Earnings Call Transcript
S&P Global Inc. (SPGI)
Earnings Call Transcript - SPGI Q3 2024
Operator, Operator
Good morning, and welcome to S&P Global's Third Quarter 2024 Earnings Conference Call. This call is being recorded for broadcast, and all participants are in a listen-only mode. We will open the conference to questions and answers after the presentation, with instructions to follow at that time. To access the webcast and slides, please visit investor.spglobal.com. 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 of Investor Relations
Good morning, and thank you for joining S&P Global's 2024 Earnings Call. Presenting on today's call are Doug Peterson, President and Chief Executive Officer; Chris Craig, Interim Chief Financial Officer; and Martina Cheung, Incoming President and Chief Executive Officer and current President of S&P Global Ratings. We issued a press release with our results earlier today. In addition, we have posted a supplemental slide deck with additional information on our results and guidance. If you need a copy of the release and financial schedules or the supplemental deck, they can be downloaded at investor.spglobal.com. The matters discussed in today's conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates, and descriptions of future events. Any such statements are based on current expectations and current economic conditions, and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. Additional information concerning these risks and uncertainties can be found in our Forms 10-K and 10-Q filed with the US Securities and Exchange Commission. In today's press release and during the conference call, we are providing non-GAAP adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the company's operating performance between periods and to view the company's business from the same perspective as management. The press release contains financial measures calculated in accordance with GAAP that corresponds to the non-GAAP measures we're providing, and the press release and the supplemental deck contain reconciliations of such GAAP and non-GAAP measures. The financial metrics we'll be discussing today refer to non-GAAP adjusted metrics unless explicitly noted otherwise. I would also like to call your attention to certain European regulations. Any investor who has or expects to obtain ownership of 5% or more of S&P Global should contact Investor Relations to better understand the potential impact of this legislation on the investor and the company. We are aware that we have some media representatives with us on the call. However, this call is intended for investors, and we would ask that questions from the media be directed to our media relations team whose contact information can be found in the release. At this time, I would like to turn the call over to Doug Peterson. Doug?
Doug Peterson, President and CEO
Thank you, Mark. S&P Global delivered exceptional financial results in the third quarter. Total revenue increased 16% year-over-year, marking the third consecutive quarter of accelerating revenue growth. Our ratings division continues to contribute meaningfully to our outperformance, with transaction revenue increasing more than 80% year-over-year. Revenue from subscription products across the company increased 8% year-over-year as customers continue to turn to S&P Global to provide the benchmarks, data, thought leadership, and tools they need to make crucial decisions in today's macroeconomic landscape. We delivered 330 basis points of trailing 12-month margin expansion and 21% growth in EPS as we continue to invest prudently across the business and return capital to shareholders. Year-to-date, we've repurchased $2 billion in shares and plan to repurchase $1.3 billion more through year-end. In addition to our strong financial results, we continue to invest in innovation, particularly around generative AI and our strategic initiatives, which we'll touch on shortly. We also continue the important work of optimizing our portfolio of products in order to create the most customer and shareholder value. We closed the divestiture of Fincentric during the third quarter and today announced the planned divestiture of PrimeOne. PrimeOne sits within our Market Intelligence division and won't have a material impact on either the division or the company's financial results. That said, the divestiture further enables the company to focus our efforts on the best opportunities to drive long-term profitable growth. Last week, we announced management changes in conjunction with our CEO transition. Martina will walk through that later in the call. Now turning to market and commercial conditions. The debt, equity, and commodities markets all continue to show improvement benefiting our businesses. With more than $1 trillion in billed issuance in the third quarter, we've surpassed $3 trillion year-to-date. It's very encouraging to see how participants in the debt markets, both public and private, consistently turn to S&P Global ratings to help assess risk, balance exposures across portfolios, and assess credit conditions. The experience and expertise of our analysts, the breadth and depth of our coverage across credit asset classes and geographies, and the relevance of our methodologies and thought leadership have all served the markets very well thus far in 2024. We've also seen some improvement in equity markets as our flagship indices like the S&P 500 have performed very well year-to-date. We continue to see gradual increases in IPO volumes, which benefit some of our volume-driven businesses, and M&A activity has also started to show early signs of recovery. The commodities markets have remained strong as well, especially in end-markets like energy that are important to our business. We continue to see retention rates improve year-over-year in Commodity Insights and are very pleased with both the execution and the market reception of the new products. That said, we've been calling out headwinds among our financial services customers for some time now. Those have continued in the third quarter with elongated sales cycles as well as signs of increased price sensitivity and vendor consolidation. Vendor consolidation has historically been beneficial to S&P Global given the breadth and diversity of products that we offer, though the pricing environment has had an impact this year. For the last few quarters, we have noted our expectation that retention rates in financial services would be slightly below last year. That said, cancellations among our smaller customers in Market Intelligence caused retention rates to dip below our expectations slightly in the third quarter, and we expect that to continue to impact the business in the fourth quarter. We'll discuss the impact of all these moving pieces on our guidance in a moment, but the aggregate impact is that we are substantially increasing our outlook on revenue growth, operating margins, and EPS for 2024. Now, let's turn to activity in the debt markets. For Billed Issuance, we saw a 76% increase year-over-year in the third quarter as we saw strong growth across all products. Refinancing activity remains very strong, including some pull-forward out of 2025 and even out of 2026, but certainly within the normal ranges of what we would expect at this time of the year. We're starting to see more activity beyond refinancing, with some of the outperformance in the third quarter driven by opportunistic issuance around dividend recapitalizations and the beginning of a recovery in M&A activity. Market conditions, specifically the tight spreads and stability around the rate outlook, have continued to be major drivers of issuance in the third quarter and inform our improved outlook for the remainder of 2024 as well. As we look to additional rate cuts over the next 12 to 18 months, we continue to expect strong demand among investors for public debt as the current yields are expected to moderate somewhat as rates come down. Turning to Vitality, newer enhanced products generated $377 million in the third quarter. This represents 11% of our total revenue and is consistent with what we reported last quarter. Key contributors to our Vitality index are updated from last quarter as we've seen strong demand for CARFAX Listings in the CARFAX Banking and Insurance Group. We also see strong growth in energy transition and climate and LNG price assessment products from our Commodity Insights division. We're encouraged by the acceleration in the pace of innovation at S&P Global and look forward to maintaining our Vitality index at or above the 10% target. Now turning to our latest initiatives around Generative AI. Each quarter, we've been highlighting just a few of the many ways we've been leveraging both Traditional AI and Generative AI within S&P Global. In the third quarter, we had a number of new use cases within our products and services, but also within our own internal processes that are very exciting. Within market intelligence, we introduced new advanced analytics solutions and GenAI functionality through Cap IQ Pro, which allows users to build predictive models, automate workflows, and better identify patterns and data more quickly. Within Commodity Insights, we enabled cloud delivery of AI-ready data on clean-energy technology. This is a great example of our efforts to make sure that the investments we've made to prepare datasets for ingestion in AI models directly translate into benefits for our customers and economics for our business. Also in Commodity Insights, we introduced our AI-powered chatbot called ChatAI to improve the user experience, answer customer questions in real-time, and help users more quickly discover the valuable insights in our Platts Connect platform. Within mobility, we're leveraging GenAI and animation automation to embed the CARFAX, CAR FOX directly within the vehicle history reports that customers use. Soon, the animated Fox will appear on additional products, including car care user dashboards and our listings products, driving deeper customer engagement and enhancing brand affinity. Lastly, we continue to invest in our people so they can take full advantage of these incredible technologies as they emerge. Through our recently launched Spark AI Academy, our employees receive meaningful training on prompt engineering and other insights into how they can best leverage AI in their own daily work. Not only does this make our employees more productive, but it allows us to cross-pollinate new use cases across the organization. It's been inspiring to see some of these early use cases emerge in code development, document analysis, record-keeping, and process improvement and the way people are sharing their new skills across S&P Global. We're confident that AI will be a strong influence to improve efficiency, productivity, the quality of life for years to come, and that over time, you will see these improvements in our growth and profitability. Turning to our financial results. With our consistent focus on innovation and execution, we're pleased with the exceptional financial results across the enterprise this quarter. By serving our customers effectively and efficiently, we delivered exceptional growth and profitability in the third quarter. Now let me turn to Chris Craig, our Interim CFO, to review the financial results. Chris, over to you.
Chris Craig, Interim CFO
Thank you, Doug. We delivered strong performance in the third quarter of 2024 as revenue growth accelerated across three of five divisions and we achieved solid margin expansion for the company. Revenue grew by 16% year-over-year to a second consecutive quarterly record of $3.6 billion in the third quarter as we continue to see strength across our market-driven businesses. As Doug noted earlier, we're seeing variation in the relative strength of different end-markets this year. We are benefiting significantly from the strength in debt and equity markets, while some softness in the financial services sector is tempering growth in pockets of the business. The year-to-date outperformance of the market-driven businesses is also leading to elevated incentive compensation across the company. This is a great problem to have and will impact all of our divisions to varying degrees, which I'll discuss in more detail momentarily. Adjusted diluted earnings per share increased 21% year-over-year to $3.89. This was driven by a combination of our strong revenue growth, margin expansion of 180 basis points, and a 2% reduction in fully diluted share count. Turning to expense growth, we saw total adjusted expenses increase by 12%. As I mentioned earlier, incentive compensation and commissions have been significant drivers to our expense growth this year. This was true in the third quarter and we expect it to be even more pronounced in the fourth quarter. Overall, while incentives are driving expense growth across our divisions and the enterprise, it is also a critical component of our strategy to align employee performance with our growth and profitability. The year-over-year variance in these expenses is particularly pronounced in ratings and indices, where we are seeing the largest increase in performance-based incentives. It is important to note, however, that our consolidated results impact incentive compensation in every division. We've also seen an increase in cloud costs throughout the year as we moved many products to the cloud and have exited 15 data centers since the IHS Markit merger closed. This increase is reflected in the core and investment growth category, along with our strategic investments and the increase in certain operating expenses that come naturally as the business continues to grow. We also saw increased expense associated with traditional compensation outside of incentives and commissions, reflecting the usual course of hiring and the annual merit increases across the company. While important to remain transparent about the drivers of expense growth, it is just as important to reinforce the fact that the majority of these increased expenses come as a result of strong growth and fantastic financial results to date. Now turning to strategic investment areas where we continue to deliver on our initiatives supporting growth across various parts of the business. Sustainability and energy transition revenue grew 15% to $90 million in the quarter. Growth was driven primarily by strong demand for Commodity Insights Energy transition subscription offerings. In Private Market Solutions, revenue increased by 22% to $134 million. Growth was driven primarily by increased traction of our product offerings in the private market services of S&P Global Ratings. For revenue synergies, we exited the third quarter with an annualized run-rate of $249 million. During the quarter, we recognized $72 million in revenue synergies, which came from a mix of cross-sell activity and revenue generated from new products. Turning to our divisions, Market Intelligence revenue increased 6% in the third quarter, desktop grew 8% or 1% when excluding the impact from the Visible Alpha acquisition. We continue to see demand for our core products in desktop, but we also face headwinds in the financial services end market. The elevated cancellations that we discussed in prior quarters continue to impact the organic desktop growth rate and we expect that impact to continue through at least the end of the year. Data and advisory solutions grew 5%, driven by strong demand for high-growth products such as alternative data from our market data valuations and analytics product suite. Enterprise solutions grew 5% or 11% when excluding the impact of the Fincentric divestiture. Growth was driven by strong levels of primary loan restructuring and amendment activity and several large multi-year software renewals. Credit and Risk Solutions grew 4%, lapping a difficult comparison from the prior year. Growth was driven by solid subscription performance for Ratings Express across North America, along with new use cases emerging from content externalization and digitization. Adjusted expenses increased 8% year-over-year due primarily to the growth drivers around compensation, commissions, and strategic investments that I previously discussed. Operating profit increased 2% and operating margin decreased 130 basis points to 32%. Importantly, Market Intelligence margins would have expanded year-over-year were it not for incentives and commission accruals related to the company's overall overperformance, particularly driven by stellar results in our ratings and indices divisions. Trailing 12-month margins expanded 60 basis points to 32.9%. Now turning to ratings, where we saw revenue growth accelerate to 36%, materially exceeding our internal expectations. Transaction revenue grew by 83% in the third quarter, driven by strong activity, particularly in investment-grade and high-yield bonds during what has historically been a seasonally quiet summer period. Non-transaction revenue increased 4%. As we highlighted in the third quarter of last year, there was a one-time $19 million benefit from a cumulative catch-up related to commercial paper in 2023. Excluding the impact of that item last year, growth in non-transaction revenue would have been 8% year-over-year as a result of strong annual fee revenue and an increase in new rating mandates. Adjusted expenses increased 20%, primarily due to increased incentive compensation. This resulted in a 48% increase in operating profit and a 510 basis-point increase in operating margin to 61.7%. For the trailing 12 months, ratings margin expanded 650 basis points to 61.9%. And now turning to Commodity Insights. Revenue increased 9%, driven by strong performance across the division, including double-digit growth from two of four business lines. Price assessments in Energy and Resources, Data and Insights each grew 11%, driven by strength in our crude and refined product offerings. In addition, both business lines benefited from favorable commercial conditions across various regions, most notably Middle East, Africa, and Asia. Advisory and transaction services revenue grew by 6% or 5% when excluding the impact from the World Hydrogen Leaders acquisition. This was primarily driven by strong trading volumes across key sectors in global trading services. Upstream data and Insights revenue grew by 4%, driven by strong demand for subscription-based software and analytics products as well as continued improvement in retention rates. Adjusted expenses increased 10%, operating profit for Commodity Insights increased 8%, and operating margin contracted by 60 basis points to 47.8%. Similar to Market Intelligence, Commodity Insights margins would have expanded were it not for incentives and commission accruals related to the enterprise's overperformance. Trailing 12-month margin increased by 50 basis points to 46.7%. Now turning to Mobility. Revenue increased 9% year-over-year, driven by double-digit growth in two of three business lines. Dealer revenue increased 10% year-over-year, driven by strong subscription growth across CARFAX offerings. Manufacturing revenue growth accelerated to 2%, driven by a strong quarter of subscription sales. As expected, we continue to see lower transaction revenue related to our recall business, which can fluctuate based on the level of recall activity in any given period. Financials and other increased 12% as the business line benefited from strong underwriting volumes and increased market penetration. Adjusted expenses increased 9%. This resulted in operating profit increasing by 8% for the quarter and an operating margin of 42.2%, which is unchanged compared to the prior year period. Trailing 12-month margin contracted by 20 basis points to 38.8%. Now turning to S&P Dow Jones indices. Revenue increased 18%, primarily driven by strong growth in asset-linked fees, which benefited from higher AUM. Asset-linked fees were up 22%, driven by market appreciation and inflows. For the third quarter, our global ETF AUM exceeded $4 trillion, while we acquired a substantial portion of US ETF equity flows. Exchange-traded derivatives revenue grew 16%, primarily driven by strong volumes across our equity complex products. Data and customs subscriptions increased 5% year-over-year. The commercial initiatives we have previously discussed are beginning to benefit this business line as ACV in the largest product group increased mid-teens in the third quarter. Adjusted expenses increased 15% year-over-year, primarily due to increased incentive compensation. Indices operating profit increased 19%, and operating margin expanded by 80 basis points to 70.2%. On a trailing 12-month basis, Indices operating margin expanded by 200 basis points to 70%. As an enterprise, we delivered an exceptional quarter with robust growth while managing expenses prudently. Our diverse product suite is contributing to our strong results and reinforcing the benefits we realized from having these incredible global brands together. I'm pleased with our team's strong execution during this period and look forward to finishing the year on a high note. And with that, I will now turn the call to Martina to provide an update on our leadership transition. Martina?
Martina Cheung, Incoming President and CEO
Thank you, Chris. Over the 14 years that I've been at S&P Global and under Doug's leadership, I've come to appreciate how this company has gone from strength to strength. That development and our consistent track record of strong performance has been built on trusted brands, exceptional talent, and a disciplined focus on exceeding our clients' expectations. Over the last few months, I've been deeply engaged with our Board of Directors and every internal and external stakeholder group to make sure we continue that legacy of growth and customer delight. Doug and I have met jointly with many of our largest customers to hear directly from them how best we can position S&P Global to meet their needs in the coming years. I've also met with strategic partners, shareholders, regulators, and vendors to make sure that we as a leadership team have a clear understanding of the varying needs of each group, so we can prioritize our investment in both time and capital in the most effective ways. I've spent a significant amount of time with our internal product, commercial, and analytical teams as well. While I've had broad experience in my career, including the privilege of leading two of our largest divisions, it's vital to me that I have a current and timely view of our products, our customer pain points, our innovation pipeline, our operations, and the environment in which we're currently operating. I've met with leaders across the organization to gain insights into all of these key areas, and this will remain an important part of how our leadership team maintains a customer-centric, innovative, and informed strategy going forward. I've also spent time hearing directly from our people on the topics that matter most to them. I've hosted nearly 40 town hall meetings, roundtable discussions, and deep-dive sessions across the organization to discuss everything from culture to organizational design and to make sure that our leadership is accessible and transparent with our people around the world. These experiences have made it crystal-clear to me how incredible this organization is. Our core products are strong, our people are remarkable. There's a real sense of pride, excitement, and optimism as we look to expand our vision of what we can accomplish in the coming years. Now as many of you saw last week, we announced several leadership changes to ensure we have the right team in place to deliver this expanded vision. We have a strong culture of developing leaders at S&P Global, and it's a testament to that culture that six of the seven leaders on this slide who are taking on new roles are internal promotions. As we announced last week, we are thrilled to welcome Eric Aboaf as our new CFO, and we expect him to join in February of 2025. Eric brings a wealth of experience as a CFO in the financial services sector and a very strong track record of exactly the type of disciplined execution that we hope to continue here at S&P Global. We also announced last week that we are making some changes in our Division Leadership. Effective November 1, Saugata Saha will become the President of our Market Intelligence Division, having previously led Commodity Insights. Yann Le Pallec will become the President of S&P Global Ratings, having most recently served as the Global Head of Rating Services. We will have Co-Presidents of Commodity Insights; Mark Eramo, who is our current Head of the Fuels, Chemicals and Resource Solutions Business; and Dave Ernsberger, who currently leads the Market Reporting and Trading Solutions Business. S&P Global Mobility will continue under the leadership of Edouard Tavernier and S&P Dow Jones indices will continue to be led by Dan Draper. In addition to our division leadership, I also wanted to highlight two horizontal functions that we've introduced. First, in addition to his role as President of Market Intelligence, Saugata Saha will also serve as our Chief Enterprise Data Officer. In that role, Saugata will lead enterprise-wide efforts to expand and connect S&P Global's vast data estate, harnessing the full potential of the company's data capabilities for our customers. Lastly, Sally Moore will be assuming the newly created role of Chief Client Officer. Given the immense breadth of the data products and services that S&P Global brings to the market, we often meet with customers who are buying several products from various divisions. As current Head of Strategy, M&A, and Partnerships, Sally has a deep understanding of our capabilities and strong relationships across the industry. In her new role, she will lead our commercial initiatives across the company to make sure that we are bringing the full power of S&P Global to our largest clients and she will establish an enterprise-wide capability to drive strategic account management at scale. With our executive leadership team in place, we are in a strong position to execute against well-defined strategic initiatives, benchmarks, private markets, sustainability and energy transition, enterprise data, and Generative AI were all topics that we discussed at our Investor Day in 2022, and we plan to continue our strategic focus and investments in these areas. Back in July, we established teams of senior leaders from across the organization to do deep reviews in the key strategic areas that we believe are aligned to our core competencies, competitive advantages, and market opportunities. And it was encouraging to see the work these teams delivered as we believe each of these areas remains an attractive investment and we identified important opportunities to drive incremental growth beyond what we had previously considered. We will have more to say about the strategic initiatives over time, but I wanted to assure you all that we continue to see very strong potential in each of these areas. We remain committed to transparency and accountability around the investments we are making and the impact we're seeing on our performance as a result. Now turning to our outlook for the remainder of 2024, our financial guidance assumes global GDP growth of 3.2%, US inflation of 2.9%, and an average price for Brent crude of $81 per barrel. These are all roughly in line with our previous expectations. While there is some variation in market expectations around the pace of rate cuts through the end of the year, our base-case assumption is that we see at least one more rate cut this year in the US, and while encouraging for various parts of our business going forward, we would not expect the number of rate cuts in the remainder of 2024 to drive much variation in our financial results for 2024. Given stability in our macroeconomic outlook and the significant outperformance since we last provided guidance, we are increasing our outlook for 2024. We are increasing our Billed Issuance forecast for 2024 by 25 percentage points. Given the outperformance in Q3 and our expectation that Q4 will likely see positive growth in Billed Issuance, we are now expecting total Billed Issuance to increase approximately 50% in 2024. These factors combined with the exceptional results year-to-date inform our decision to substantially increase our full-year financial guidance for the company once again. This slide illustrates our current guidance for GAAP results. We are once again raising our enterprise outlook for the full year on all headline metrics, given the strength of the third quarter and our improved outlook for the fourth quarter. We now expect revenue growth in the range of 11.5% to 12.5%, adjusted margin expansion of 200 basis points to 250 basis points, and adjusted diluted EPS in the range of $15.10 to $15.30, representing a $0.70 to $0.75 increase from our prior guidance. Additional details on our consolidated financial guidance can be found in our press release, but I also wanted to note we have increased our guidance for adjusted free cash flow to approximately $5.2 billion, up $500 million from our prior guidance. As I'll discuss in a moment, we continue to balance near-term profitability with the need to invest for future growth, and we continue to prioritize long-term profitable growth for the company as a whole. The strength of our market-driven businesses so far in 2024 provides us with an opportunity to invest in our products, our people, and our brands across divisions while still delivering significant outperformance at the enterprise level, and that will be reflected in our outlook today. Specifically, as Chris discussed earlier, the strong outperformance thus far this year will increase incentive compensation across the company in 2024 and will also provide capital to pull forward some planned future investment in technology into this year. This is a good thing. And while it has the combined impact of tempering potential margin expansion in some divisions in 2024, we firmly believe that investing in our products and people will enhance our ability to deliver stronger enterprise financial results over the long term. Moving to our division outlook. Given the continued headwinds that Doug mentioned facing our financial services customers, we are tightening the range for Market Intelligence revenue growth in 2024. We now expect growth in the range of 6% to 6.5%. Following the very strong third quarter and the improved outlook for the fourth quarter, we are raising the guidance range for ratings revenue growth by 12 percentage points and now expect revenue in the range of 26% to 28% for the full year. While this represents an even more significant increase from the initial guidance we provided back in February, we remind investors that our guidance reflects our expectations based on the best information and estimates available at the time. And ratings remain largely a market-driven business that is difficult to predict in the near term. The issuance environment in 2024 has progressed well beyond what we expected at the beginning of the year, and we have adjusted our guidance as we saw the market dynamics evolving throughout the year. We are pleased that our decisions to preserve and invest in capacity in prior years have allowed us to meet the elevated demand in 2024, and we look forward to finishing the year strong. In Commodity Insights, we are tightening the range and raising the low-end to reflect the strength we've seen throughout the year. We now expect revenue growth in the range of 9% to 9.5%. In mobility, we are tightening the range as well, and we now expect revenue in the range of 8% to 8.5%. Lastly, in Indices, the continued strength in AUM, exchange-traded derivatives, and subscription ACV led to an improved outlook for the year. We are raising our guidance by 3 percentage points to a new range of 13% to 15%. Turning to division margins; in Market Intelligence, we now expect margins in the range of 32.5% to 33%, tightening and slightly lowering our prior range due to the updated revenue outlook and the elevated expenses associated with compensation that were discussed earlier. In Ratings, we now expect higher revenue to improve margins as well and now expect full-year margins in the range of 61% to 62%. In Commodity Insights, we are tightening the guidance to a range of 46.5% to 47%, reflecting the strong revenue growth, planned strategic investments, and the impact of compensation expenses. In mobility, we are tightening the guidance to a range of 38.5% to 39%, reflecting the performance year-to-date and the continued investments to drive future growth. In Indices, we expect higher growth to drive improved margins, somewhat offset by incentive compensation and strategic investments. We now expect margins in the range of 69.5% to 70.5%. As we continue to prioritize enterprise growth and identify areas for incremental investment in both people and products, we are thrilled to be able to make those incremental investments while still passing on much of the revenue upside from this year to the margins. Compared to the initial guidance we provided at the beginning of the year, we now expect 5 to 6 percentage points more revenue growth, 100 basis points to 150 basis points of further margin expansion, and nearly 10% higher adjusted EPS. We believe that this enterprise mindset and focus on solving for the collective whole will drive strong profitable growth and long-term shareholder value for years to come. With that, we will turn the call back to Mark for your questions.
Mark Grant, Senior Vice President of Investor Relations
Thank you, Martina. Operator, we will now take our first question.
Operator, Operator
Thank you. Our first question comes from Ashish Sabadra with RBC Capital Markets. Your line is open.
Ashish Sabadra, Analyst
Thanks for taking my question. I just wanted to drill down further on the MI segment, execution there has been a bit choppy. And so just as we think about with the new leadership changes and some of the portfolio rationalization that we have seen, is there further opportunity for more rationalization there or how do we get that business on a more steady execution? Thanks.
Martina Cheung, Incoming President and CEO
Hi Ashish, it's Martina here. Thank you for your question. In Market Intelligence, we've noticed a slight increase in cancellations among some of our smaller customers, as we mentioned earlier. We've also observed some pricing pressure, budget constraints, and longer sales cycles. It's important to note that these challenges are primarily tied to the end markets and the headwinds we're facing there. Moving forward, we're committed to driving innovation within Market Intelligence and maintaining close connections with our customers to ensure their needs are met. While we're dealing with some cyclical headwinds and it's hard to determine when we might hit a low point, we are confident that the value we provide will become clear as we go through this cyclical recovery. Regarding portfolio optimization, we have announced two divestitures this year, which is part of our ongoing strategy. We regularly assess our businesses and product lines to ensure they align with our strategy and that we are the right owners of them. This will be a continued focus for us in the future.
Operator, Operator
Thank you. Our next question comes from Toni Kaplan with Morgan Stanley. Your line is open.
Toni Kaplan, Analyst
Thank you. Martina, I wanted to ask you a broad question about where you see the biggest areas of opportunity for investment. I assume AI is probably one of them, but are there any other areas you’ve identified where you believe significant opportunities exist for the company? Thank you.
Martina Cheung, Incoming President and CEO
Hi, Toni. Thanks for the question. As we said in the opening remarks, we've spent a lot of time in the last several months collectively as a team, myself and Doug meeting with customers and quite frankly, this is a phenomenal business and one that we as a new leadership team will look to make even better. I highlighted five secular trends in the presentation and each of these five we had discussed during the Investor Day in 2022. And I'll tell you the thing that got me most excited is not only was the work that we did in the last few months, it's a reaffirmation of the strategy that we have, but we've also identified other areas within those five where we think we've got good opportunities for maybe new incremental growth. So those would be the things I would highlight there and a lot of excitement with the new leadership team to go after us.
Mark Grant, Senior Vice President of Investor Relations
Thanks, Toni.
Operator, Operator
Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is open.
Manav Patnaik, Analyst
Thank you, Martina. I was curious about your earlier comments on addressing the collective whole, especially considering we have five large businesses with a lot happening. Regarding the simplification you mentioned in MI, do you have any insights on the overall status of the company and its portfolio today?
Martina Cheung, Incoming President and CEO
Hi, Manav. Thanks so much for the question. Look, you've seen us be very disciplined around capital management over the past several years and very specifically under Doug as CEO. And we're going to remain committed to capital management and returns to our shareholders. So, I'll start by saying that. With that, we will continue to look at whether it's M&A, whether it's portfolio management with the same level of discipline that we always do. And as I said in the last question, we're going to test constantly, are we the right owners for businesses are we investing the right amount or should we be reprioritizing and redirecting investments. And those are all things that we'll do as new leadership team going forward.
Mark Grant, Senior Vice President of Investor Relations
Thank you, Manav.
Operator, Operator
Thank you. Our next question comes from Scott Wurtzel with Wolfe Research. Your line is open.
Scott Wurtzel, Analyst
Hey, good morning. Thanks for taking my question. Just wanted to hit on the synergy topic. I mean, good to see the run-rate increasing there. And just wondering in the context of maybe some of the choppiness that we're seeing in Market Intelligence and the outperformance in some of the other segments, are we seeing any sort of change in geography in terms of where the synergies are impacting by division? Thanks.
Doug Peterson, President and CEO
Thanks, Scott. This is Doug. When we look at the synergy performance of the company, we're very pleased. Across the board, we're ahead of what we had as our expectations. We see in particular cross-sell as one of the areas that has done incredibly well. And when I talk about cross-sell, I talk about cross-sell intra-division. We're also very excited about the new role that Sally Moore is going to have, which is going to bring up a lot more opportunity across divisions for cross-sell. And then within the divisions on new products, new services, we've been quite successful getting things out. And for example, we've had 23 new products this year so far from Market Intelligence. Those products are all doing well and we continue to be on track to deliver our synergies.
Mark Grant, Senior Vice President of Investor Relations
Thanks, Scott.
Operator, Operator
Thank you. Our next question comes from Faiza Alwy with Deutsche Bank. Your line is open.
Faiza Alwy, Analyst
Yes, hi. Thank you. So I wanted to ask about ratings. I think, Doug, in your comments, you mentioned some pull-forward from 2025 and even 2026 this year. It's certainly been a very strong year for issuance. And I'm curious if you have any early thoughts around 2025? And I know a few years ago, you talked about 6% to 9% was the long-term growth rate or the 25% growth rate. Do you think that is achievable and what are some of the factors to consider?
Martina Cheung, Incoming President and CEO
Hi, Faiza. This is Martina. Thanks so much for the question. Yes, we have seen certainly higher levels of issuance than we anticipated earlier in the year. And this is the third time, I believe that we've raised guidance for ratings. The business itself when it comes to refinancing and the levels that we've seen for pull-forward, et cetera, if we look at 2025 maturities and where they stand right now, how much is pulled forward into 2024. It's not dramatically different from what we would have seen in the last couple of years. And so when we say, as we usually do in our calls that there is a healthy maturity wall anywhere from $2 trillion to $2.8 trillion each year over the next five years, that is still very much the case for us. Now we always also say that we can't predict with exact precision the actual timing of refinancing and so much of that this year, for example, has been related to spreads. So to the extent that we see certain things continuing to move ahead that could impact more pull-forward or less pull-forward. Moreover, I would say, for us, the biggest correlation in issuance overall is actually GDP growth. And so this is something that we would pay very close attention to over the next several years as we think about the ratings business and any of the other businesses that are impacted by GDP growth. And then finally, to your point on the 6% to 9% Investor Day, this was really a target from 2023 to 2025, 2026, so a multiyear target. And I would say for the enterprise as a whole, we are very much on track for reaching that target and with ratings.
Mark Grant, Senior Vice President of Investor Relations
Thank you, Faiza.
Operator, Operator
Thank you. Our next question comes from David Motemaden with Evercore. Your line is open.
David Motemaden, Analyst
Hey, thanks. Good morning. I just wanted to follow up on the competition in Market Intelligence. It sounded like that the pricing competition picked up a little bit this quarter. Wondering if you could just elaborate on that. And maybe secondly, specifically within Market Intelligence, Martina, if you're thinking about maybe incremental areas of investment that are needed to reach the 7% to 9% revenue growth target? Thank you.
Doug Peterson, President and CEO
Great. Thanks, David. Let me start. As we've mentioned, there's been headwinds on this area for many, many quarters. This isn't something new for us. We saw this when the investment banks and both the buy-side and the sell-side were pulling back when inflation had gone up quite dramatically. Interest rates were spiking. There were a lot of trends which had slowed down the environment. We'd seen a slowdown of the sales cycle. So as opposed to this necessarily being pricing, we have seen some price sensitivity. This is just a residual impact of all of the changes and the expense management that we saw in the area. We have seen something that we discussed, we call vendor consolidation that historically has been very beneficial to us. We have the kind of datasets in a way that many organizations when we start talking with them, they don't realize how many things we have. It gives us an opportunity to bring more and more capabilities when we have these discussions. So yes, we have seen some consolidation. We've seen some sales cycle slowdown. We've seen some pricing pressure overall, but it is an incredibly strong business. The synergies have been coming along and the integration has gone incredibly well. Martina, over to you.
Martina Cheung, Incoming President and CEO
Thank you for the question, Doug. Regarding the growth rates for Market Intelligence moving forward, as Doug mentioned and we've talked about earlier, this really depends on the end-markets. We are not in a position to predict when we will hit a low point, but we firmly believe that as we increase our interactions and continue to innovate, we will see value returning to some areas that have faced challenges due to the current end-market difficulties. Thank you for the question.
Mark Grant, Senior Vice President of Investor Relations
Thanks, David.
Operator, Operator
Thank you. Our next question comes from Craig Huber with Huber Research Partners. Your line is open.
Craig Huber, Analyst
Thank you, Doug. I want to commend you for the excellent job you've done leading the company for the past 11 years. I wish you all the best moving forward. You're a tough act for Martina to follow. Martina, my question for you is about your plans for the company. What changes do you envision implementing as you move forward? We certainly don’t want to disrupt anything, as that’s our top priority. What are your thoughts on possibly doing things differently to enhance shareholder value? Thank you.
Martina Cheung, Incoming President and CEO
Thanks for the question, Craig, and I completely agree with you that Doug is a very hard act to follow. I can tell you, we are focused really here on this wonderful company, great as it is, and how much better we can make it. And the new leadership team as it's been announced does have some different functions than what we had before and those are some areas where we plan to connect the dots a bit more across the divisions through the Chief Commercial Officer and to have really a scaled capability for strategic accounts and through our enterprise data office, we're looking at ways in which we can connect our data together so that it provides us with really interesting and easier pathways to growth across the organization. As you know, we have one of the deepest and richest data estates in the business and we're very excited about the potential for that. Thanks for the question.
Mark Grant, Senior Vice President of Investor Relations
Thanks, Craig.
Operator, Operator
Thank you. Our next question comes from Andrew Steinerman with J.P. Morgan. Your line is open.
Alex Hess, Analyst
Yes, hi, this is Alex Hess on for Andrew. On the Indices business, I'm going to ask about the indices business. Can you walk through some of what gives you conviction in the price actions flowing through the year? I know you guys touched on an ACV number and how we should maybe think about the relative strength that you're calling out in that index data and custom piece versus a challenging end-market for financial services versus one of your peers calling out some softness in their ETF business. So it would be helpful maybe get your thoughts on the landscape in the index segment.
Chris Craig, Interim CFO
Sure. Hi, Alex. This is Chris. Thank you for your question. So first, we are solving for long-term customer relationship and growth at indices. We will see some acceleration in the data and custom in line with what we expected next quarter. We want to take the necessary steps in time to make sure we preserve long-term relationships rather than solve them for short-term economics with our pricing. That said, data and customs did increase 5% year-over-year. The commercial initiatives we previously discussed earlier in the year are really starting to pick up now. ACV in the largest group, the end of day data revenue, we see that going to mid-teens this quarter and we really expect to see some ACV acceleration later on in the year.
Mark Grant, Senior Vice President of Investor Relations
Thanks, Alex.
Operator, Operator
Thank you. Our next question comes from George Tong with Goldman Sachs. Your line is open.
George Tong, Analyst
Hi, thanks. Good morning. I wanted to dive a little bit deeper into Market Intelligence. Can you elaborate on what you would need to see with respect to external market conditions for growth performance to improve? And what the low watermark for MI growth should be, including when you would expect to see growth to bottom out?
Martina Cheung, Incoming President and CEO
Hey, George, it's Martina. Thanks for the question. Well, the low watermark in my parlance, I mentioned trough in response to one of the earlier questions that we're not going to be the one to call a trough, but we have very good conviction here, George, that with the innovation that's going into the core products, with the increased touch points that we have with the customers, that as we emerge from this cycle, we'll see the recovery reflected in our financials as well as with our customers. And look, it's too early to tell about and it could differ by discrete sector within financial services, but we are hearing a little bit of green shoots here and there, continued pressure in other places. I would say we will watch this very, very carefully, but we feel good that we have the products in place, the investments in new products that Doug mentioned, which we're quite excited about, and continue to really engage as closely as possible with our customers. Thanks for the question.
Mark Grant, Senior Vice President of Investor Relations
Thanks, George.
Operator, Operator
Thank you. Our next question comes from Alex Kramm with UBS. Your line is open.
Alex Kramm, Analyst
Good morning, everyone. Could you provide more insight into what you're experiencing in Commodity Insights and your outlook moving forward? It seems that this year you are exceeding your medium-term Investor Day targets. The energy market conditions appear favorable, but areas such as energy transition still seem to be in the early stages. As you look ahead, do you believe that the cyclicality will worsen, or do you think we're just at the start of a potential prolonged upward trend? My question really centers on the distinction between cyclical and secular trends. Thank you.
Martina Cheung, Incoming President and CEO
Hi, Alex, it's Martina. Thanks so much for the question. Well, we're quite excited as we have been for several years now about the Commodity Insights business and the performance there. And one of the things that excites us as we go forward is the breadth and if you like, sort of embedded diversification across the various different commodity pieces, whether it's oil and gas, power and some of the other areas we've been investing in. In particular, we see in addition to great performance for the larger core product areas, we've also seen really nice performance in some of the newer investment areas. So, for example, we're seeing rapid growth around some of our energy transition products. In particular, we had our new clean-energy tech product that's been launched that's been very well received in the market and lots of other stuff that the teams are doing there, whether it's voluntary carbon markets, low-carbon assessments, etc. So, we think that we're making the right investments here in the areas that will continue to grow going forward and sustaining very good positions and discipline around the core products in the business and overall have, we think a good story going forward here. Thanks for the question.
Mark Grant, Senior Vice President of Investor Relations
Thanks, Alex.
Operator, Operator
Thank you. Our next question comes from Jeff Silber with BMO Capital Markets. Your line is open.
Unidentified Analyst, Analyst
Hey, good morning. This is Ryan here on for Jeff. Just on the Private Market Solutions, it sounds like the revenues there were up 22% in 3Q and you're seeing some strength from the buzz going on in private credit going on at the moment. I was just curious how you think your products are positioned to succeed and win share as the market heats up and gets more competitive going forward? Thank you.
Martina Cheung, Incoming President and CEO
Hi, Ryan, it's Martina here. Thanks for the question. Well, private markets is something that we've been investing in and growing very fast in over the last several years. And it impacts us across the portfolio. We have phenomenal products in Market Intelligence, for example, high-level and Wall Street Office and those two products have come up in some of the conversations that Doug and I have been having as we've been doing our transition meetings with senior clients. We also, as you know, have been making great strides in the ratings division with our private markets ratings and assessments as well as seeing some really interesting opportunities in the index business also. So overall, this is a transversal opportunity for us. We're excited about it. We're going to continue to invest and prioritize within this area because there are so many ways in which we can play in this market and we're going to be very disciplined and thoughtful about prioritizing within the private market opportunity to put the money where we can get the best return, deliver the best value for our customers, and overall returns for our shareholders. But it's a good story there for us. Thanks very much, Ryan.
Mark Grant, Senior Vice President of Investor Relations
Thank you, Ryan.
Operator, Operator
Thank you. Our next question comes from Jeff Meuler with Baird. Your line is open.
Jeff Meuler, Analyst
Yes, thank you. Good morning. Just can you address the mobility revenue guidance? It's the second quarter in a row, you've trimmed the high end and there's multiple positive call-outs for vitality and subscription growth looks good. Is it still recall activity headwinds or just any other call-outs on mobility guidance? Thank you.
Chris Craig, Interim CFO
Hey, Jeff, thanks for the question. This is Chris again. So first, mobility core subscription growth really performed well this quarter, coming in at a little over low double digits. Even with the CDK outage, we still see strong growth in the subscription business. Yes, the challenge remains recall, but looking ahead to next year, that will actually have an easier path when we consider 2025, mainly due to the recall. So that remains a headwind in that market.
Mark Grant, Senior Vice President of Investor Relations
Thank you, Jeff.
Operator, Operator
Thank you. Our next question comes from Jason Haas with Wells Fargo. Your line is open.
Jason Haas, Analyst
Hi, good morning and thanks for taking my question. Curious if you could talk about what you're seeing in terms of the pace of AI adoption among your customers. What if anything do you see holding them back from further adoption of some of the AI products that you're rolling out? Is it budgetary? Is it about data accuracy? And then I don't know if it's relevant or not, but if you can talk about your own learnings as you roll out AI and maybe what others can learn from that? Thank you.
Martina Cheung, Incoming President and CEO
Hi, Jason, it's Martina. Thanks for the question. It's important to note that a large language model's effectiveness is determined by the quality and quantity of the data used for training, and we possess a lot of high-quality data. We are confident in how we are incorporating generative AI into our products. There are two key areas to consider: first, improving our existing products, and second, exploring opportunities to develop new product versions or different data insights using generative AI. We are experiencing significant momentum, as highlighted in our presentation. Since we have had Kensho since 2018, we have benefited from advancements in machine learning and natural language processing leading to GenAI. Many of our clients are interested in discussing how we utilize our data and what insights they can gain, leading to valuable and engaging conversations regarding AI-ready data. Internally, we are making remarkable progress with Spark Assist, both in training related to GenAI and using Spark Assist as an internal tool. We are excited about the increase in adoption among our employees and the variety of use cases emerging from this. Sharing these experiences with our clients enhances our discussions. Our unique approach with Spark Assist hasn't been widely seen among other organizations, so we have valuable insights and engaging discussions to offer our customers. Thanks for the question.
Mark Grant, Senior Vice President of Investor Relations
Thanks, Jason.
Operator, Operator
Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open.
Owen Lau, Analyst
Good morning, and thank you for taking my questions. Could you please give us more color on your sustainability products? What is the outlook there? And how should we think about the new product launches? Thanks.
Martina Cheung, Incoming President and CEO
Hi, Owen, it's Martina, and thanks so much for the question. Well, this is an area that we announced a change in when we did our leadership announcement last week. So the plan forward here is to move the Sustainable One business and combine it with the energy transition products and assets within Commodity Insights. And that merged group will essentially still function as a horizontal from within Commodity Insights. Now this is very exciting for us. As I said earlier, the Commodity Insights division has some of the most unique and proprietary ways to think about and measure energy transition. It's incredibly helpful, for example, for our financial services customers as they're thinking about whether or not they're financing some of these new technologies, what their financed emissions are et cetera. And so this pulling together of these capabilities allows us to create some really unique and forward-looking ways in which we can help our clients as they're navigating the transition. And I think as importantly, will allow us to bring those really high-value commodity Insights products to multiple different sectors outside of the commodity sector. So we're quite excited about it. We'll talk more about it next year, and well, thanks for the question.
Mark Grant, Senior Vice President of Investor Relations
Thanks, Owen.
Operator, Operator
Thank you. Our next question comes from Russell Quelch with Redburn Atlantic. Your line is open.
Russell Quelch, Analyst
Hi, thank you for having me. I would like to go back to Market Intelligence, specifically regarding the desktop business. Doug, you mentioned there are cyclical challenges affecting sales, and pricing has been a topic for several quarters. I was wondering if this is more due to a lack of structural growth in financial service headcount and high competition in this area that limits growth opportunities in terms of total addressable market and pricing. Additionally, I would like to know how S&P plans to gain market share in desktops and if you could share some insights on the customer segments, asset classes, and regions you are targeting. That would be very helpful.
Martina Cheung, Incoming President and CEO
Hi, Russell, it's Martina here. Thanks for your question. We believe this is largely influenced by end-market conditions. Structural elements can actually align with our strengths. A clear example of this is the growth in our sponsor business, particularly in private credit, which is an area where we can potentially gain more business compared to other segments of financial services that are currently more limited. Additionally, we are noticing some positive developments in various sectors, including banking, with some of our banking clients. Overall, we offer a diverse range of services within Market Intelligence. Considering the strong performance of Visible Alpha this year alongside our desktop growth, we see continued opportunities to engage our clients effectively. Furthermore, with Sally Moore's new role as Chief Client Officer, we anticipate improved connections across divisions, ultimately enhancing long-term value for our customers. Thank you for your question.
Mark Grant, Senior Vice President of Investor Relations
Thank you, Russell.
Operator, Operator
Thank you. We will now take our final question from Surinder Thind with Jefferies. Your line is open.
Surinder Thind, Analyst
Thank you. Following up on the creation of the Chief Client Officer role, you've talked about connecting the dots at the client level. Maybe can you provide a bit more color in the sense of the challenge that's being addressed? Is the idea to have a more integrated approach to sales here or customer service, how should we think about that?
Martina Cheung, Incoming President and CEO
Thank you for the question, Surinder. Yes, you’ve touched on key points regarding the need for greater consistency in our operations. It's important for us to connect the dots, especially since our sales teams currently operate independently across our diverse business segments. As a result, some customers may purchase multiple products or engage with different divisions but are not fully aware of the full range of offerings we provide. A common feedback Doug and I have received from senior clients is that they didn't realize we offered certain services. A priority for Sally and her team will be to ensure our customers are well-informed about our complete range of products and services. Additionally, she'll focus on creating consistency in our go-to-market strategies and strengthening our strategic relationships with clients moving forward. Thank you for your question.
Doug Peterson, President and CEO
Thanks, Surinder. And I want to thank everyone for joining the call today and especially your great questions. Over the past 11 years, I've had the honor of leading S&P Global through significant transformation, and we've always strived to deliver exceptional value to our shareholders and our customers. This is my 44th Earnings call, and I've had hundreds of meetings with analysts and investors, and I've always appreciated the discussion, and the dialogue, and the tough questions that you've asked. I've always learned. I want to thank our 40,000 people at the company. They are the heart, the soul, and the brain of S&P Global and the reason for our success. And I know they're going to continue to deliver growth and innovation in the years ahead. I want to thank Martina and congratulate her on her new role. I'm confident that she's going to be a great CEO and will be a fabulous addition to the company with the full support of our people and a great knowledge and commitment to our customers, the communities, and our shareholders. I'm very excited about what lies ahead and that we have a world-class Board, a talented management team, and we're very well-positioned for the future. I can't thank you all enough. This has been the best run I've ever had.
Martina Cheung, Incoming President and CEO
Thank you so much, Doug, for those heartfelt words and for your remarkable leadership that has transformed S&P Global. You grew our market cap from $16 billion to $165 billion, while fundamentally strengthening our capabilities through the IHS Markit acquisition. But beyond these impressive numbers, you've led with extraordinary empathy and wisdom, creating a legacy that I'm deeply honored to follow upon. So thank you to everyone who joined today's call. I look forward to speaking with you on our next earnings call.
Operator, Operator
Thank you. That concludes this morning's call. A PDF version of the presenter slides is available for downloading from investor.spglobal.com. Replays of the entire call will be available in about two hours. The webcast with audio and slides will be maintained on S&P Global's website for one year. The audio-only telephone replay will be maintained for one month. On behalf of S&P Global, we thank you for participating and wish you a good day.