able to tell from the headline revenue growth rate is that our business has become far more diversified and resilient. While we saw a 26% decrease in our ratings revenue, the vast majority of that decrease was offset by a 6% growth in our other businesses. That growth came despite FX headwinds, an unstable macroeconomic environment and the suspension of our commercial operations in Russia. We also took decisive action to preserve margins in 2022. Despite significant inflation throughout the year, we were able to keep our adjusted expenses relatively flat year-over-year due to outperformance on our cost synergies and management actions around incentive compensation, discretionary spending and the timing and prioritization of strategic investments. Our teams have a lot to be proud of, and we've done a remarkable job setting the company up for a strong 2023. We introduced our initial guidance today, which includes 4% to 6% revenue growth and a 10% to 12% EPS growth. Importantly, we're not moving Engineering Solutions to discontinued operations, so both of these figures include the half year contribution we expect from Engineering Solutions in 2023; excluding the impact of Engineering Solutions, we would have expected revenue growth to be approximately 6% to 8%. Among the impactful accomplishments in 2022, we completed our merger with IHS Markit and took important steps to optimize both our operations and portfolio of businesses. We optimized our capital structure as well, lowering our average cost of debt at fixed rates, protecting our earnings from further interest rate volatility. We introduced a bold strategic vision at our Investor Day, Powering Global Markets, and outlined our key growth priorities for the next few years. We're looking forward to updating our investors on our progress against those initiatives as we move forward. We also continue to shape the secular transition from active to passive asset management, and just last month celebrated the 30th anniversary of the first index-based ETF, which was based on our S&P 500 Index. As we look to the strategic initiatives we had at the beginning of 2022, it's clear that we continue to make great strides. We outperformed our original 2022 cost synergy targets by more than 20%, generating $276 million in cost synergies fully realized in 2022 compared to an original target of $210 million to $240 million. We successfully integrated our major infrastructure software systems, including what our ERP vendor told us was the fastest integration ever for a company of our size. We continued to drive commercial momentum, generating nearly 7,000 synergy cross-sell referrals post-merger. We also made great progress with our strategic investments and our transformational initiative to optimize our technology spend. Lastly, we continued our relentless focus on making sure S&P Global remains a destination of choice for our people and candidates. Our internal people survey indicated 90% or more of our employees endorse our culture and our efforts in diversity. We continued to invest for long term growth in 2022. We made several small acquisitions to bolster and round out our offerings in private market solutions, as well as sustainability and energy transition. We also had several important new product launches and upgrades that will drive customer value and financial performance in 2023 and beyond. We took steps to optimize the portfolio of businesses at S&P Global. We made several merger related divestitures that were required by regulators, but we also decided to divest the Engineering Solutions Division and announced an agreement to sell the business to KKR. These decisions help position S&P Global in growth markets where we can leverage our strengths across the entire business. As always, we will continue to be disciplined stewards of the business and periodically review the portfolio of assets to determine the optimal structure at any given time. Shifting to our financial performance, the largest macro contributor to our 2022 results has been the sharp decrease in global debt issuance, which continued to deteriorate as we moved through 2022. For the full year, we saw a 28% decrease in global rated issuance or a 31% decrease when including the impact of leveraged loans. This is particularly noticeable in high yield issuance, which decreased 77% from the extraordinarily high levels we saw in 2021. The issuance environment certainly impacted our financials in 2022, but we were pleased with the execution from the teams across the company despite those challenges. As I mentioned previously, our aggregate financial results provide clear evidence of our commitment to disciplined execution. Excluding the ratings business, revenue growth would have been 6% in 2022 and adjusted operating margin would have expanded by approximately 200 basis points. Ewout will discuss the fourth quarter financials in a moment. Each of our divisions performed admirably in 2022. We saw positive revenue growth in four of our six divisions and constant currency growth in five of our six divisions. We believe the strength and discipline shown in 2022 sets us up for a return to positive overall revenue growth and margin expansion in 2023. We continue to deliver impressive results in Sustainable1. In 2022, we grew ESG and climate revenue by 50% year-over-year to more than $200 million. As we outlined at Investor Day and as you'll see in the appendix, we've updated our methodology beginning in 2023 to include all of our sustainability and energy transition products and we'll be disclosing sustainability and energy transition revenues rather than just ESG revenue going forward. Under the new methodology, we generated $247 million in 2022 and we expect growth of more than 30% from that base in 2023. We ended 2022 with ESG ETF AUM reaching $40 billion. That growth is particularly impressive when you consider it is the net impact of an 18% increase in AUM from net flows and a 14% reduction in AUM from price depreciation resulting in 4% net growth year-over-year. We continued to launch new indices based on climate or sustainability factors in 2022, including the new S&P/BMV Green, Social & Sustainable Target Duration Bond Index. We also launched new products in Market Intelligence, Commodity Insights and Mobility. Within Ratings, we completed 133 sustainable financing opinions, 33 green evaluations and 102 third-party opinions. At the core of our sustainability efforts are the corporate sustainability assessments. This remains a key differentiator versus our competitors as they enable us to collect an enormous amount of data directly from corporations around the world. For the methodology that ends in March 2023, we have already increased CSA survey participation to more than 2,900 companies, representing a 30% growth year-over-year. We expect more than 3,000 companies to participate by the end of March. The company also continued to advance its own industry leading practices in sustainability. We issued our 11th annual Sustainability Impact Report and fourth annual TCFD Report. We launched $1.25 billion in sustainability-linked notes and adopted the sustainability-linked bond framework. We ensured the long-term funding for the S&P Global Foundation via a one-time grant of $200 million, and our efforts continue to receive recognition from several leading third parties. I'd now like to shift the presentation to our outlook for 2023. The latest global refinancing study was issued earlier this month. The total amount of global debt maturing in this study is $11.1 trillion over the next five years. This is actually up 3% from the study a year ago and up 7% from last year's study when looking out over the full nine years. Importantly, this shows us how the maturities have evolved over the next few years. While 2023 expected maturities have unsurprisingly decreased over the course of 2022, if we look at maturities in the years 2025 to 2027, we see a 12% increase from last year's study. That increase jumps to 23% looking at maturities in 2027 to 2029. The bottom line is that there is a very healthy pipeline of debt maturities coming over the next several years. Now, looking at total rated debt outstanding, we continue to see a compound growth rate of 5% and a continued year-over-year increase in total debt outstanding on a constant currency basis. Historically, outstanding debt usually gets refinanced. And we don't see any reason why this decades-long trend would change. After marked declines in issuance in 2022, our ratings research group anticipates that issuance will return to positive growth in 2023. The forecast calls for issuance gains of 8.5% for non-financials, 3% for financial services, 5% for US public finance, and a decrease in structured finance of 7%. Please note that this is an issuance forecast, not a revenue forecast, and it does not include leveraged loans. Our financial results and guidance are more closely tied to build issuance, which can differ materially from market issuance as we have described in recent quarters. For 2023, we expect build issuance to be up approximately 2% to 6% for the full year. Now let's move to the latest view from our economists. They're forecasting global GDP growth of 2.2% in 2023. While GDP growth is expected to be positive, we also expect it to be a story of two halves. Right now, we're assuming a mild recession in the first half followed by stabilization in the second half. Each year, we carefully assess the external factors facing the company. This slide depicts those that we think are most important going into 2023. There are a number of potential positive impacts this year and potential headwinds, many of which we've outlined on this slide. There are also a number of factors that could impact our business positively or negatively or in different ways in different parts of the business. Volatility in the equities and commodities markets is a great example, as it can be a headwind to certain parts of our business while serving as a tailwind to Global Trading Services and Commodity Insights and exchange-traded derivatives in our indices business. While we certainly aren't immune to the macroeconomic environment, we're confident that investing for growth in these times of uncertainty and through the cycle is the right way to create long term shareholder value. While others may give in to the temptation to hunker down, we want to make sure that we're aggressively taking the steps to position S&P Global for years of profitable growth. That's why I'm so excited to finish my prepared remarks on this slide. We're optimizing our technology spend for growth, and we're leveraging the most powerful platforms available to make sure our product development teams can rapidly bring new features and products to market. We recently announced a long-term strategic partnership with Amazon AWS to further the technology vision we laid out for you at Investor Day. This agreement allows us to consolidate contracts and drive long-term savings through a collaborative relationship with one of the world's most innovative technology companies. Kensho continues to be a key contributor to the culture of innovation within S&P Global. We have a bold vision for how to leverage the newest breakthroughs in machine learning and artificial intelligence and not only make those technical technologies available to our customers, but truly embed them throughout the organization to drive growth and efficiency. I visited Kensho's office this last fall and was impressed to see the work that Kensho's R&D team had been doing with respect to large language models and their transformative potential. Since then Kensho has made significant progress on models that leverage unique data across the enterprise, with the potential to power innovation using AI and machine learning to accelerate product and technology agendas across all of S&P Global. This is very exciting. We'll also continue to make strategic organic investments in areas like private markets and sustainability and energy transition, and we'll selectively pursue opportunistic acquisitions that enhance our growth and innovation. As we begin reporting our sustainability revenue this year, we will continue our long practice of transparency and accountability. It is truly an exciting time to be at S&P Global. And now I'd like to turn the call over to Ewout Steenbergen, who is going to provide additional insights into our financial performance and outlook. Ewout?

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

Thank you, Doug. The adjusted 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. Adjusted results also exclude the contribution from previously divested businesses in all periods. Let me start with our fourth quarter financial results. Adjusted revenue decreased 6% to $2.9 billion, largely driven by a challenging issuance environment and macroeconomic conditions. Excluding ratings, fourth quarter revenue would have increased 4% year-over-year. Adjusted corporate and allocated expenses improved from a year ago, driven by a combination of synergies and reduced incentive costs. Adjusted expenses were roughly flat for the full year, demonstrating strong expense discipline across the company. For the fourth quarter, expenses decreased 4% compared to prior year. Adjusted operating profit margin contracted by 160 basis points to 41.2%, primarily driven by revenue declines in ratings. Excluding ratings, adjusted margins would have improved more than 280 basis points year-over-year. Our adjusted net interest expense increased 9%, driven by higher total debt levels, partially offset by lower average cost of debt. Adjusted effective tax rate was up modestly, but right around the midpoint of the guidance range we provided for the full year. We exclude the impact of certain items from our adjusted diluted EPS number. Among those items in the fourth quarter were approximately $175 million in merger related expenses, the details of which can be found in the appendix. We generated adjusted free cash flow, excluding certain items, of $1.4 billion in the fourth quarter. In 2022, we completed our $12 billion accelerated share repurchase program with final share delivery executed earlier this week. Turning to expenses, as I noted, we managed to keep adjusted expenses roughly flat for 2022, despite a high inflationary environment. I'm pleased to report we acted decisively and delivered more than $400 million in expense reductions for the full year. Actions taken include pull forward and synergies, a reduction in incentive accruals, adjustments to the timing of certain investments, selective hiring and limiting consulting spend in some areas. Looking more closely at the largest contributor to those expense savings, I would like to provide an update on our synergy progress specifically. In 2022, we have achieved $276 million in cumulative cost synergies, and our annualized run rate exiting the fourth quarter was $422 million representing 70% of target after only ten months. We continue to make progress on our revenue synergies. With $19 million in cumulative synergies achieved and an annualized run rate of $34 million, the cumulative integration and cost to achieve synergies through the end of the fourth quarter is $807 million. For 2023, we expect to achieve cost synergies and revenue synergies of approximately $510 million and $60 million respectively. We originally targeted 80% of cost synergies in 2023, but with the outperformance in 2022, we are now targeting 85% of the $600 million target. We also originally expected 50% of our revenue synergies in 2024, but with the divestiture of Engineering Solutions, we now expect approximately 45%, though the full target of $350 million is unchanged. Now let's turn to the division results. Market Intelligence revenue increased 3%, with strong growth in data and advisory solutions, offset by slower growth in desktop and declines in enterprise solutions. Adjusted expenses decreased 2% this quarter, driven by continued realization of cost synergies, lower incentive compensation and real estate spend. Segment operating profit increased 16% and the segment operating profit margin increased 360 basis points to 31.4%; on a trailing twelve-month basis adjusted segment operating profit margin was 31.8%. Looking across Market Intelligence, there was growth in most categories and on a pro forma basis, desktop revenue grew 3%, data and advisory solutions revenue grew 7%, enterprise solutions revenue was down 4% and credit and risk solutions revenue grew 4%. For desktop, we continue to see strong demand for our subscription offerings like Capital IQ. Overall, desktop growth was below our expectations though, due primarily to the impact of some one-time sales from products reported in our desktop line. For enterprise solutions, softness in our capital markets volume-based products continued to weigh on the business line's performance as revenue decreased 4%. This was partially offset by strength in private markets software solutions. Now turning to ratings. Ratings continued to face difficult market conditions this quarter as issuance volumes remained muted with revenue decreasing 29% year-over-year. Transaction revenue saw slight improvement sequentially, but decreased 51% compared to the prior year on continued softness in issuance. Non-transaction revenue decreased 6% on a reported basis and 3% on a constant currency basis, primarily due to lower initial issuer credit ratings and rating evaluation services, partially offset by increases in CRISIL. As a reminder, ICR and RES revenue are historically correlated with the relative strength of the issuance environment and M&A activity, respectively, and the declines we are seeing here are purely indicative of those market conditions. In the fourth quarter, surveillance and frequent issuer fees increased year-over-year on a constant currency basis. Adjusted expenses decreased 13%, primarily driven by disciplined expense management and lower incentive expenses partially offset by increased salary expense. This resulted in a 40% decrease in segment operating profit and a 910-basis point decrease in segment operating profit margin to 48%. On a trailing twelve-month basis, adjusted segment operating profit margin was 55.9%. Now, looking at ratings revenue by its end markets. The largest contributor was the well documented decline in issuance, partially offset by 6% growth in CRISIL and other revenue. And now turning to Commodity Insights, revenue increased 4% driven by solid performance across all business lines. However, growth was impacted by a $13 million headwind due to the Russia-Ukraine conflict and a $4 million commercial settlement in the fourth quarter of 2021. Excluding the impact of Russia-Ukraine and this commercial settlement, Commodity Insights would have grown approximately 8% year-over-year in the fourth quarter. It's important to note we suspended commercial operations in Russia in March of 2022. Therefore, the first quarter of 2023 is the remaining period that we will see a material impact in the year-over-year growth rates. Adjusted expenses were roughly flat for the quarter, primarily due to higher compensation, an increase in T&E expense and bad debt provision, partially offset by merger related synergies, lower consulting spend and advertising and promotion costs. Segment operating profit increased 10% and the segment operating profit margin increased 230 basis points to 44.6%. The trailing twelve-month adjusted segment operating profit margin was 44.3%. Looking across the Commodity Insights business categories, price assessments grew 5% compared to prior year, driven by continued commercial momentum and strong subscription growth for market data offerings, particularly in gas and power and liquefied natural gas. Energy and resources data and insights grew 4% in the quarter, driven by continued strength in gas, power and renewables. Advisory and transactional services increased 3% in the quarter as we saw higher demand from energy transition advisory solutions, partially offset by revenues generated from a 2021 event that wasn't repeated in the fourth quarter of 2022. Moving to Upstream, I'm pleased to report the business line grew 4% in the fourth quarter; while upstream ACV has had good momentum ex-Russia, the revenue growth this quarter was primarily driven by upfront revenue recognition of certain software products that are not recurring. We expect upstream growth in the low single digit range for 2023. In our Mobility division, revenue increased 9% year-over-year, driven primarily by strong and broad-based performance across dealer, manufacturer and financials. Adjusted expenses increased 15% in the fourth quarter, driven by increases in headcount versus a year ago period, timing of advertising spend and cloud expenses. We expect expense growth to moderate in 2023. This resulted in a 2% decrease in adjusted operating profit and 380 basis points margin compression year-over-year. On a trailing twelve-month basis, the adjusted segment operating profit margin was 39%. Dealer revenue increased 9% year-over-year driven by strong demand for CARFAX subscription products. Manufacturing grew 8% year-over-year driven by strength in Polk Automotive Solutions and the conclusion of several major recall deals. Financials and other increased 10%, primarily driven by continued strength in our insurance underwriting volumes and new business. Turning to S&P Dow Jones Indices, revenue increased 4% year-over-year as growth in exchange traded derivatives offset declines in asset-linked fees revenue. During the quarter, adjusted expenses increased 8% as there was an uptick in one-time outside services spend and continued strategic investments partially offset by decreases in compensation and other discretionary areas. Segment operating profit increased 2% and the segment operating profit margin decreased 140 basis points to 62.2%. On the trailing twelve-month basis, the adjusted segment operating profit margin was 68.4%. Asset-linked fees were down 2%, primarily driven by lower AUM in ETFs. Exchange traded derivatives revenue increased 34% on increased trading volumes across key contracts, including a more than 70% increase in S&P 500 Index options volume. Data and custom subscriptions increased 6%, driven by new business activities and price realization. Over the past year, market depreciation totaled $506 billion, ETF AUM net inflows were $157 billion, and this resulted in quarter ending ETF AUM of $2.6 trillion, which is a 12% decrease compared to one year ago. Our average ETF AUM decreased 8% year-over-year. Engineering Solutions revenue declined 4% in the quarter, driven primarily by the negative impact of the timing of the Boiler Pressure Vessel Code, or BPVC, which was last released in August of 2021. Adjusted expenses increased 5% due to planned investment spend, offset by favorable FX. Before moving to guidance, I wanted to highlight some of the key drivers of our expected 2023 results and how these tie in with the core messages we delivered at our Investor Day. S&P Global is all about growth. 2023 will be a year of growth across the company, driven by customer growth, product enhancements, revenue synergies and strategic initiatives. We'll continue to invest in our people and you will see the annual reset of our incentive compensation targets. We'll also continue to invest in technology as we drive innovation and position the company for accelerating growth. In order to help investors see and assess the positive impact of these investments, we'll begin disclosing a few new metrics with our first quarter 2023 results, including our vitality revenue, which is the revenue generated by innovation, either new or enhanced products from across the organization. We'll also disclose the revenue generated from products in our two key strategic investment areas: private markets, as well as sustainability and energy transition. In addition to these new disclosures, we'll begin a regular cadence of inter-quarter disclosures to help investors measure performance of market observable products. We'll begin disclosing ETD volumes and the year-over-year growth rate of build issuance on a monthly basis starting later this month when we will disclose the January 2023 data. In addition to the monthly disclosures I just outlined, we will also disclose build issuance volumes on a quarterly basis broken out between investment grade and high yield. We know that in a volatile and potentially uncertain market, transparency and accountability are more important than ever. And S&P Global maintains its commitment to best-in-class disclosure and reporting for our shareholders. Now moving to guidance, as noted in our press release, due to the pending divestiture of Engineering Solutions we will not be providing GAAP guidance at this time, and this slide depicts our initial 2023 adjusted guidance. For revenue, we expect 4% to 6% growth, reflecting our continued belief of a mild recession in the first half of 2023 and then some economic strengthening in the back half of the year. Excluding the impact of the divestiture of Engineering Solutions, we expect revenue growth to be between 6% to 8%. We expect corporate and allocated expense of $140 million to $150 million. The year-over-year growth is driven in part by a reset of incentive compensation and the expectation of approximately $10 million to $20 million in stranded costs from Engineering Solutions post divestiture. We expect to expand operating margin to the range of 45.5% to 46.5%. Adjusted diluted EPS, which excludes deal related amortization, is expected to be $12.35 to $12.55 which is an 11% year-over-year increase from the midpoint. Adjusted free cash flow, excluding certain items, is expected to be approximately $4.3 billion to $4.4 billion. We continue to target a return of at least 85% of adjusted free cash flow to shareholders through dividends and buybacks. We also plan to utilize the net after-tax proceeds from the Engineering Solutions divestiture for share repurchases. As such, our board has authorized a $3.3 billion share buyback for 2023, which we plan to begin with a $500 million accelerated share repurchase, which we expect to launch in the coming weeks. Lastly, we expect a quarterly dividend of $0.90 per share. The following slide illustrates our guidance by division beginning with Market Intelligence, we expect growth in the 6.5% to 8.5% range and margins between 34% and 35%. As we mentioned at our Investor Day, this is a skilled business that's well positioned in growing markets such as private markets and supply chain, and we're confident in our ability to accelerate growth as we lap the 2022 headwinds from volume driven businesses and FX. In Ratings, we expect revenue to grow between 4% and 6%, with growth to be driven by volume and price and continued growth in non-transaction revenue. Our assumption is for build issuance to be up between 2% and 6% in 2023. Margins for Ratings are expected to be between 56% and 57%. In Commodity Insights, we expect revenue growth in the 6.5% to 8.5% range and margin between 46% and 47%. We expect continued strength in commodity markets generally and look forward to lapping the Russia impact after the first quarter. Similar to our Market Intelligence division, we expect Commodity Insights to see expense benefit from further realization of synergies in 2023. In Mobility, we expect revenue to grow between 6.5% and 8.5% and margins between 39% and 40%, driven by some normalization of auto supply chain, price realization, new business and new product adoption. Importantly, we expect expense growth to moderate quickly and substantially from the outsized increase in the fourth quarter; we expect expense growth to be below revenue growth in 2023. In Indices, we expect revenue to be flat to up 2%, with margins of 66% to 67%. As we indicated at our Investor Day, revenue from asset-linked fees lags movements in underlying asset prices. So the 2022 decline in the S&P 500 will negatively impact this year's revenue; we will also lap the very strong comps in exchange traded derivatives. Before we turn it over for Q&A, I would like to take a moment to thank our people at S&P Global. The highlight of 2022 was the closing of our merger with IHS Markit. But what made it a highlight was the incredible dedication and execution demonstrated by our people. We saw strong, decisive action in the speed of execution of our cost synergy plan. We delivered critical system integration along a very fast timeline, rationalized our real estate footprint, and at the same time continued our strategic investments. 2022 truly was a year of transformation. But it was also a year of foundation. We intend to build on that foundation and drive strong growth in 2023 and for the years to come. And with that, we'll have Adam and Martina join us and turn the call back over to Mark for your questions.

Mark Grant, Senior Vice President, Investor Relations

Thank you, Ewout. Operator provided instructions. Operator, we will now take our first question.

Operator, Operator

Operator provided instructions. Thank you. Our first question comes from George Tong from Goldman Sachs.

George Tong, Analyst, Goldman Sachs

Hi, thanks. Good morning. You expect 2% to 6% growth in build issuance in 2023. Can you bridge your expectations for build issuance with guidance for ratings revenue growth of 4% to 6%, including how you expect pricing and issuance mix to impact revenue?

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

Good morning, George. Let me give you a couple of those components. As you know, we are always breaking out ratings revenue in two categories: transactional and non-transactional. What you see in the transactional category is a combination of price and volume. And on the volume side, we have stated that 2% to 6% growth for build issuance. And then if you think about non-transaction, we continue to expect to see growth in the annual fees. Also, continued positive growth in Ratings is to be expected. And then ICR and RES, that's a bit uncertain because that depends very much on the overall economic environment. So those are some of the components that will add up to that range of 4% to 6% revenue expectation for Ratings in 2023. So I would say overall quite constructive after 2022.

George Tong, Analyst, Goldman Sachs

Market Intelligence revenue growth decelerated in the quarter due to slower growth in desktop and declines in enterprise solutions. Can you elaborate on trends you're seeing in desktop and enterprise and why you believe performance may improve in 2023?

Doug Peterson, President and Chief Executive Officer

George, this is Doug. Before I hand it over to Adam, I want to welcome Adam and Martina to the call today. As you met our presidents at the Investor Day on December 1, we're pleased to ask a couple of them to join us on each of the earnings call. And today it's going to be Adam and Martina. But Adam, over to you.

Adam Kansler, President, Market Intelligence

Thanks, George. We're very confident in our desktop business, but our desktop revenue in this quarter didn't perform how we expected. Let me give you a little bit of color on that. The financial services industry is obviously under pressure. You see that belt tightening now at some of the largest sell-side banks, and they're taking a cautious approach right now, and we're not immune to that. That said, our core desktop offering continued to grow extremely well. Within that desktop revenue line, you have certain products that are non-recurring in nature—consulting and advisory engagements tied to our desktop offering. These are the products that saw that impact in Q4. As we look out to 2023, we remain confident in our desktop growth, and we're excited about our forward competitive position. We saw active user growth up 9% this year. This is great growth in a challenging year and an important driver for us as we renew and expand our relationships with our customers in 2023. We're delivering significant upgrades in the offering. Speeds increased dramatically. New features are being released. You saw we announced our ECR data live on our desktop in 2023. Fixed income and loan capabilities are coming. So while Q4 was not quite the quarter we expected, we're very confident and excited about that growth forward. I'll just spend two seconds on enterprise solutions. Understand that revenue line as really two separate components: software solutions our customers use for workflow, compliance and portfolio monitoring, and a section for industry platforms that are directly impacted by capital markets activity and volumes. That first group performed really well this year, and we expect that to continue to perform really well into 2023. A lot of those are double-digit growth businesses. The second bucket, the industry platform, is really impacted by significant drops in capital markets activity that saw a negative double-digit impact in the current year. When we look forward into 2023, we expect that negative impact to moderate as we lap those comparables and as markets stabilize. So we do have a very positive outlook for enterprise solutions as we go forward into 2023.

Operator, Operator

Our next question comes from Andrew Steinerman from JPMorgan.

Alex Hess, Analyst, JPMorgan (on behalf of Andrew Steinerman)

Yes, hi. This is Alex Hess for Andrew Steinerman. Maybe just start with the 2024 revenue synergy target that was lowered modestly. And I believe it was mentioned that principally reflects Engineering Solutions. But with the focus of Investor Day having been on innovation, can you maybe update us on where 2022's vitality index came in, how promoter score is tracking, and sort of what gives you confidence that maybe that target remains pretty achievable?

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

Good morning, Alex. Thanks for being on the call. You asked a couple of questions, so let me walk through each of those. 2024 revenue synergies are slightly tuned down due to the divestiture of Engineering Solutions. We had assumed a number of revenue synergies, both in Engineering Solutions as well as in some of our other segments in the collaboration with Engineering Solutions; for example, Commodity Insights shares a number of customers together with Engineering Solutions. But we are not concerned about that at all because we are finding so many new revenue synergies across the company that we are still firmly committed to the $350 million in total over the five-year period. You're also asking about, in general, the commercial momentum within the company. We're actually really happy with what we are seeing. There is a lot of innovation, a lot of new product development, a lot of very strong customer interactions around all of that. You're seeing that we hit our revenue target for ESG sustainability for 2022. And with respect to vitality, what we told you was that we have a target to get vitality over 10% over the next few years. I'm actually very happy to report that we already got there in 2022. So our vitality was just over 10% last year as another indication of the level and speed of innovation that we're increasing within the company.

Alex Hess, Analyst, JPMorgan (on behalf of Andrew Steinerman)

Great. Thank you so much. And then maybe to turn to your build issuance assumptions, can you maybe walk us through the degree to which that is weighted to the back half of 2023 versus maybe facing some steeper comparisons in January and the front half of this year?

Martina Cheung, President, S&P Global Ratings

Thanks for the question, Alex. This is Martina. We are consistent with our overall view for 2023, both for macroeconomic as well as market issuance that feeds into our build issuance. We would see the chances for a mild recession in the first half with some recovery in the second half. So you could expect to see a little bit more softness in issuance in the first half followed by some recovery in the second half.

Operator, Operator

Our next question comes from Toni Kaplan from Morgan Stanley.

Toni Kaplan, Analyst, Morgan Stanley

Thank you so much. I wanted to ask about multi-asset class indices. I know it's a really meaningful opportunity and you're investing a lot there. And it seems like the market opportunity is really massive. You have leading brands within index products. So my question is right now, do clients think that there's a need for multi-asset class indices or will it be a matter of convincing them that it's better than having a combination of separate equity and fixed income indices? What makes multi-asset class indices better than just weighting equity and fixed income indices?

Doug Peterson, President and Chief Executive Officer

Thanks, Toni. As you know, the basis of the index business that we have is about transparency, independence and the ability for a client to understand exactly what's in the portfolio at any point in time. Where we're especially seeing multi-asset class demand is in the insurance industry. The insurance industry, which has many types of products, is looking to multi-asset class. They use it for annuities, they use it for wrappers. And we're also seeing that bank structured product desks are also looking at multi-asset classes. So we're seeing a lot of growth in this. You asked the question about what is the difference. The difference is that you can put together a single product which meets the needs of a client. And we're seeing that this is right now very high demand coming from those two industries. As ETFs are built from the multi-asset classes, then you start getting trading around them. So we see the entire ecosystem starting to grow. And it's also part of the trend when we see active to passive anyway. So I think it's very important you ask the question. It's one of our growth areas across the index business. This is one that we're most excited about, finally, because we have within S&P Global now one of the leading franchises of fixed income indices with iBoxx, CDX and iTraxx, we can actually produce these products on our own all in-house.

Toni Kaplan, Analyst, Morgan Stanley

Terrific. Then as a follow up, I wanted to ask about Commodity Insights growth. I know long term you were thinking about 8% at the midpoint. When I look back at legacy Platts and some resources within IHS, those businesses in normal markets were not always at that higher growth. Is it the sustainability part that's really going to drive you to that higher level of growth or what's the bridge to get from normal mid-single digit level up to the eight? Thanks.

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

Toni, if you think about the overall market dynamics in the commodity markets, we think that currently those markets are very constructive for our customers and that is going to be helpful also for the growth of the business over the next few years. First, one point to highlight is that in 2022 we saw some headwinds from Russia, from the Russia-Ukraine conflict and the fact that we stopped our commercial relationship with Russian customers. So obviously that headwind is going away going forward. Secondly, what we are seeing is that our customers are both focused on traditional energy resources and new energy resources. So we're benefiting from both trends at the same time where there is of course a lot of activity going on with respect to current market prices in terms of exploration and additional capital expenditures that we're seeing. But our customers at the same time are also focused on energy transition and need help from us. So we are providing data, insight, research, advisory, all of that around energy transition at the same time. So we believe this business has a lot of secular tailwinds over the next few years. What we told you at Investor Day is that we expect this business to grow into the 7% to 9% range in 2025 and 2026. And we think absolutely that is possible. We are very committed to hitting that number.

Operator, Operator

Our next question comes from Alex Kramm with UBS.

Alex Kramm, Analyst, UBS

Hey, good morning, everyone. Maybe you can touch on the margin outlook a little bit, but particularly interested in the quarterly seasonality or cadence. I know in the past there's been some surprises here and there in some of the segments. So maybe Ewout you can help us between synergies coming in and typical seasonality, what would you call out in particular as it relates to the seasonality we saw in 2022? I understand ratings is probably going to be driven a lot by issuance, but maybe in the other segments anything to call out?

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

Alex, a couple of items to think about. First in terms of seasonality, realize that we are facing still high comps for the first quarter because the economy started to go more negative from March of last year, as well as the impact of the Russia-Ukraine conflict also started in March. So first quarter comps are still a bit high. The second item to think about here is that we are now expecting, as we also said during Investor Day, a mild recession in the first half of the year and then some economic strengthening in the back half of the year. And the third element is that we are running a very tight ship with respect to expenses. So we are definitely starting this year, given the economic uncertainty, in a very careful way. And then we need to time this right because the most important thing is that we're going to benefit once the markets start to turn when GDP is going up, that we're starting to benefit from a growth perspective. We have a lot of growth investments in our plan for this year, as you know. So we have to time it right so that we're going to be a large beneficiary once the markets start to swing up again. So those are a couple of the elements you should think about in terms of timing for this year.

Alex Kramm, Analyst, UBS

Okay, fair enough. And then maybe just a follow up to the Market Intelligence question to Adam earlier. Maybe you can be a little bit more specific what you expect in the more capital market sensitive areas. I know there were some headwinds that you discussed earlier. Do you expect those businesses to be kind of flattish or do you expect capital markets activity to actually recover decently? Maybe tie that in with the selling environment a little bit more of what you're seeing right now.

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

Okay. In the very first part of the year, you still have pretty significant year-on-year comparables because markets were still strong in the very early parts of 2022. As we come through 2023, we do see some resilience in the early part of this year, but we do see a lot of cautiousness still in markets, and you see aggregate activity levels as well. As we get towards the latter part of the year, your year-on-year comparison starts to flatten out quite significantly. Internally, thinking about what we expect in the year, we budgeted a modest increase in total activity across capital markets platforms. We'll obviously see how the year develops, but we think that's the right call as we sit here today.

Operator, Operator

Our next question comes from Jeffrey Silber from BMO Capital Markets.

Jeffrey Silber, Analyst, BMO Capital Markets

Thanks so much. I wanted to dig a little bit further into your outlook for this year. You've talked about expecting a mild recession in the first half and recovery in the second half. I know it's early, but we're about six weeks into the new year, and if anything economic growth seems to be better than expected. If that's the case, then we either avoid a recession or push it off a little bit. Where could we see the upside in your forecast?

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

Jeff, the guidance we're giving is middle of the road; it's management's best estimate. I can give you a couple of underlying elements in terms of assumptions that have gone into our plan. For example, with our market-sensitive businesses, think about the index business. The assumption is flat equity markets this year for the full year. You could say January looks a bit better, and February so far as well. But we're not changing our plan on a month-to-month basis. So on average we're expecting markets to be flat. That is the assumption that has gone into the index outlook, as well as 20% declines in ETD volumes coming from elevated levels last year, as well as flows to be more or less in line with what we have seen in previous years. And then with respect to the other market-sensitive businesses, we already gave you some of the assumptions for Ratings, so that has gone into the plan. We think this is our best estimate at this point in time, given everything we know about the company and the markets.

Jeffrey Silber, Analyst, BMO Capital Markets

Okay, I appreciate the color. Let me switch gears and focus on AI. Doug, I appreciate you addressing this issue. Obviously, it's a hot issue in the markets today. You guys seem to be ahead of the game with your purchase of Kensho a number of years ago. Where have you gotten the most traction there, and what should we look for going forward?

Doug Peterson, President and Chief Executive Officer

We're very pleased by the investment we made in Kensho, in addition to investments we've made across the entire organization in decision sciences and AI and machine learning. I recently spent some time with Kensho in Cambridge, and they were able to show me some of the R&D they're doing on large language models, which is something that's in the press every day right now. We're seeing that for the financial markets, we've been able to harness the data and the language that we already have inside of the company to develop some very interesting products. But since Ewout oversees Kensho, I think I should hand it over to him to finish the answer.

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

Jeff, let me first give you a number of data points in terms of what Kensho is exactly doing today for the organization. A product called Kensho Link has saved over 2 million hours ingesting data sets, strategic data sets and expanding data sets for our customers. Also, Link has at this moment achieved one million unstructured private market, private entity data entries into our database, connected to the Market Intelligence ID numbers of those entities. There are two other products called EXTRACT and NERD that have enriched 73 million documents on the Cap IQ Pro platform. It has ingested 10.5 million investment research reports on the Cap IQ Pro platform. And Scribe, which is our language speech-to-text model, is saving 250,000 hours of manual work per year for transcripts. Annual savings of that are approximately $9 million. The list goes on. Sometimes it's not really understood what Kensho is exactly doing, but it's really impressive. Now shifting to the future of Kensho, Kensho's real sweet spot is natural language processing. Everything that we're reading today about large language models is exactly in that sweet spot. Kensho is today already developing a financial language model called FinLM, which is trained on the S&P Global data assets. It's very expensive to develop large language models; the cost of the compute is very high. But if you have stronger data sets, higher quality data sets, actually that's a differentiating factor. So we're avoiding very significant compute time and costs. Also, Kensho is developing something new called the Kensho Solver which is the AI solution to answer the most complex financial numeric questions. You also can read about large language models actually not being so strong in math. We are working on a solution in this area as well. So if you just add it all up, I think what Kensho can be doing for the company and where it's working on is very impressive, and we're very pleased that we are so far ahead, having acquired this company already five years ago.

Operator, Operator

Our next question comes from Craig Huber from Huber Research Partners.

Craig Huber, Analyst, Huber Research Partners

Great. Good morning. My first question: let's focus a little bit on the ratings outlook you have for build issuance this year. Curious if you could give a little further thought on your outlook for this year for high yield and for bank loans. Maybe throw in CLOs if you would as well.

Martina Cheung, President, S&P Global Ratings

Hi, Craig. Thanks for the question. Our outlook for this year is overall up 2.5% for build issuance. The underlying factors are everything Doug had highlighted in his presentation: 8.5% on corporates, 3% on financial services, around 5% on US public finance, and we're projecting a decline in structured finance of about 7%. We don't break out high yield and bank loans specifically, Craig, but what I can say is high yield in 2022 was a really low year and so we see growth in the high yield market this year. On bank loans and CLOs, the expectation for the research team underpinning that 7% decline in structured finance does reflect some concern around the pipeline for CLOs which we capture in the structured finance area.

Craig Huber, Analyst, Huber Research Partners

Okay, thank you. And my follow up. When you think about pricing throughout the portfolio, where should we expect pricing that might be higher this year than normal? What areas would you highlight where price might be coming ahead of a normalized 3% to 4% price? Thank you.

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

Craig, in general terms, we always start to think first about what we do for the customer, the value we generate. The good news is that most of our products are must-have products with a very high contribution to our customers. Pricing obviously needs to reflect also our cost base. Cost is going up given the higher inflationary environment. So we believe we have across the board, depending on facts and circumstances, customer relationships and product types, an opportunity to pass on higher price increases given the higher inflationary environment. Specifics will vary by product and customer.

Operator, Operator

Our next question comes from Faiza Alwy from Deutsche Bank.

Faiza Alwy, Analyst, Deutsche Bank

Yes. Hi, good morning. So my first question is for Martina. It seems like the high yield market has really outperformed expectations so far this year. It's only been a few weeks, but I think just today we saw a new high-yield deal announced. Has this been surprising for you and how do you expect the high yield market to evolve through the course of this year?

Martina Cheung, President, S&P Global Ratings

Thanks so much for the question. January and early deals: 2022 was a really low base from which to compare, so we absolutely do expect to see growth in high yield. It's still quite early to call; we have quite a few puts and takes regarding macro variables. Overall, I would guide to what we've been saying around our expectations: some softness in the first half, recovery in the second half, and how macro factors play into our overall issuance expectation and how that plays into our build issuance trends.

Faiza Alwy, Analyst, Deutsche Bank

Got it. Thank you. And secondly, a bigger picture question around the revenue synergies. You've talked about an $85 million run rate for 2023. Give us additional color on where you've seen these revenue synergies take place, where you have the best result, and what is the next step to get to the $350 million long-term target?

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

Faiza, let me start with a general answer, and then I will hand it over to Adam for some additional color in Market Intelligence. In general, we are seeing very good activity from a cross-sell perspective. We're speaking about roughly 6,700 referrals or leads that have already been generated, both intra-division and inter-division, with very positive conversion levels across the company. What we're seeing in general is that customers are really happy to talk to us about what more we can bring to them, how we can add more value. The next phase is, of course, to start to focus on new product development. That will be the next wave of revenue synergies. But we feel we're definitely well on track ahead of the timing and the planning that we had originally. I'll hand over to Adam for additional color.

Adam Kansler, President, Market Intelligence

Thanks. This is probably the most exciting part of what happens in a merger—bringing together the set of capabilities we now have. In 2022, this was mostly about cross-sell, selling our products to expanded customer bases, which gave us a good early start. In this first year, we were able to perform on that type of synergy realization. As we move into 2023, it really becomes about building new products that we're able to now deliver because of a combined set of capabilities. Already in 2023, five of our combined product capabilities are already generating revenue. We have over 20 in the pipeline, and this is just in Market Intelligence alone. These are things like building our sustainability data and capabilities into our workflow solutions, expanding the capacity and capabilities of our desktop with fixed income and loans information, bringing together workflow solutions and incorporating much larger data sets for customers to analyze private markets alongside public company comparables. Those types of combined product offerings are what give us a lot of confidence in our total revenue synergy targets over $300 million as we get out into later years. It's the most exciting part of what we're doing.

Operator, Operator

Our next question comes from Owen Lau from Oppenheimer.

Owen Lau, Analyst, Oppenheimer

Hey, good morning. Could you please add more color on your partnership with AWS that you announced? I think it's also related to how you will deploy Kensho in this partnership. How should we think about the incremental revenue and expense control opportunity here? Thank you.

Doug Peterson, President and Chief Executive Officer

Owen, this is a relationship that we've had for many years. When we combined the companies following the merger, we realized that both S&P Global and IHS Markit had already very strong relationships with AWS. We've been on a cloud migration for many years. A few years ago I visited a data site where we had hundreds of servers and asked whether we should be in the business of having server farms. We started transitioning to AWS and over the years developed an incredible partnership. Yesterday's announcement is the culmination of that work where we've come together to combine contracts and adopt a new approach to how we're going to run our day-to-day operations. Most exciting are the opportunities this brings for strategic cooperation, for developing new products, and for serving customers with entirely new capabilities. When we look at our data sets and some of the capabilities AWS brings, combining them can accelerate innovation, especially in AI and machine learning. We're pleased with this approach and will follow up with strategic aspects over time. I'll ask Ewout to address the financial aspects.

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

Good morning, Owen. If you think about the contractual agreement we're having with AWS, this is about a $1 billion commitment in total over the next five years. To put that in perspective, we will continue with a multi-cloud philosophy and in total according to our forecast we would actually be spending more than $1 billion on cloud compute over the next couple of years. So this is not an increase in spend in total; this is in line with our total cloud forecast which is actually higher than this particular number. What this brings to us are two significant benefits. First, by consolidating S&P Global and IHS Markit contracts in this partnership with AWS, we will be able to generate very significant cost synergies as part of the new contract. Second, and more importantly for me, is the strategic partnership because this will help to advance our technology innovation. We will be able to combine leading technologies and platforms and data sets from both companies, and we'll be able to add specific capabilities that we have on both sides, including Kensho AI capabilities. The most important result will be an enhanced customer experience that we expect to improve over the next few years.

Owen Lau, Analyst, Oppenheimer

Got it. That's very helpful. And then regarding your investment in private markets: what kind of new solutions will you be launching this year? Do you have any revenue target for this year for private markets?

Adam Kansler, President, Market Intelligence

Private markets continue to expand. You're seeing continued issuance of private debt, increasing regulatory pressures for disclosure, needs to monitor, report and test against sustainability metrics, and needs to manage large private equity and private credit portfolios that require valuations, reporting tools and portfolio monitoring tools. These are areas where we already have a significant footprint, and we're well-positioned to deliver additional solutions to the market. While you may see some tempering in fundraising in the near term, this asset class will continue to grow. The types of solutions I described—workflow solutions, regulatory reporting, valuations and portfolio monitoring—have significant room for continued growth.

Martina Cheung, President, S&P Global Ratings

I'll add: from a ratings standpoint, private markets contribute quite a bit to our overall business, whether it's syndicated loans through M&A and LBO activity. We rate asset managers, portfolio companies, sponsors, BDCs and do credit analysis work to support multiple users in that sector. We have good relationships with key players and have been ramping engagement over the last couple of years. In 2022, private debt saw growth fueled somewhat by closure of the public markets, and we have heard interest from customers with pent-up demand looking to come back to the public markets. Overall, there is a lot of opportunity here, not just from activity coming back to public markets but also in working closely with private market clients on services they need.

Operator, Operator

Our next question comes from Stephanie Moore from Jefferies.

Stephanie Moore, Analyst, Jefferies

Hi, good morning. I wanted to touch on the Mobility business. There are a lot of dynamics happening in 2023, whether it's a decline in used car prices or increased production in new cars. How do you view the business stacking up this year given all these dynamics? CARFAX has proven to be pretty resilient, but could benefit in this environment. Any other drivers to be aware of?

Doug Peterson, President and Chief Executive Officer

When you look at the Mobility business, you have to think about all the capabilities across the business: CARFAX, automotive mastermind, Polk Analytics. It serves OEMs, suppliers, dealers, insurance companies and financial institutions. They've undergone a significant digital transformation over the last few years with volatility in automotive markets, and that has driven demand for data and analytics across the ecosystem. We also see the transition to electric vehicles introducing new data needs and use cases. The business benefits from different market conditions—used cars, new cars, dealer incentives—because all those participants need data. We monitor the market carefully and use our own data to forecast the business.

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

Stephanie, to add some color on revenue drivers: with market normalization, higher inventory levels and prices for new and used cars coming down, we see certain dynamics. On one hand, margins for OEMs and dealers may come down, which could impact retention levels. On the other hand, demand for marketing and sales products could increase, offsetting some of that pressure. There is a kind of offset across the different revenue streams. Therefore, we are quite confident that we're able to hit the 6.5% to 8.5% growth level in the current automotive market given the dynamics we're seeing.

Stephanie Moore, Analyst, Jefferies

Thank you. Given the current market dynamics, do you expect more potential M&A activity or other portfolio moves such as divestitures that might make sense going forward? How would you characterize those opportunities?

Doug Peterson, President and Chief Executive Officer

As you know, we look at the key secular trends and drivers of value across markets—changes in capital markets, internationalization of financial markets, private markets, sustainability, the shift from active to passive, supply chain analytics and digitization. We review our portfolio in that context to determine if we're the best owner of each business. We will remain opportunistic on M&A and disciplined. You should assume we'll continue the disciplined approach we've always had.

Operator, Operator

Our next question comes from Manav Patnaik from Barclays.

Unidentified Analyst (Brendan on for Manav Patnaik), Analyst, Barclays (substitute)

Good morning. This is Brendan on for Manav. I wanted to ask about the ESG and climate transition revenue that you are reporting. What are you including in that and what's driving your assumption for growth in 2023?

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

If you look at the revenue we reported for 2022 under the old definition for ESG, it was $209 million. We're adding three new categories and therefore call the new revenue base 'sustainability and energy transition.' The three main categories we're adding are revenues from e-fees coming from Mobility, revenues related to energy transition in Commodity Insights, and thematic factors coming from the index business. Those three categories bring the baseline for 2022 to $247 million and we expect to grow from there with a projected CAGR of about 34% over the next few years. Our expectation is that this will become an $800 million business by 2026.

Unidentified Analyst (Brendan on for Manav Patnaik), Analyst, Barclays (substitute)

Great, thank you. And switching over to the maturity wall, what are you hearing from corporate treasurers? Could they wait longer to refinance, or do you expect refinancing in 2023 given rates and spreads have settled?

Martina Cheung, President, S&P Global Ratings

We look at the maturity wall data regularly. It's difficult to know precisely what will be refinanced, but historically much of what is labeled as general corporate purposes has been used for refinancing. As we showed, there is about $2 trillion to $2.5 trillion in corporate debt rated by us maturing over the next six years. For 2023 specifically, as of January 1 we see about $1.8 trillion of maturities. We expect refinancing activity this year with opportunistic issuance possible. We don't see signs of meaningful deleveraging at scale. We'll be watching inflation and rate stability in the second half, which could encourage opportunistic issuance, but there is uncertainty and it will depend on how the year plays out.

Operator, Operator

Our next question comes from Jeff Meuler from Baird.

Jeff Meuler, Analyst, Baird

Yes, thanks. For Martina, how closely are your current resources within Ratings aligned to recent volume trends? There's been a lot of ebb and flow in volumes in recent years. Do you have excess capacity, and do you expect good incremental margins when volumes pick up, aside from incentive compensation normalization?

Martina Cheung, President, S&P Global Ratings

Thanks, Jeff. We try to manage our business to absorb shocks, and we've maintained our analytical capacity over the last couple of years. In some higher growth areas, we've invested a little more capacity ahead of a recovery we expect later this year. The market needs our research and insights, and demand increased during periods of uncertainty and volatility. We've worked to maintain capacity and anticipate increases in the latter part of this year. We've done small changes as part of enhancing our operating model and remain prudent and disciplined around expenses, location, strategy and travel. We have benefited substantially from shared cost synergies with the merger. In any extreme scenario we'd examine options, but right now we are comfortable with the analytical levels we have.

Operator, Operator

Our next question comes from Ashish Sabadra from RBC Capital Markets.

Ashish Sabadra, Analyst, RBC Capital Markets

Hi. I have a two-part question on Market Intelligence. First, on Credit & Risk Solutions there was a modest slowdown and a reference to Financial Risk Analytics; how should we think about those trends going into 2023? Second, on Data and Advisory Solutions that continue to be strong, how has the combination of data from S&P and IHS driven more customer conversations, and how might cloud distribution accelerate growth in that business?

Doug Peterson, President and Chief Executive Officer

For Credit & Risk Solutions, Financial Risk Analytics had a large delivery in Q4 of 2021, which creates a tough year-on-year comparable for Q4 2022. The underlying business remains strong, and our credit analytics capabilities are increasingly being integrated into corporate workflows. On Data and Advisory Solutions, the combined data sets from S&P Global and IHS Markit allow us to respond to broader RFPs and satisfy the needs of customers across many applications in credit and risk management. This integration will continue to create more opportunities. Regarding cloud, many of our applications already run in the cloud, and the AWS partnership will help complete our migration. Once applications and data capabilities are in the cloud, we can be more efficient in developing and delivering new products, enabling customers to apply data science and AI more broadly, which should accelerate growth in Data and Advisory Solutions.

Operator, Operator

Our next question comes from Russell Quelch from Redburn.

Russell Quelch, Analyst, Redburn

Yes, thanks very much. First, on buybacks: when you return the after-tax capital from the Engineering Solutions sale, will that be considered part of the $3.3 billion buyback authorized for 2023, or would it be incremental?

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

That's included in the $3.3 billion, Russell. You can reconcile that from our free cash flow forecast and guidance for this year and our target to return at least 85% of adjusted free cash flow to shareholders. That, combined with the net proceeds from Engineering Solutions, is how we build to the $3.3 billion capacity for buybacks in 2023.

Russell Quelch, Analyst, Redburn

Perfect. And my second question for Martina: the chart on slide 15 shows maturities and the expectation of about $1.8 trillion for this year as of January 1. Can you give an idea of how big maturities were in 2022 so we can back out what the impact of maturities is on expected growth versus pricing and new issues?

Martina Cheung, President, S&P Global Ratings

Thanks, Russell. I don't have the 2022 maturity numbers in front of me. 2022 saw overall lower issuance, and to put it in perspective, there was heavy pull-forward and opportunistic tapping in 2020 and 2021 when rates were very low. The number you're seeing for 2023 in our charts is $1.8 trillion as of January 1. We're anticipating activity this year and there is possibility for some pull-forward from 2024, but we'll see how the year plays out between the first and second half.

Russell Quelch, Analyst, Redburn

Okay, thank you. Just to check: is the $1.8 trillion higher than what was executed in 2022?

Martina Cheung, President, S&P Global Ratings

It's higher than what was executed in 2022.

Operator, Operator

Our final question comes from Shlomo Rosenbaum from Stifel.

Unidentified Analyst (Adam on for Shlomo Rosenbaum), Analyst, Stifel (substitute)

Hi, this is Adam for Shlomo. What were the one-time expenses for Indices? And can you provide more color on the strategic investments in this unit beyond multi-asset class indices?

Ewout Steenbergen, Executive Vice President and Chief Financial Officer

If you look at expenses for the index business in the fourth quarter, some of the increase reflects one-time outside services spend and consulting to help the business with a large transformation to move to a more agile working environment, to be faster in product development and new entrepreneurial initiatives. Also, there are strategic investments in new product areas like multi-asset class indices, sustainability and thematic factors. These investments position the index business to deliver stronger growth into 2025 and 2026 with margins in the high 60s, as discussed at Investor Day. The expenses you see in the fourth quarter should be interpreted in that context of transformation and positioning for faster growth.

Doug Peterson, President and Chief Executive Officer

Well, thank you everyone. As I mentioned earlier, despite the challenging market conditions, 2022 was a year of resilience, decisive action, and investment for the future. We're really proud of all the accomplishments we had last year, especially the merger with IHS Markit and our bold new strategic vision powering global markets. This allows us to take advantage of secular trends we've been mentioning throughout the call, like energy transition and private markets, and the need for analytics and insights in turbulent markets. We think we're very well positioned for growth in 2023 and beyond. The reason we're successful is because of the tremendous people we have in this company, and I want to thank them again for all the work they did throughout 2022 and all they're doing to help shape the future of S&P Global. I also want to thank all of you for joining the call today and for your excellent questions. We are very excited about our future and can't wait to share more with you throughout the year. So thank you for joining us today.

Operator, Operator

That concludes this morning's call. A PDF version of the presenter slides is available now for downloading from investor.spglobal.com. Replays of the entire call will be available in about two hours. The webcast with audio and slides will be maintained on S&P Global's website for one year. The audio-only telephone replay will be maintained for one month. On behalf of S&P Global, we thank you for participating and wish you a good day.