Earnings Call Transcript
S&P Global Inc. (SPGI)
Earnings Call Transcript - SPGI Q4 2024
Operator, Operator
Good morning, and welcome to S&P Global's Fourth Quarter 2024 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. To access the webcast and slides, go to 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 today's S&P Global Fourth Quarter and Full Year 2024 Earnings Call. Presenting on today's call are Martina Cheung, President and Chief Executive Officer; and Chris Craig, Interim Chief Financial Officer. 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. Additional information concerning these risks and uncertainties can be found in our Forms 10-K and 10-Q filed with the U.S. 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 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. 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 press release. At this time, I would like to turn the call over to Martina Cheung. Martina?
Martina Cheung, President and Chief Executive Officer
Thank you, Mark. By any measure, 2024 was an incredible year for S&P Global. Excluding Engineering Solutions, which was divested in 2023, revenue increased 15%, and revenue from our subscription products increased 7%. We benefited from strong market trends, including record debt issuance for our Ratings business and strong equity valuations for our index business. However, we also continue to demonstrate the discipline and operational excellence our shareholders have come to expect from us, delivering accelerated revenue growth in commodity insights and strong steady growth in both market intelligence and mobility despite some market headwinds in those two businesses. We continue to take a balanced approach to profitability and investment, which allowed us to make important investments in technology, AI, and products while still expanding margins by more than 300 basis points. We delivered 25% growth in adjusted EPS in 2024, which exceeded the midpoint of our initial guidance range by more than 13%. Our disciplined approach to capital allocation allowed us to return $4.4 billion to shareholders over the course of 2024 through our cash dividend and the repurchase of 6.7 million shares. We expect to continue strong capital returns in 2025 as we recently announced the 52nd consecutive increase to our cash dividend and a newly approved share repurchase authorization of up to $4.3 billion. In total, you'll see this allows us to maintain our target of returning 85% or more of the $6 billion in adjusted free cash flow we are expecting in 2025. I've been very impressed with our people's ability to execute and deliver such strong results, embracing the leadership transition and the increased focus on our customers and our enterprise advantages. With that increased focus on serving our clients at the enterprise level, we announced the establishment of the Chief Client Office and the Enterprise Data Office. We're excited to share the successes from these initiatives with you as we progress through the year. We're also pleased to share that our new Chief Financial Officer, Eric Aboaf, will be joining us officially on February 19. We are gaining momentum in our product innovation and AI initiatives across the organization, as I'll share with you in a moment. Lastly, we continue the cycle of optimizing our portfolio of businesses so that we are best positioned for long-term profitable growth. In 2024, we acquired best-in-class solutions to support strategic growth through Visible Alpha, ProntoNLP, and World Hydrogen Leaders. We also divested non-core businesses in Centriq and Prime One. One of my first priorities as CEO was to strengthen and deepen our relationship with key strategic customers at the highest levels of leadership. I had more than 100 meetings with some of our most important stakeholders to ensure a smooth transition of these key relationships. These discussions included not just our customers but also strategic commercial and technology partners. Together with our new Chief Client Officer, I met 85% of our largest strategic customers just in the last 100 days. We are instilling a clear need in our executive leadership team to be where our customers are. Our success depends on the value we create and deliver for our customers. So I've asked our division leadership to make these relationships a personal priority for them as well. This emphasis on customer engagement is a natural evolution for S&P Global. We've always focused on customer value, but by making customer engagement a higher priority at the executive level, we are building stronger relationships to accelerate our response to customers' challenges. This engagement can also present opportunities to partner or co-invest with our customers. One example is the UBS Leveraged Loan Index partnership. Through these many meetings, I'm picking up a consistent set of themes which align very well with our competitive advantages and reinvigorate our optimism and confidence in our ability to compete and win. While generative AI is not a new topic for our customers, they are moving beyond just considering what this technology can do and focusing on use cases that can scale quickly and contribute to strong financial results. Customers increasingly turn to us to benefit from our years of experience scaling AI technology from Kensho. We continue to see impactful headlines and market news on a near-daily basis. Customers are deeply engaged to determine the potential impact on their business, global trade, tariffs, and regional competitiveness. S&P Global is a world-class provider of data insights and thought leadership in these vital areas, and our customers are turning to us for that expertise. Customers continue to feel the impact of the innovation taking place in financial markets with the flow of capital to passive funds, but also increasingly to private markets and digital assets. Through our leadership in benchmarks, private credit, private equity workflow tools, and innovations like our stablecoin assessments, our customers see us as a critical partner in navigating this sea change in the coming years. Additionally, customers recognize our leadership and seek our insights in energy transition—a complex issue encompassing energy security, technology innovation, and the financing of the various investments needed over the coming decades. For example, in utilities, the depth and breadth of our expertise and data sets across oil, liquid natural gas, carbon, renewable energy, electric utilities, and reporting all helped drive the 23% growth in revenue from our energy transition and sustainability products in the fourth quarter. As we look to 2025, we are hearing general expectations for some improvements in the macroeconomic environment, with some variability by geographic region providing caution and uncertainty around Europe and Asia against the general optimism we're seeing in the U.S. markets. We are seeing strong demand for our products and some modest tailwinds from vendor consolidation. We continue to see the benefits from the breadth of our offerings as our enterprise approach allows us to meet more of our customers' needs in a more cost-effective way. As we've discussed for some time now, we continue to see conditions in the financial services end market below what we would consider normal, though we do expect a gradual improvement over the course of the year. We are also experiencing a highly competitive environment in financial services with somewhat elevated price sensitivity impacting Market Intelligence most notably. Now turning to the 2024 issuance environment, we saw nearly $4 trillion in billed issuance in 2024, significantly outpacing our expectations. With extremely favorable market conditions, including tight credit spreads and lower interest rates, we observed many issuers take advantage of these conditions in 2024 to refinance debt and felt strong activity in CLO volumes as well as repricing, amend, and extend activity. While this creates a very difficult compare for 2025, we believe the refinancing walls and a recovering M&A environment will contribute to modest growth in billed issuance this year as we'll discuss in more detail in a moment. As we look next to the Vitality Index, I'm encouraged that this index continues to accomplish its intended purpose. When we introduced this metric at our Investor Day in 2022, we stressed the importance of ensuring we were prioritizing new products that can contribute to our financial performance over time. We also noted that new products would remain in the Vitality Index for a finite time and would eventually mature out. The focus is to ensure that revenue from maturing products is replaced by innovative new products that can scale quickly. At the beginning of 2024, we had a number of meaningful products mature out of the Vitality Index. Those products contributed a combined $330 million to the index in 2023, nearly 25% of the total index. By continuing to innovate and invest in products, we were able to more than replace that mature revenue and end the year with an index of $1.5 billion, representing nearly 11% of total revenue. At the end of 2024, we had another group of products mature out of the Vitality Index, but we are confident that our focus on customer value and rapid innovation will once again enable us to deliver a Vitality Index at or above 10% this year. Turning to just a few examples of that innovation, as the world's leading provider of benchmarks, we continue to invest and innovate to launch new benchmark products and improve our existing benchmarks. In 2024, we expanded the collection of multi-asset class indices offered through S&P Dow Jones Indices and launched the leveraged loan indices in partnership with UBS. We introduced several new Platts price assessments this year and launched new assessments for various chemicals, beef, and poultry. Additionally, we introduced a first-of-its-kind product in the digital asset space to assess stablecoins. We know that data and technology lie at the heart of almost everything we do, so we continue to invest significantly in our internal technology and technology products. We are finding new ways to leverage the remarkable data estate that we have, exemplified in 2024 by the introduction of the market fixed income securities data in Capital IQ Pro. Part of our focus on technology must include a strategy to leverage the tremendous technological advancements taking place in the world today, such as generative AI. Starting with our people, we are continuing to build a culture that embraces AI, empowering our staff with the tools, training, and resources they need to thrive. In 2024, we introduced our internally developed Copilot called S&P Spark Assist. Since introducing Spark Assist, we have seen over 1,300 various use cases developed and shared internally within what we call our Spark Store. As we focus on developing AI skills across our workforce, we are witnessing our people truly embrace these powerful tools to automate workflows, quickly ingest new information, and efficiently generate their work products. We firmly believe that by embracing the use of AI internally, we will unlock significant potential for product innovation as well. Just as we've seen with Kensho's incredible innovations over the years, tools and resources that enhance our productivity and efficiency will likely benefit our customers as well. Through ongoing customer meetings, we consistently hear that they want to integrate S&P Global's data into their AI workloads. To facilitate this, we launched a new solution, Kensho-LLM-ready API, enabling users to seamlessly integrate complex, high-priority data sets into generative AI models for their internal use. It integrates with large language models like GPT, Gemini, or Claude, allowing customers to use natural language to query our tabular data sets. This is part of our ongoing effort to bring our data into the new era of Gen AI, ensuring we meet customers where they are and where they are going in their AI journeys. We've also embedded generative AI functionality in our major desktop applications, including ChatAI for Platts Connect as well as ChatIQ and Document Intelligence for Capital IQ Pro. This initiative aligns with our vision of empowering our customers to derive insights from our data more quickly and effectively using AI. Additionally, we identified and acquired market-leading solutions that we believe strengthen our competitive position in various areas while contributing to our immediate financial results. These include Visible Alpha and ProntoNLP in our Market Intelligence division and World Hydrogen Leaders in our Commodity Insights division. With the ultimate goal of driving profitable long-term revenue growth, we will continue to pursue this kind of innovation: developing tools for efficiency and productivity, organically creating new products for our customers, forming partnerships for new products, and pursuing strategic acquisitions to accelerate growth and leadership. You will notice that a common thread runs through these examples of innovation: generative AI. When we consider the potential for generative AI across the business in the coming years, there are seemingly endless opportunities to innovate and add value for our customers. With all this potential, we will ensure that S&P Global remains an indispensable partner as customers integrate AI into their workloads. We are doing this in many ways, including building sophisticated Gen AI experiences, laying the groundwork for agentive workflows, and investing in foundational AI capabilities that help our customers rapidly gain insights from our data. In the coming quarters and years, you'll see us focus more on practical applications that have the potential to impact financial performance and enhance the value of our products. We will prioritize those use cases that improve our revenue growth potential, enhance operational productivity and efficiency, boost the capabilities and skills of our people, and safeguard the security around our proprietary data and systems. This will require us to say no to many things, but will allow us to effectively allocate investment dollars in a manner that maximizes real value creation. You've seen us execute this in recent years with Spark Assist, ChatIQ, and various important innovations from our Kensho team, and we will continue to highlight our progress in this critical area moving forward. Now turning to our financial results. Chris will walk through the fourth quarter results in more detail in a moment, but we are pleased and encouraged by the results we delivered for our shareholders in 2024. We continue to see strong growth in our market-driven and subscription businesses, with total revenue increasing 14%, or 15% excluding the impact of Engineering Solutions. We also delivered over 300 basis points of margin expansion in the year. As Chris will discuss in a moment, we faced some elevated expenses in 2024 related to incentive compensation and commissions due to the strong revenue beat this year. Were it not for that increase in compensation expense, we would have experienced year-over-year margin expansion in every division. Now, I'll turn it over to Chris to review the financial results.
Christopher Craig, Interim Chief Financial Officer
We finished 2024 with strong results as fourth quarter revenue grew by 14% compared to the prior year, with growth across all our divisions. Notably, our market-driven businesses, Ratings and Indices, each grew by over 20% in the quarter as we capitalized on favorable conditions in both the debt and equity markets. Adjusted diluted earnings per share increased 20% year-over-year to $3.77. This growth was driven by a combination of strong revenue growth, margin expansion of 260 basis points, and a 2% reduction in fully diluted share count. Now turning to strategic investment areas, where I'm excited to share that we experienced positive momentum across our key initiatives, all of which are helping drive sustainable growth for the company. Energy transition and sustainability revenue grew 23% to $104 million in the fourth quarter, driven primarily by performance in Commodity Insights energy transition offerings and positive fund flows in sustainability-focused indices. In Private Markets Solutions, revenue growth accelerated to 29% to $146 million in the fourth quarter, primarily due to continued strong demand for our private market ratings and evaluations within S&P Global Ratings. For revenue synergies, we exited the fourth quarter with an annualized run rate of $284 million, representing 81% of the target synergies expected to be achieved in 2026. During the quarter, we generated $74 million in revenue synergies and were pleased to see both cross-sell and new product revenue synergies surpass our expectations in Q4. Finally, we generated approximately $409 million in Vitality revenue during the fourth quarter, resulting in an 11% Vitality Index. As previously highlighted, we anticipate a steady stream of innovative offerings to replace any products graduating from the index, ensuring sustained momentum in our product lineup. Now turning to expenses, we saw a total increase of 9% in the fourth quarter, driven primarily by ongoing investments in our core business and growth initiatives, combined with increased incentives, commissions, and compensation. The significant outperformance in our Ratings and Indices divisions during the fourth quarter led to elevated incentive compensation across the enterprise. Turning to our divisions, Market Intelligence revenue increased 5% in the fourth quarter, or 6% excluding acquisitions and divestitures, with positive revenue growth in every business line. We continue to see the effect of cancellations early in 2024 impacting revenue growth in the fourth quarter. However, the fourth quarter is the largest renewal quarter of the year in Market Intelligence, and we are pleased to see retention rates improve to the highest level since 2023. We also had significant competitive wins in each of the business lines in Market Intelligence and no significant competitive losses. Lastly, we experienced strong net new sales for Capital IQ Pro. Importantly, annualized contract value, or ACV, grew faster than revenue growth in the fourth quarter. This positions Market Intelligence to see gradually improving revenue growth rates as we progress through 2025. Desktop grew 8%, though growth would have been less than 1% without Visible Alpha. Data & Advisory Solutions grew 4%, or 5% when excluding the impact of the Prime One divestiture, driven by strong demand for pricing and reference data, particularly in the loan and CDS asset classes, as well as industry and company data. Enterprise Solutions grew 6%, or 16% when excluding the impact of the Fincentriq divestiture, driven by strong demand for our lending solution offerings, including ClearPar and Notice Manager and renewals for our enterprise data management software. Credit and Risk Solutions grew 2% despite lapping a significant retroactive revenue benefit from a renewed and extended customer contract in the fourth quarter of 2023. Excluding this one-time item, the growth in the business line would have accelerated to 7%, primarily driven by strong renewals and net new sales. Adjusted expenses grew 8% year-over-year, primarily due to increases in compensation and cloud costs. Operating profit growth was positive in the quarter, while operating margin decreased 160 basis points to 32.6%. Full-year margin contracted 50 basis points to 32.5%. As Martin mentioned, incentive compensation was elevated due to the company's overall performance in 2024. Were it not for this impact, full-year margins in Market Intelligence would have expanded year-over-year. As we noted in the slides, beginning with the first quarter of 2025, we will report Market Intelligence results across three business lines. Enterprise Solutions and Credit and Risk Solutions will remain unchanged, but we will combine Desktop with Data & Advisory Solutions in a single reporting line called Data, Analytics, and Insights, which should make our results more easily comparable to others in the space. Now moving to Ratings. In the fourth quarter, we saw refinancing activity drive issuance as spreads narrowed to historically low levels, and continued strength in CLO volumes led to a 27% increase in Ratings revenue, exceeding our internal expectations. Transaction revenue grew by 54% in the fourth quarter, fueled by market conditions highlighted earlier that stimulated robust demand for bond and bank loan ratings. This growth was further amplified by heightened activity during what is usually a seasonally low issuance period during the holiday season. Non-transaction revenue increased 8%, driven by an increase in annual and program fees along with new rating mandates. Adjusted expenses increased 10%, primarily due to increased incentive compensation. This resulted in a 42% increase in operating profit and a 630 basis point increase in operating margin to 59.7%. For the full year, Ratings margin expanded by 650 basis points to 63%. Now, turning to Commodity Insights, revenue increased 10%, driven by double-digit growth in Energy & Resources Data & Insights and Advisory & Transactional services. Price Assessments and Energy and Resources Data & Insights grew 9% and 10%, respectively. Growth was driven by strength in our traditional offerings, such as our crude and refined product suite. Additionally, both business lines continue to benefit from favorable commercial conditions. Advisory and transactional services revenue grew by 27%, or 18% when excluding the impact of the World Hydrogen Leaders acquisition, driven primarily by continued strong demand for Energy Transition products and services as well as strong trading volumes across all commodity sectors in Global Trading Services. Upstream Data and Insights revenue grew by 3%, driven by growth in our Research Insights Offerings and strong demand for subscription-based software and analytics products. Adjusted expenses increased 9%. Operating profit for Commodity Insights increased 11%, and the operating margin expanded by 60 basis points to 45%. Full-year margin increased by 70 basis points to 46.8%. Now turning to Mobility, revenue increased 9% in the fourth quarter, driven by demand for the CARFAX product suite and strong performance from our insurance-related products. Dealer revenue increased 10% year-over-year, led by new business growth at CARFAX and Automotive Mastermind offerings. Manufacturing revenue saw a 1% uptick as the business line continued to experience lower transaction revenue related to our recall business, offsetting strong growth in our subscription-based offerings. The headwinds in our recall business began in early 2024, and we expect to completely lap that headwind by the second quarter of 2025. Growth in financials and other areas accelerated to 18%, benefiting from strong underwriting volumes and market share growth. Adjusted expenses rose by 7%. This resulted in a 12% increase in operating profit for the quarter and an expansion of operating margin by 100 basis points to 34.7%. Full-year margin increased by 20 basis points to 39%. Now, turning to S&P Dow Jones Indices. Revenue grew 21%, primarily driven by growth in asset-linked fees, which benefited from higher AUM and growth in Data & Custom subscriptions. Asset-linked fees increased by 31% due to market appreciation and inflows. In the fourth quarter, we recorded net inflows of $486 billion, bringing total ETF AUM to roughly $4.4 trillion. Exchange-traded derivatives revenue grew 4%, primarily due to an increase in realized revenue per contract, partially offset by slightly lower contract volumes. Data & custom subscriptions rose 5% year-over-year as we continue to implement commercial initiatives across various product offerings within this business line. However, growth in the fourth quarter was partially offset by a retrospective revenue adjustment. Excluding this onetime headwind, data and custom subscriptions would have grown by 10%. Adjusted expenses increased 15% year-over-year, mainly due to increased incentive compensation, combined with continued investment in our strategic growth initiatives. Indices operating profit increased by 24%, and operating margin expanded by 180 basis points to 67.9%. For the full year, Indices operating margin expanded by 140 basis points to 70.3%. 2024 was an excellent year, and our financial results reflect that. As we look to 2025 and beyond, the innovation and investment made in 2024 position us well to continue delivering profitable long-term growth and create significant value for our shareholders. With that, I'll hand it back to Martina to walk through the outlook and guidance.
Martina Cheung, President and Chief Executive Officer
Thank you, Chris. Our financial guidance for 2025 assumes global GDP growth of 3%, U.S. inflation of 2.3%, and an average price for Brent crude of $72 per barrel. These figures represent some degree of mean reversion from the figures we've seen over the past couple of years, which we believe should contribute to a stable issuance environment and an improving backdrop for our financial services customers as we move through 2025. We acknowledge the geopolitical uncertainty present today and the range of potential outcomes beyond our base case assumptions. Our base case includes the expectation of at least one more rate cut this year in the U.S. We recognize market expectations around the pace of 2025 rate hikes have moderated over recent months, but as we've seen in previous years, these rate movements are hard to predict with high certainty. Hence, we are taking a cautious approach to our forecast for billed issuance. We expect low single-digit growth in billed issuance in 2025 from a record high base in 2024. Turning to our recent refinancing study, we compare the next 12-month maturities for 2025 against the previous year's study. We note that these maturities are currently about 4% higher than last year. However, the maturities expected over the next 3 years are approximately 1% lower than they were 12 months ago. Our billed issuance forecast accounts for both of these rates. The maturity walls comprise just one factor considered in our outlook for billed issuance. Given the record issuance we experienced and the slower rate expected in 2025, we felt it necessary to provide additional context regarding our outlook for low single-digit growth in billed issuance. Importantly, we observed an acceleration in the pull forward of the 2025 maturity wall during the fourth quarter, influencing our outlook in two ways. First, it drove stronger issuance than anticipated in Q4 2024, which we saw reflected in our financial results, and creates a tougher compare for this year. Secondly, it decreases the number of near-term maturities available for refinancing in 2025. We continue to expect favorable market conditions characterized by stable rates and credit spreads, and we are optimistic about the robust maturity walls ahead, believing they will drive issuance growth in 2025. Our outlook for the Ratings division assumes the refinancing of 2025 maturities and a modest pull forward from the 2026 maturities and beyond, as well as some expected improvement in the M&A environment compared to the past few years, which should contribute positively to issuance. Additionally, we envision a shift in the mix of issuance toward investment-grade compared to what we saw in 2024. Against this backdrop, we provide our financial guidance for 2025. This slide illustrates our projections for GAAP results, and moving to our adjusted guidance, we expect revenue growth in the range of 5% to 7% in 2025. Additionally, we anticipate an adjusted operating margin in the range of 49% to 50%, which represents up to 100 basis points of margin expansion beyond the high profitability levels reported in 2024. Through strong organic revenue growth, disciplined execution, and solid capital returns, we expect to achieve adjusted diluted earnings per share between $17 and $17.25, reflecting double-digit growth at the high end. Regarding our outlook by division, in Market Intelligence, we project revenue growth between 5% to 6.5%. We concluded 2024 with a very strong renewal quarter, marked by the highest retention rates recorded in the last six quarters, setting a favorable foundation for our subscription business, though we will still be comparing against elevated cancellations from prior quarters. Consequently, we expect the growth rate to be lowest in the first quarter but to improve as the year progresses. Due to the timing of revenue recognition, the impact of acquisitions and divestitures, and investment phasing, we also forecast the lowest margins in Q1. Nonetheless, we expect to adopt a disciplined approach to expense management in Market Intelligence this year, projecting margins in the range of 33% to 34%, representing 50 to 150 basis points of year-over-year margin expansion. For the Ratings division, we anticipate revenue growth between 3% to 5%, as billed issuance growth and modest price increases may be offset by an unfavorable mix of billed issuance. We continue to balance investment and profitability in Ratings, and through disciplined expenses, we expect to deliver margins between 63% to 64%, despite the slower expected growth in 2025. In Commodity Insights, we project revenue growth between 7% to 8.5%, with margins in the 47% to 48% range. We expect robust demand for our energy transition products and our leading Platts price assessments. With positive long-term trends in this business, we continue to invest to further differentiate from competitors in this area. Despite ongoing investments, we anticipate delivering 20 to 120 basis points of margin expansion, aiming for a margin range of 47% to 48% in 2025. In Mobility, we expect continued growth in the range of 7% to 8.5%. Over the last couple of years, we've reinvested revenue upside, which has tempered margin expansion; however, we predict necessary investment pace to slow somewhat in 2025, leading to an expected margin range of 39% to 40%, marking a midpoint expansion of approximately 50 basis points. Lastly, in Indices, our guidance assumes relatively flat equity asset prices from the end of 2024, given strong recent S&P 500 returns. Thus, we expect revenue growth between 8% to 10%. Given margins are already above our medium-term targets and a range of attractive investment opportunities in the indices, we plan to reinvest incremental profits for future growth in 2025. Consequently, we project margins to remain relatively flat compared to 2024 levels and are guiding towards a margin range of 69.5% to 70.5%. Please refer to our supplemental materials on our Investor Relations website for further details on our financial guidance, and we are also anticipating to deliver approximately $6 billion in adjusted free cash flow in 2025. Since the merger concluded, our free cash flow conversion rate, as a percentage of adjusted net income, has been at or above 100% each year and peaked in 2024 due to optimized working capital and streamlined cash collections. While this creates a challenging comparison for working capital and free cash flow growth in 2025, we expect to maintain a conversion rate at or above 100% in the upcoming year. In conclusion, through the various leadership roles I've held over the past 15 years within S&P Global, I've seen our businesses closely at every cycle stage. Our company sits at the intersection of vital secular trends—data and artificial intelligence, energy transition, shifts from active to passive management, and dynamics in public and private markets. We also position ourselves within the major global markets: equity, fixed income, and commodities. We have the right people in place, we are making sound investments, and we are developing the right strategy. It is an incredibly exciting period to be at S&P Global. With that, we will turn the call back over to Mark for your questions.
Mark Grant, Senior Vice President of Investor Relations
Thank you, Martina. Operator, we will now take the first question.
Operator, Operator
Our first question comes from Manav Patni with Barclays.
Manav Patnaik, Analyst
Martina, I just want to focus broadly on the Market Intelligence segment. Just first, in terms of the portfolio, the two divestitures you already did. I am curious about what we should expect in terms of whether there are other areas in there that you want to clean up. And just to clarify, I think you mentioned that ACV and bookings were really good in the fourth quarter, but in your prepared remarks, you still mentioned that there's a lot of desktop competition and pricing pressures. So was that ACV comment specific to a particular area within Market Intelligence? Just wanted to clarify that.
Martina Cheung, President and Chief Executive Officer
Manav, thanks so much for your question. I would say as a matter of course and for a complete management team, we're always looking at optimizing our overall portfolio to ensure we are the right owners of any specific products. We want to make sure that the collection of products we have is best positioned to create value for our clients and also, of course, for our shareholders. This is something that we'll continue across the enterprise. Regarding Market Intelligence's performance going into 2025, I may reiterate some of the remarks and add extra context. For example, in the fourth quarter, as we mentioned, we had very strong performance in retention. We experienced the lowest level of cancellations in well over a year, and we achieved this through strong customer engagement and a compelling differentiation in our products. Importantly, we witnessed good competitive wins and no competitive losses that quarter, and we accomplished this without needing to pull forward from Q1, for example. We feel we start off with the new leadership team in a solid position. The new leadership team has been incredibly focused on aligning our go-to-market efforts with our customers' needs while emphasizing simplifying operations to concentrate on business growth. To your question about ACV and specific pressures, that was an overall comment about Market Intelligence. It references the elevated cancellations we experienced in earlier quarters last year, and we also noted some market softness that we observed. In Q4, we demonstrated a strong retention rate with lower cancellations, but we are still experiencing the effects of cancellations from earlier in the year. This informs our expectation of a softer start to the year, but we anticipate gradual improvement throughout the year as we address those cancellations. We also perceive the beginning of a recovery in the financial end markets and expect that to improve through the year.
Operator, Operator
Our next question comes from Alex Kramm with UBS.
Alex Kramm, Analyst
Just to follow up on Market Intelligence, and hopefully, I'm not asking the same question again, but on ACV growth, can you be more specific about how much that ACV growth actually was and how much of revenue that typically encompasses? And then related to that, there's new management in that segment. You talked a little bit about the changes that you're making on a company-wide basis, but can you specify what has happened so far in terms of any adjustments to the go-to-market strategy or other measures implemented to potentially improve growth?
Martina Cheung, President and Chief Executive Officer
Great, Alex. Thanks so much for the question. Regarding ACV growth, that contributed to a point or two of additional revenue growth for us—accelerating our overall revenue growth. To backtrack on Q4, it is our largest renewal quarter, which is part of why we were very pleased with our results and positioning going into 2025. On the management front, I would emphasize that our new leadership team is keen on simplification, breaking down silos, and ensuring the business lines are communicating effectively to maximize the value we provide to our customers. We are also focused on accelerating the go-to-market strategy around new products. Some notable additions include Document Intelligence and ChatIQ on our Desktop product as well as making our market fixed income data accessible in the Desktop product and our Kensho LLM-ready APIs. There's substantial innovation and execution aimed to ensure our team is operating efficiently and integrating gen AI wherever possible.
Mark Grant, Senior Vice President of Investor Relations
Alex, just one quick thing. This is Mark. I wanted to clarify one point: The ACV growth in Market Intelligence was about 1 point or 2 faster than the revenue growth in MI. I just wanted to ensure that's clear.
Christopher Craig, Interim Chief Financial Officer
Alex, just one point I'd also add on subscription revenue growth: actually, subscription revenue grew about 4%, while recurring variable revenue grew around 20%, chiefly due to Enterprise Solutions, including Lending and Notice Manager, as well as ClearPar products. On a combined basis, subscription revenue came in at 6% overall, which was at the low end of our guidance.
Operator, Operator
Our next question comes from Faiza Alwy with Deutsche Bank.
Faiza Alwy, Analyst
I wanted to ask about the Ratings outlook. I think, Martina, you mentioned that you're being prudent. I'm curious about how much visibility you have right now as to what to expect in terms of M&A contributions and perhaps related to that, could you give any color on how you see quarterly cadence around revenue growth for the Ratings segment?
Martina Cheung, President and Chief Executive Officer
To answer the last part, we do not guide on a quarterly basis. But let me provide context on the Ratings outlook. Our base case includes modest expectations around rate cuts, with just one additional cut to about 4.1%, for example, in the U.S. It's significant to note that we do not anticipate a protracted trade war and do not expect significant changes to economic growth, both in the U.S. and in our projections for other regions. We continue to see favorable conditions with tight spreads as we progress through the year for 2025. Recently, we had an interesting Q4. Throughout the past year, we signaled a belief that the second half would be slower. While we believed Q4 might be softer, it ultimately outperformed, reflecting in our financial results. However, that high Q4 reduces the issuance level we anticipate for 2025. We still see about 4% higher maturities compared to last year, so low-single-digit guidance for billed issuance combines the full drawdown of 2025 maturities with minor pull-forwards from 2026 and beyond. We project incremental improvements in the M&A environment relative to previous years, while balancing our expectations for opportunistic issuance.
Operator, Operator
Our next question comes from Ashish Sabadra with RBC Capital Markets.
Ashish Sabadra, Analyst
I wanted to focus on the margins. The margin guidance appears more at the higher end of the midterm guidance and was better than I think we anticipated. You mentioned a disciplined approach to expense management as well as a balanced approach in profitability and investment. How should we think about the incremental margins going forward, not only for 2025 but over the next several years?
Martina Cheung, President and Chief Executive Officer
Yes. Ashish, thanks for your question. We are, of course, very pleased with our full-year results on margins for 2024, which met our IR Day margin targets. Our guidance for 2025 reflects the high end of our targets. Several factors contribute to this, including our strict expense management. A core operating focus for this leadership team is ensuring that every dollar invested yields the highest returns and long-term value for our customers and shareholders. This oversight is prompting ideas for enhanced efficiency. We are examining strategies around location, infrastructure efficiency, cloud spending, etc. Importantly, we are integrating AI throughout the organization as discussed. Over 30,000 users are finding ways to reduce time on routine tasks, allowing increased focus on value-added work. Some of our productivity gains reflected in margin guidance stem from these approaches.
Christopher Craig, Interim Chief Financial Officer
And Ashish, to emphasize, we thoroughly assess incremental margins and note that as a market-driven business, we possess reasonably high incremental margins in the high double digits.
Operator, Operator
Our next question comes from Toni Kaplan with Morgan Stanley.
Toni Kaplan, Analyst
I wanted to revisit Market Intelligence. Martina, in your prepared remarks, you indicated you're facing a highly competitive environment and increased price sensitivity in MI. Could you provide additional insight into this? Are there specific Market Intelligence areas experiencing more competition? I know it is a competitive space, but are you seeing startups or large vendors competing more aggressively on price or entering the market?
Martina Cheung, President and Chief Executive Officer
Toni, thanks so much for your question. The commentary reflects our experiences in the financial end markets, where we've seen some softness and intensified competition noted earlier. In Q4, however, several trends indicating potential stability arose, and we want to take advantage of them. Our competitive breadth across multiple products, not just within Market Intelligence, provides opportunities for vendor consolidation with our clients. We must prioritize this focus moving forward. Additionally, we are witnessing growing enthusiasm for the Chief Client Office concept, where unified contact points foster deeper relationships and allow us to illustrate value generated. Strengthened relationships with clients lead us to discover issues they may not be aware of regarding value from our products and services. We believe that enhancing our offerings and aligning prices with client-derived value remains paramount.
Operator, Operator
Our next question comes from Jeff Silber with BMO Capital Markets.
Jeffrey Silber, Analyst
With all the recent activity in Washington, D.C., could you elaborate on你的对美国联邦政府的客户的暴露，特别是对DOGE的影响。更广泛地说，考虑到总统他谈论或可能谈论的一些举动，你认为这会对你的业务产生什么影响，例如，提高中国的关税？
Christopher Craig, Interim Chief Financial Officer
Jeff, thanks for your question. First, our exposure to U.S. government contracts is less than 1% of our consolidated revenue. Regarding exchange rates, for 2025, we expect variability, which could impact revenue. However, we have natural hedges in place due to our geographic distribution of personnel and an active hedging program to mitigate any EPS risk from foreign exchange rates. For modeling purposes, our guidance assumes foreign exchange rates are as of mid-January.
Martina Cheung, President and Chief Executive Officer
To add, we are analyzing the impact of tariffs across our divisions closely with our division presidents. We don't anticipate a protracted trade war, yet we foresee potential small effects across divisions factored into providing today's guidance.
Operator, Operator
Our next question comes from George Tong with Goldman Sachs.
Keen Fai Tong, Analyst
You mentioned Market Intelligence growth should gradually improve over this year. I recall you discussed recent strength in ACV performance. Could you elaborate on the developments in the business and external factors that should drive this accelerating growth across Market Intelligence this year?
Martina Cheung, President and Chief Executive Officer
George, thank you for your query. As I noted previously, we will be addressing higher cancellations from 2024 in early 2025. As the year unfolds, we expect gradual improvement in ACV and the external financial services environment, having previously highlighted softness. Our competitive edge significantly contributes to recent wins, and we're optimistic about continuing that. Most notably, we reported no competitive losses in Q4, indicating strong initiatives across the Market Intelligence team.
Operator, Operator
Our next question comes from Andrew Steinerman with JPMorgan.
Andrew Steinerman, Analyst
After a few years with significant swings in Ratings revenues—2022 down, 2024 up—do you believe the ratings revenue market has regressed into a more normalized growth phase aligning closer to your medium-term targets for Ratings revenues? Moreover, regarding M&A volumes assumed for '25, could you elaborate on those assumptions?
Martina Cheung, President and Chief Executive Officer
Indeed, we are seeing a return to levels above 2021, which was the previous high-water mark, and clearly above pre-pandemic levels with the 2024 results as well. Therefore, we believe '25 presents an interesting challenge since it will be tough compared to the previous year. Generally, we expect market volumes to return to levels anticipated in our 2025 billing guidance. For M&A, we remain balanced. Healthy optimism exists in the market regarding M&A, but we are proceeding with modest expectations regarding M&A volume growth and opportunistic issuances this year.
Operator, Operator
Our next question comes from Andrew Nicholas with William Blair.
Andrew Nicholas, Analyst
Martina, in your prepared remarks, I heard you emphasize leaning into AI applications in the coming quarters and years. As capabilities around generative AI have evolved over the past 12 to 24 months, have your thoughts on the opportunities, threats, and investment needs in this area changed? Specifically, as it relates to 2025, would you view generative AI primarily as an efficiency gain rather than a top-line revenue driver? How would you distinguish the potential impact?
Martina Cheung, President and Chief Executive Officer
Thank you, Andrew, for your question. We are around two years into our generative AI integration and maintain that this technology is fundamentally transformative. Our ability to effectively apply it both to internal operations and products is paramount. We anticipated a decrease in costs similar to previous technological innovations over time. Additionally, we have created both internal and external products from our BAU investments. We've been operating a robust innovation cycle with Kensho, which benefits our organization as well as our clients. While 2024 may be more focused on efficiency, we have a strong pipeline of ways in which we aim to generate value from both efficiency and revenue perspectives as we advance.
Operator, Operator
Our next question comes from Peter Christiansen with Citi.
Peter Christiansen, Analyst
Martina, I'd like to talk about synergy realization. You seem to be executing at a high level there. What do you anticipate in terms of the degree of realization happening in '25? Could you discuss how elements of the Vitality Index or possible AI products could contribute to synergy realization and if this could provide an uplift to overall benefits?
Martina Cheung, President and Chief Executive Officer
Pete, thanks for your question. We are indeed pleased with the progress of synergy realization. We ahead of our targets for both cross-sell and new product synergies this year. We expect this momentum to continue through the anticipated timelines. I might separate how we view the Vitality Index and AI products. The Vitality Index comprises products that fluctuate in and out based on their maturity levels. Our governance for measuring Vitality revenue is robust, and we aim for it to be at or above 10% for 2025. This showcases our capability to innovate and generate robust returns on investment from our product launches. Regarding AI, I see ongoing innovation stemming from AI capabilities. Enhancements to existing products, such as Document Intelligence and ChatIQ, have already yielded tangible benefits, with around 60,000 users benefiting from Capital IQ Pro's new capabilities. Furthermore, the Kensho-LLM-ready API has sparked numerous conversations in the current market, aligning with clients’ interests to integrate our data into their applications. I expect to see even more of this activity over time.
Operator, Operator
Our next question comes from David Motemaden with Evercore.
David Motemaden, Analyst
I wanted to follow up on Market Intelligence. Martina, you mentioned some good competitive wins with no losses during the quarter in Market Intelligence, achieved without pulling from the first-quarter pipeline. I’d like to inquire about pipeline presence and any signs of external environment improvement.
Martina Cheung, President and Chief Executive Officer
David, thanks so much for your question. We have identified gradual overall improvement within the external environment, which is evident in our pipeline, which started off strong for 2025. Thank you for your question.
Operator, Operator
Our next question comes from Owen Lau with Oppenheimer.
Kwun Sum Lau, Analyst
This broader question surrounds Slide 7, where you discuss elevating engagement with customers. As you get to know your customers and partners better, have you learned anything from these conversations that might indicate ways to enhance the value of your products going forward?
Martina Cheung, President and Chief Executive Officer
Owen, thank you for your question. We've certainly engaged in constructive conversations with our clients and partners. We've gathered significant insights, which could be grouped into three categories. First, we consistently look for indications of how our customers feel about their internal progress and sentiments towards our products. This feedback is fundamentally critical for our growth strategy and relationship-building. Second, there is considerable enthusiasm among strategic clients for the Chief Client Office concept, which serves as a central touchpoint for value creation. The team has conducted hundreds of meetings, including significant management meetings showcasing our value-generation efforts and uncovering future opportunities. We believe that maintaining these high-level conversations facilitates our understanding of client strategies and allows for effective responsiveness and innovation. We are enthusiastic about the Chief Client Office’s potential to augment these relations further. Additionally, each of our division teams is actively engaging in these opportunities, solidifying the positive activities we will continue.
Operator, Operator
Our next question comes from Shlomo Rosenbaum with Stifel.
Shlomo Rosenbaum, Analyst
I want to ask about the ratings issuance environment and your visibility moving forward. Given the ongoing political climate in the U.S. and geopolitical factors, do you feel you have better visibility this year concerning market recovery? What factors might elevate or lower your outlook, especially in terms of IPO activity?
Martina Cheung, President and Chief Executive Officer
Sholomo, thank you for your question. Ratings, much like index, is a market-driven business, and as such, we approach our guidance range with broader fluctuations than we would for subscription businesses. This approach provides flexibility in light of the market's inherent unpredictability. The volatility we face has not completely dissipated; rather, it has exhibited intense fluctuations over time. Our predictive abilities focus on customer feedback, which remains the most relevant aspect influencing our outlook. In addition, we are assessing the maturity walls, interest rates, spreads, and opportunistic activities, essential for creating our billed issuance guidelines. We expect ongoing momentum within specific sectors, including infrastructure, data centers, and ABS issuance.
Operator, Operator
Our next question comes from Jason Haas with Wells Fargo.
Jason Haas, Analyst
I apologize if I'm asking a two-part question here. First, the prepared remarks indicated a new expectation—that refinancing walls over the next three years would be lower than originally anticipated. Perhaps you previously indicated these provided solid support for the years ahead. Are you now expecting more subdued issuance trends ahead? I also want to follow my other question regarding the Mobility segment. The guidance of 7% to 8.5% growth appears subdued relative to your long-term target. Was 2024's performance influenced by a lack of recall activity? Would you expect growth to increase this year?
Martina Cheung, President and Chief Executive Officer
Jason, thank you for your questions. Regarding the refinancing walls being down over the next three years, this change in expectation stems from the pull-forward we noticed in 2024, particularly in Q4. Although this does not influence the guidance range for 2025, it provides context. For the Mobility segment projection of 7% to 8.5% growth—several factors contribute to this. We expect strong performance across all Mobility products, with the impact of recall business being fairly isolated. Furthermore, we see substantial opportunities within our CARFAX business, showcasing strong results from integrating various segments. Slight headwinds do persist at this stage due to vehicle affordability and price dynamics within the U.S., which could affect both OEMs and our opportunities to provide sales and marketing insights based on pricing.
Operator, Operator
Our next question comes from Jeffrey Meuler with Baird.
Jeffrey Meuler, Analyst
Your Market Intelligence employee headcount growth has been higher than I would have expected, considering the end market environment. I heard you stress the importance of discipline regarding expense management this year. So could you address whether this is investment ahead of revenue, or are there productivity opportunities you are now pursuing more aggressively? Is the 35% to 37% still an attainable intermediate-term margin target, or does anything shift that outlook?
Christopher Craig, Interim Chief Financial Officer
The MI headcount has increased by about 6%, which aligns with our revenue growth expectations. The increase in personnel is largely attributable to the Visible Alpha acquisition, with approximately 700 employees joining us. Overall, this growth falls in line with our strategy. Furthermore, I would emphasize that we are on track to meet our IR Day targets, continuing our focus on margin expansion across the enterprise as demonstrated in 2024 and into 2025.
Operator, Operator
Our next question comes from Craig Huber with Huber Research Partners.
Craig Huber, Analyst
Martina, I’m curious about the conversations you had with your customers. Can you give us a sense of their sentiment and how it may have changed over time, particularly with the new administration in Washington? How does their policy stance affect your outlook, positively or negatively?
Martina Cheung, President and Chief Executive Officer
Thank you for the question, Craig. The sentiment varies by region. In the U.S., we've seen optimism in private markets with optimism surrounding M&A deal flows and strong financial reporting results. Conversely, views differ in Europe and Asia, where feedback is more neutral. Each conversation presents an opportunity for us to share valuable research insights, fostering client relationships. I find that these dialogues enable us to provide information that assists them in making informed decisions during both prosperous and challenging times.
Operator, Operator
We have a follow-up question. Our next question comes from Scott Worzel with Wolfe Research.
Scott Wurtzel, Analyst
You mentioned reinvestment in the Index business given its current margins. Could you expand on your prioritization of investments there and where those resources are allocated?
Martina Cheung, President and Chief Executive Officer
Scott, we see numerous opportunities across various asset classes within the Index division. We are particularly interested in multi-asset indices, thematic indices, and sustainability-focused indices. We anticipate continuing our investment in exchange-traded derivatives and the wider liquid ecosystem. With this array of opportunities and a strong addressable market, we find it essential to prioritize investments to maintain modest margin expansion and further strengthen our leading position.
Operator, Operator
Our next question comes from Russell Quelch with Redburn Atlantic.
Russell Quelch, Analyst
You previously highlighted private credit as a significant TAM opportunity in ratings. Could you provide an update regarding the execution of this opportunity, specifically the revenue it contributes to Ratings at present? Any insights on the growth cadence or new products would be helpful.
Martina Cheung, President and Chief Executive Officer
Indeed, private credit remains a strong focus area for Ratings. We’re dedicated to ensuring ratings cover deals from both public and private markets. Notably, our performance in overall credit revenues reflects robust growth in Ratings. While we don't disclose revenue numbers by division, we remain committed to building solutions that cater to private markets, including private indices, credit ratings, and valuation solutions in response to market demands. Regarding the potential impact from Fannie and Freddie privatization, we're not speculating on that at the moment but will revisit it as new details emerge.
Mark Grant, Senior Vice President of Investor Relations
I would like to thank everyone for joining. I'm incredibly proud of our colleagues' performance in 2024. Our execution has been exemplary while yielding notable results. Our team remains focused on crucial priorities: customer engagement and rapid innovation. I especially want to thank Chris Craig for his dedication as Interim CFO; it's been a pleasure working alongside you, and I look forward to our collaboration ahead. In conclusion, our unwavering focus on delivering customer value positions us uniquely to achieve long-term growth and shareholder value. With our unparalleled data and technology, combined with our expertise in benchmarks, we will continue unlocking our potential moving forward.
Operator, Operator
Thank you. That concludes this morning's call. A PDF version of the presenter slides is available for download from investor.spglobal.com. Replays of the entire call will be available in about 2 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 available for one month. On behalf of S&P Global, we thank you for participating and wish you a good day.