Jeff Meuler

Jeff Meuler inquired about emerging AI-first entrants, asking where McGraw Hill predominantly sees them – more in the supplemental or intervention side, or if they are entering the RFP process for core curriculum.

Answer

Simon Allen, Chairman, President, and CEO, stated that AI-first entrants are increasingly seen in RFPs. However, he noted that teachers and school districts are recognizing the added value of McGraw Hill's supplemental and intervention tools (like Alex for math and Writing Assistant for ELA) and are seeking continuity with core products. This creates an opportunity for McGraw Hill to provide complete solutions, extending its potential beyond just core offerings.

Jeff Meuler asked about the mix of K-12 opportunities in 2027 by state and subject, and whether these opportunities increasingly play to McGraw Hill's strengths. He also inquired about where emerging AI-first entrants are predominantly seen, specifically if they are more in the supplemental or intervention side, or if they are starting to appear in the RFP process for core curriculum.

Answer

Bob Sallmann, EVP and CFO, reiterated that McGraw Hill is well-positioned for the larger K-12 opportunities in 2027 (math) and 2028 (ELA), playing to its strengths in ELA and math with new products like Emerge. Simon Allen, Chairman, President, and CEO, noted that AI-first entrants are increasingly appearing in RFPs, but also that school districts understand the added value of McGraw Hill's supplemental intervention tools like ALEKS and Writing Assistant, which provide continuity and complete solutions alongside core offerings.

Jeff Meuler asked to compare the value proposition of using FICO scores in the conforming mortgage market versus the non-conforming market, particularly given the GSE guarantee in the conforming market.

Answer

CEO Will Lansing challenged the notion that credit risk is less important in the conforming market due to GSE guarantees. He emphasized that mortgage originators still care about credit and prepayment risk because GSEs can put loans back to them. He concluded that both markets will seek the most predictive score for understanding default and prepayment risks.

Jeff Meuler asked FICO to compare and contrast the value proposition of staying on FICO in the conforming versus non-conforming mortgage markets, particularly given less default risk to security holders in conforming mortgages.

Answer

CEO Will Lansing challenged the notion that credit risk is less important in the conforming market due to GSE guarantees. He asserted that mortgage originators still care about credit and prepayment risk because GSEs can put loans back to them if documentation issues arise. He concluded that both markets will seek the most predictive score and the best understanding of risks.

Asked about the typical lag time between ACV bookings and ARR recognition and for clarification on the foreign exchange impact on platform ARR.

Answer

There is typically a 6 to 12-month lag between when a deal is booked and when it is implemented and begins generating ARR. The 3% foreign exchange headwind on platform ARR was a year-over-year impact on a constant currency basis.

Jeff Meuler asked about upselling and downselling trends, excluding the U.S. federal government, and whether improvements are being seen or if elevated seat-based churn is a challenge for the expected 2026 CV acceleration. He also followed up on leading indicators for upselling to existing clients.

Answer

Gene Hall (Chairman and CEO, Gartner) stated that the selling environment has modestly improved, particularly for new sales to new enterprises, but upselling existing enterprises has been the most challenging area. Craig Safian (CFO, Gartner) added that client engagement (documents read, one-on-one conversations, conference attendance/ratings) is up significantly, serving as a leading indicator for future demand and upsell, and noted that in-quarter retention rates improved from Q2 to Q3.

Jeff Meuler asked about upselling and downselling trends, excluding the federal government, and whether leading indicators for upselling to existing clients are showing improvement.

Answer

Chairman and CEO Gene Hall noted a modest improvement in the overall selling environment, particularly for new sales to new enterprises, while upselling existing enterprises remained the most challenged area. CFO Craig Safian added that client engagement metrics, such as document readership, one-on-one conversations, and conference attendance/ratings, are all up significantly, serving as positive leading indicators for future demand and upsell. He also highlighted an improvement in in-quarter contract renewal rates from Q2 to Q3.

Jeff Meuler asked about S&P Global's revenue sensitivity to IPO volumes, whether the impact is material enough to be seen in numbers, and the potential impact of a government shutdown on Q4.

Answer

Eric Aboaf, CFO and EVP, explained that revenue sensitivity to IPO volumes is primarily in Market Intelligence, specifically in volumetric and transactional usage revenues. He noted that non-subscription transaction revenue growth in MI was 13% and recurring variable revenue was up 11% in Q3, particularly in Enterprise Solutions, indicating that increased IPOs broadly help the franchise.

Jeff Meuler asked about S&P Global's revenue sensitivity to IPO volumes, particularly with a backlog building into 2026, and whether the materiality of this impact rises to a level seen in the numbers, especially for Market Intelligence.

Answer

Eric Aboaf, CFO and EVP, stated that IPO volume sensitivity is primarily in Market Intelligence, specifically in volumetric and transactional usage revenues. He noted that as capital markets accelerated in Q3, MI's non-subscription transaction revenue grew 13% and recurring variable revenue was up 11%, particularly in Enterprise Solutions with usage metering. Broader IPO activity also helps the franchise generally through more debt and equity issuances.

Jeff Meuler asked for clarification on the Mobility segment's revenue guidance, which was trimmed at the high end for a second consecutive quarter, questioning if recall activity remains the primary headwind.

Answer

Interim CFO Christopher Craig confirmed that the segment's core subscription business is performing very well, with low double-digit growth. He stated that the primary headwind continues to be lower transactional revenue from the recall business. He noted this will create an easier year-over-year comparison for the segment in 2025.

Jeff Meuler inquired about the latest feedback on mortgage pricing changes, specifically from the MBA conference, and the current activity regarding client conversions to VantageScore. He also sought clarification on the margin guidance, particularly the reduction in USIS margin guidance, questioning how it aligns with prior commentary about flowing through mortgage-driven upside.

Answer

Mark Begor, Chief Executive Officer, noted a 'groundswell of attention' due to FICO's price increase and Equifax's competitive offer, confirming active client engagement and momentum for VantageScore conversions. John Gamble, Chief Financial Officer, explained that the near-term negative impact on USIS and total Equifax margins is primarily due to higher variable compensation reflecting stronger overall performance, and a higher mix of mortgage revenue. He reiterated the intent to flow through 100% of variable profit to shareholders, evidenced by increased profitability and cash flow guidance.

Jeff Meuler asked for more details on mortgage pricing changes, including feedback from the MBA conference, and the activity around VantageScore 4.0 conversion. He also inquired about the margin guidance, specifically the reduction in USIS margin guidance, and how it aligns with the expectation of flowing through mortgage-driven upside, considering higher incentive compensation.

Answer

CEO Mark Begor noted a 'groundswell of attention' to FICO's price increase and Equifax's competitive VantageScore offer, indicating active customer engagement. CFO John Gamble explained that the near-term USIS margin impact and overall Equifax margins were due to higher variable compensation reflecting stronger performance and a higher mix of mortgage revenue, which negatively impacts gross margins in the period but contributes to overall profitability and cash flow.

Jeff Meuler from Baird asked about the company's partnership strategy, particularly regarding opportunities with HCM SaaS providers and other historically underexploited partner categories.

Answer

CEO Hugo Sarrazin described his vision for an expansive partner ecosystem that includes HCM providers but also extends to a rich network of 'sell through' and 'sell with' partners. He sees this as a significant, largely untapped opportunity to increase platform stickiness and value. However, he cautioned that building this ecosystem will take time, with material impact not expected until 2026 or later.

Jeff Meuler questioned the reason for the growth deceleration in the Champions program and asked for clarification on a $4 million reserve adjustment mentioned by management.

Answer

CEO Paul Thompson stated there were no specific unusual factors for Champions and reiterated confidence in its long-term double-digit growth potential. CFO Anthony Amandi explained the $4 million reserve adjustment was not operationally related but a matter of timing, with some adjustments expected in Q4 occurring in Q3.