Toni Kaplan

Toni Kaplan asked about Clarivate's monetization model for subscriptions and new AI products, inquiring if the historical seat license model is still prevalent and the approximate percentage of revenue derived from it.

Answer

CEO Matti Shem Tov and CFO Jonathan Collins explained that AI is used for upsell opportunities and new product introductions. They noted a variety of pricing models, including those based on institution size and actual FTEs, particularly in the A&G segment. They emphasized that usage and renewal rates are improving, indicating the model is not a concern.

Toni Kaplan asked about Clarivate's monetization model for subscriptions and new AI products, specifically inquiring if seat licenses are still the underlying model and the approximate percentage of revenue based on them.

Answer

Matti Shem Tov (CEO) and Jonathan Collins (CFO) explained that Clarivate uses AI for upsell opportunities and new product introductions with various pricing models. They noted that A&G segment pricing is based on institution size, while corporate and law firm markets are based on company/firm size. They also mentioned some products combine institution size with actual FTE usage, but do not see this as a major concern, citing improving renewal rates and usage.

Toni Kaplan of Morgan Stanley inquired about the potential impact on Clarivate's business from the U.S. Department of Commerce's consideration of changes to the patent fee structure.

Answer

Matti Shem Tov, CEO & Director, responded that while it is still early, Clarivate's decades-long integration within the IP ecosystem positions it well to adapt. He emphasized that the company collaborates closely with patent offices, law firms, and corporate clients, and is well-prepared to support customers and potentially leverage any market changes.

Toni Kaplan of Morgan Stanley inquired about the potential business impact from the U.S. Department of Commerce's proposed changes to the patent fee structure.

Answer

CEO Matti Shem Tov stated that while it is early, Clarivate's decades-long integration in the IP ecosystem positions it well to adapt and potentially benefit from any changes. He emphasized the company's strong collaborative relationships with patent offices, law firms, and corporations, which will help support customers through any transition.

Toni Kaplan asked what will be different about the new Value Creation Plan compared to prior management's efforts and if it will require higher investment, potentially impacting margins.

Answer

CEO Matti Shem Tov highlighted his different background and personal passion for people, product, and sales. He emphasized his intent to be more deeply involved in the product innovation life cycle and sales execution, drawing on his past successes. He deferred detailed financial impacts to the February earnings call.

Toni Kaplan from Morgan Stanley asked for clarification on the extent and nature of Moody's proprietary data, its sources, and its prevalence within Moody's Analytics (MA), seeking a comprehensive explanation for investors.

Answer

Robert Fauber, President and CEO of Moody's Corporation, explained that Moody's possesses a massive proprietary data estate, unified into a single normalized record for entities, forming a powerful Knowledge Graph. He highlighted the 'trusted context layer' that makes data usable for AI, citing Orbis as an example with its non-public data, complex commercial agreements, legal/regulatory compliance, semantic complexity, entity resolution, historical depth, and strong governance, making it uniquely valuable and difficult to replicate.

Toni Kaplan asked for a detailed explanation of the proprietary nature and sources of Moody's Analytics' data, seeking to dimensionalize its value for investors.

Answer

President and CEO Robert Fauber explained that Moody's data is unified into a 'trusted context layer' and Knowledge Graph, making it uniquely valuable and difficult to replicate. He cited Orbis as an example, highlighting non-public data, legal/regulatory compliance, semantic complexity, entity resolution, historical depth, and robust governance as key differentiators.

Toni Kaplan asked for Moody's early thoughts on 2026 issuance, considering healthy refi walls, potential M&A uplift, and the role of data infrastructure financing as a meaningful driver.

Answer

Rob Fauber, President and Chief Executive Officer of Moody's Corporation, indicated more tailwinds than headwinds for a constructive issuance environment in 2026, citing tight spreads, potential Fed easing, and a robust M&A pickup, especially sponsor-backed M&A. He also highlighted continued strong demand for digital infrastructure and data center investments as a 'deep current' driving financing needs globally.

Toni Kaplan asked for Moody's early thoughts on 2026 issuance, considering refi walls, M&A uplift, and the potential for data infrastructure financing as a meaningful driver.

Answer

Rob Fauber, President and Chief Executive Officer, indicated more tailwinds than headwinds for a constructive 2026 issuance environment, citing tight spreads, potential Fed easing, a robust M&A pickup (especially sponsor-backed), potential geopolitical resolution, sustainable G20 economic growth, and declining default rates. He also confirmed data centers and digital infrastructure as continuing "deep currents" driving demand.

Toni Kaplan sought to understand the slowdown in Moody's Analytics ARR growth to 8%, asking whether it was primarily driven by one-off client situations or indicative of a broader weakening in the underlying business environment.

Answer

CEO Robert Fauber acknowledged that one-off attrition events had a roughly one-percentage-point negative impact. Regarding the broader environment, he noted a slight lengthening of sales cycles but said this was offset by an increase in average deal sizes as Moody's successfully bundles more products into solutions. He concluded that there has not been a 'material deterioration' in the end markets.

Toni Kaplan of Morgan Stanley asked about the drivers behind the strong Moody's Analytics (MA) margin performance and higher guide, questioning if investments were being reduced and seeking more detail on the efficiency plan and the impact of AI.

Answer

CFO Noemie Heuland stated that major investment cycles are largely complete and new initiatives are being self-funded. The efficiency gains stem from integrating past acquisitions and optimizing the go-to-market strategy. Stephen Tulenko, President of Moody's Analytics, added that investments are being concentrated in high-demand areas and that GenAI is already delivering significant internal productivity gains in engineering and customer service.

Toni Kaplan inquired about the slowdown in Data & Information ARR growth, specifically asking for details on federal government contracts that renewed at a lower value and the impact of customers transitioning to MSCI.

Answer

CFO Noemie Heuland explained the ARR slowdown was anticipated and primarily due to large federal government contracts renewing at lower values, a trend influenced by election-year spending patterns. She also confirmed that the transition of some sustainability clients to MSCI contributed to the dynamic. Heuland noted these impacts were largely accounted for in the third quarter.

Toni Kaplan asked about Verisk clients' preferences regarding AI product development, specifically whether they prefer to use Verisk's data to build their own AI solutions for competitive advantage or if they prefer Verisk to create the AI products to save capital. She also inquired if clients can use Verisk's data as input for third-party AI products.

Answer

Lee Shavel, President and CEO of Verisk Analytics, explained that client preferences vary by scale and sophistication. Larger clients seek alignment on data format for their own AI applications and are interested in leveraging Verisk's existing AI integrations for efficiency. Smaller and mid-sized clients show more interest in Verisk's integrated AI products for immediate benefits and faster ROI, especially in established processes like claims. Shavel emphasized that Verisk's high-quality, industry-wide data is central to effective AI deployment, regardless of the development approach.

Toni Kaplan asked about client preferences regarding AI product development, specifically whether clients prefer Verisk to create AI products or if they prefer to use Verisk's data to build their own AI solutions, and if Verisk's data can be integrated into third-party AI products.

Answer

CEO Lee Shavel explained that client preferences vary by scale and sophistication. Larger clients seek alignment on data format for their own AI applications while also leveraging Verisk's existing AI integrations for efficiency. Smaller clients, daunted by AI development, show more interest in Verisk's integrated AI functionalities for immediate benefits. He emphasized that Verisk's high-quality, industry-wide data is central to effective AI deployment, regardless of the development approach.

Toni Kaplan asked about the competitive landscape concerning AI startups, acknowledging Verisk's strong proprietary data moat but questioning if AI startups are attempting to infringe upon specific workflow areas.

Answer

Lee Shavel, Verisk's President and Chief Executive Officer, explained that while many general AI companies are applying large language models to broad data sets, their lack of proprietary content and insurance industry expertise makes it difficult to scale. He emphasized Verisk's strong position as a partner due to its data sets and expertise.

Toni Kaplan asked about the competitive landscape for AI startups, particularly how they might infringe on workflows, and how Verisk's proprietary data acts as a moat against these new entrants.

Answer

President and CEO Lee Shavel explained that general AI companies struggle to achieve scale without Verisk's proprietary content, expertise, and specific industry knowledge. He emphasized Verisk's strong position as a reliable partner due to its data sets and connected ecosystem.

Toni Kaplan of Morgan Stanley asked if the acquisition of AccuLinks, a leading SaaS platform, indicates a broader strategic shift towards acquiring more platform-based businesses.

Answer

CEO Lee Shavel responded that many of Verisk's businesses are already effectively SaaS platforms that create connectivity. He emphasized that enhancing this network effect is a core part of their strategy. Co-President of Underwriting Solutions, Saurabh Khemka, added that the Core Lines Reimagined initiative is a key example of this platform-based, workflow-integration approach.

Toni Kaplan inquired about Verisk's Marketing Solutions business, questioning the strategic fit of its non-insurance segments and the overall outlook for 2025 amid potential macroeconomic slowdowns.

Answer

Chief Financial Officer Elizabeth Mann explained that while the insurance-focused part of the marketing business is growing, the segments serving financial services and mortgages face headwinds. Mann acknowledged that potential pressure on discretionary spending could present a challenge for the remainder of the year.

Toni Kaplan inquired about the drivers of strong price realization, the level of customer pushback, and the outlook for elevated pricing into 2025.

Answer

President and CEO Lee Shavel explained that the success stems from value-driven price increases, supported by investments like Core Lines Reimagined and an enhanced sales approach focused on communicating value. He noted this strategy has been effective in the Extreme Events and Claims businesses and represents a structural, ongoing change rather than a one-time event.

Toni Kaplan inquired about the growth outlook for 2025, noting tailwinds like strong premium growth and easy transactional comps, and asked if it is shaping up to be an outsized year or if there are notable headwinds.

Answer

Chief Financial Officer Elizabeth Mann acknowledged the strong subscription momentum and premium environment as tailwinds. However, she identified potential headwinds, including the industry entering a third year of elevated premium growth which could challenge pricing momentum, carriers' intense focus on profitability and spending, and a potential normalization of attrition rates. Mann concluded that while weather remains an unknown, the overall business momentum is strong.

Toni Kaplan sought more details on center closures, including common reasons for underutilization, whether a significant number of leases were expiring, and how to anticipate closures for 2027. She also asked if an anecdotal instance of an employer cutting back backup care days post-COVID represented a larger trend, and if there were any changes in the drivers of backup care growth, such as a shift towards new employer sign-ups versus existing clients adding days or changes in usage patterns.

Answer

CFO Elizabeth Boland explained that expected closures for 2026 are around 45-50, with over 20 already closed in Q1. Common themes include underperforming centers nearing lease end or those with significant underperformance where demand is insufficient. CEO Stephen Kramer stated that 2026 growth drivers for backup care are expected to mirror previous years, primarily from existing clients increasing unique users and frequency of use. He clarified that most employers did not change program parameters during COVID, and the reported instance was not a widespread trend.

Toni Kaplan sought additional details on the reasons behind center closures, asking about commonalities for underperforming centers, the role of lease expirations, and the outlook for potential closures in 2027. She also asked if an anecdotal instance of an employer cutting back on Back-Up Care days post-COVID represented a broader trend, and if the drivers of Back-Up Care growth were shifting from new employers to increased usage or other factors.

Answer

Elizabeth Boland (CFO) stated that Bright Horizons expects 45-50 closures in 2026, with over 20 already completed. Common reasons include underperformance, lagging enrollment, and unfavorable economics relative to fixed costs, sometimes coinciding with lease expirations. Stephen Kramer (CEO) clarified that most employers did not alter Back-Up Care program parameters during COVID, and the vast majority of growth continues to come from increasing unique users and frequency of use within the existing client base, rather than new client additions or widespread program cutbacks.

Toni Kaplan of Morgan Stanley asked for a breakdown of the drivers behind the strong full-service margin expansion, questioning the impact of closing underperforming centers versus the wage/price spread. She also inquired about the M&A pipeline and the reasons for a slower pace of acquisitions.

Answer

Chief Financial Officer Elizabeth Boland explained that the impact from center closures on margin expansion is minor. The primary drivers are enrollment growth and price-to-cost discipline, with wage increases running lower than price increases. She also noted the UK's recovery has reduced its drag on margins. Chief Executive Officer Stephen Kramer stated that for M&A, the company remains disciplined, seeking high-quality assets, and there is still a gap between seller expectations and what Bright Horizons considers a fair price.

Toni Kaplan asked about the rationale for slower industry-wide enrollment, questioning a potential pricing element, and inquired about the drivers of strong Q1 backup care margins and why the full-year guide was not raised.

Answer

CEO Stephen Kramer attributed slower new enrollment to post-COVID family dynamics and job uncertainty rather than pricing, citing strong retention among existing families. CFO Elizabeth Boland explained that strong Q1 backup margins were due to a favorable service mix and cost management. The full-year guide was maintained because the usage mix is expected to change during the high-season summer months.

Toni Kaplan asked for reasons behind the recent low single-digit enrollment growth compared to higher rates seen earlier in the post-COVID recovery. She also inquired about the financial profile of in-home care within the Backup Care segment.

Answer

CFO Elizabeth Boland explained that top-performing centers are already over 80% occupied with little room to grow, concentrating the growth opportunity in the middle and bottom cohorts. She noted that some higher-income families explored other options during the pandemic, and the company is working to regain their interest. Regarding in-home care, she described it as an important but more expensive part of the solution, with center-based care being the more economically optimal majority of the business.

Toni Kaplan asked for a quantitative breakdown of the drivers behind the strong backup care growth and inquired about the M&A environment, specifically if there's more willingness from independent operators to sell.

Answer

CFO Elizabeth Boland explained that backup care growth is primarily driven by higher utilization from more employees at existing clients, rather than new client additions. CEO Stephen Kramer addressed M&A, stating that while they maintain relationships with high-quality providers, a mismatch in valuation expectations persists, leading them to remain disciplined with capital allocation.

Toni Kaplan asked for further details on TransUnion's differentiation in Marketing and Fraud, specifically regarding data assets, their origin, and why competitors cannot easily acquire similar data, building on previous discussions about AI.

Answer

Christopher Cartwright, President and CEO of TransUnion, emphasized the company's proprietary identity data asset and resolution capabilities, consolidated on the OneTru platform. He detailed how data from credit bureaus, fraud contributory networks, marketing measurement platforms, public records, and hundreds of e-commerce entities creates a significant barrier to entry.

Toni Kaplan asked for further details on TransUnion's AI differentiation within marketing and fraud, specifically regarding the proprietary nature of their data assets and why competitors face challenges in acquiring similar data.

Answer

CEO Chris Cartwright emphasized TransUnion's differentiation through its identity data asset and resolution capabilities on the OneTru platform, which integrates data from credit bureaus, fraud contributory networks, marketing measurement platforms, and public records. He explained that proprietary integrations and network effects make this data difficult for competitors to access.

Toni Kaplan from Morgan Stanley asked for an assessment of the consumer lending environment, noting the shift in tone from 'stable but muted' to something more positive, and questioned how to reconcile the strong double-digit growth in U.S. Financial Services ex-mortgage with the company's cautious macro outlook.

Answer

President and CEO Chris Cartwright clarified that while the environment remains 'stable but muted,' it is improving, particularly in consumer lending. He noted that card lending is still tempered but showing positive signs, while auto growth is driven by product cross-selling and mortgage is at a bottom. He emphasized that the strong results demonstrate the success of TransUnion's portfolio diversification, which allows for growth even in a tempered volume environment.

Toni Kaplan questioned the implied deceleration in the Q2 organic growth guide (midpoint ~4%) compared to the 8% achieved in Q1, given stable demand and an expected improvement in India.

Answer

EVP and CFO Todd Cello explained that despite strong current trends, the company maintained its full-year guidance out of prudence due to significant macroeconomic uncertainty. President and CEO Christopher Cartwright added that the initial 2025 guidance was intentionally conservative, assuming no rate cuts or volume improvements, characterizing the current environment as a 'beat and hold' rather than a 'beat and raise' situation.

Toni Kaplan inquired about the 10% growth guidance for India, which appears to be a significant slowdown, asking for more color on market visibility and the potential drivers for upside or downside to that forecast.

Answer

CEO Christopher Cartwright attributed the moderated forecast to a policy-driven slowdown by the Reserve Bank of India (RBI) in 2024 and tough year-over-year comparisons. He noted a recent RBI policy shift toward promoting growth, including a rate cut, which is expected to drive a reacceleration in the Indian market during the second half of 2025.

Toni Kaplan of Morgan Stanley questioned the significant delta between TransUnion's mortgage revenue growth and its inquiry volumes, asking for drivers beyond price increases and clarification on why inquiry volumes appeared light compared to peers.

Answer

EVP and CFO Todd Cello explained the 71-point delta in Q3 was driven by positive mix and price from TransUnion's products, including the shift to the Early Access Program and pricing on its own credit products. He noted that TransUnion's reported volumes include prequalification inquiries, which may differ from peers, and that the mortgage business also includes non-volume-based prospecting services that are picking up.

Toni Kaplan asked about the penetration rate and forward pipeline for McGraw Hill Plus, and its potential to increase K-12 district retention. She also sought an update on Scribe as a driver for margin expansion.

Answer

Chair of the Board of Directors, Simon Allen, highlighted McGraw Hill Plus's crucial role in retention, noting that its data-driven insights into student performance become 'addictive' for schools, making it difficult to switch once integrated. EVP and CFO, Bob Sallmann, confirmed that the company continues to lean into Scribe, defining new use cases daily, and sees it as a meaningful opportunity to reduce costs and accelerate time to market, despite being in early stages for cost savings.

Toni Kaplan asked about the penetration rate and forward pipeline for McGraw Hill Plus, and whether its personalization features could improve K-12 district retention. She also requested an update on Scribe as a driver for margin expansion.

Answer

Simon Allen, Chair of the Board of Directors, confirmed that McGraw Hill Plus's integration of data-driven tools and longitudinal student records makes it highly 'addictive' for schools, significantly increasing retention. Bob Sallmann, EVP and CFO, stated that Scribe continues to be a meaningful opportunity for cost reduction and accelerating time to market, with new use cases being defined, and will be discussed further as cost savings materialize.

Toni Kaplan inquired about McGraw Hill's pricing dynamics, specifically if price increases are still at a higher rate than planned and whether customers are pushing back, or if the value-add from new content and platforms mitigates resistance.

Answer

Bob Sallmann, EVP and CFO, confirmed that McGraw Hill applies a value-based pricing model and has not observed any pushback from customers. He stated that price realization is at inflationary levels, which is in line with the company's plans for the quarter.

Toni Kaplan asked about the sustainability of higher education share gains, specifically whether the success was primarily related to the Evergreen platform shift or if other factors like content were contributing. She also inquired about pricing dynamics, asking if price increases were still at a higher rate than planned and if customers were pushing back, or if the value-add of new content and platforms mitigated resistance.

Answer

Simon Allen, Chairman, President, and CEO, stated that the strong performance in higher education is 'across the board,' attributing it to Evergreen's unique retention benefits (now over 600 titles), new products like ALEKS Calculus and Sharpen Advantage, and continuous commissioning of new content and materials through the Connect platform. He expressed bullishness about the sustainability of higher education potential. Bob Sallmann, EVP and CFO, confirmed that McGraw Hill applies a value-based pricing model and has not seen pushback on pricing. Price realization has been at inflationary levels, in line with plans.

Toni Kaplan asked why the Ratings guidance for 2026 is below the long-term framework, despite positive tailwinds such as the refinancing wall, M&A activity, and AI infrastructure financing.

Answer

Martina Cheung, President and Chief Executive Officer, explained that the low to mid-single-digit bond issuance guide for Ratings assumes the majority of 2026 refinancing will come to market this year without massive pull-forward from 2027/2028, modest M&A growth, and continued but modest growth in hyperscale issuance. She noted the difficult compare from strong hyperscaler issuance in H2 2025 and prudent assumptions on debt-funded CapEx.

Toni Kaplan questioned why S&P Global's 2026 Ratings guidance is below its long-term framework, despite positive tailwinds from refinancing walls, M&A, and AI infrastructure financing.

Answer

Martina Cheung, President and CEO, explained that the low to mid-single-digit bond issuance guide for Ratings is based on several assumptions. These include the majority of 2026 refinancing coming to market without significant pull-forward from 2027/2028 (due to original low interest rates), modest year-over-year M&A growth, and continued but modest growth in hyperscale issuance, which faces a difficult comparison to H2 2025. She noted that while $650 billion in hyperscale CapEx is announced, S&P Global applies haircuts for materialization and debt-funding. She acknowledged potential upside if hyperscale issuance exceeds 2025 levels but emphasized a prudent, early-year guide.

Toni Kaplan inquired about the drivers behind Market Intelligence's strong 8% organic growth, asking if it was due to an improved market, higher pricing, or successful new product introductions, and sought clarity on the company's continuous investment in AI technologies.

Answer

Martina Cheung, President and CEO, attributed the strong performance to the Market Intelligence team's execution, revenue transformation efforts, competitive wins, and product innovation, including generative AI capabilities. Eric Aboaf, CFO and EVP, added that sales were up 10% year-to-date, translating into healthy ACV growth in the 6.5%-7% range, with volumetric and transaction revenues contributing to the 8% organic growth.

Toni Kaplan asked about the drivers behind Market Intelligence's 8% organic growth, inquiring if it was due to a better market, higher pricing, or new product introductions, and sought clarity on the impact of continuous AI investment.

Answer

Martina Cheung, President and CEO, highlighted strong execution, revenue transformation, product innovation, and competitive wins (e.g., major investment bank adopting Capital IQ Pro with GenAI capabilities). Eric Aboaf, CFO and EVP, added that the pipeline is healthy, sales are up ~10% year-to-date, and organic ACV growth is in the 6.5%-7% range, with volumetric and transactional revenues contributing to the 8% organic growth.

Toni Kaplan asked about the sustainability of the 7% organic growth in the Market Intelligence (MI) division, why its full-year guidance wasn't raised, and the specific revenue contribution from AI initiatives.

Answer

President & CEO Martina Cheung attributed the MI acceleration to a fundamental revenue transformation involving commercial team structure, simplified incentives, and focused metrics, which she views as sustainable. CFO Eric Abouaf added that guidance remains unchanged as Q2 performance was in line with internal plans and two quarters remain. Martina Cheung also noted that while new GenAI tools are being launched and adopted, the company does not yet disclose specific revenue metrics for them.

Toni Kaplan asked about the sustainability of the 7% organic growth in the Market Intelligence (MI) division, why its full-year guidance wasn't raised, and the specific revenue contribution from AI initiatives.

Answer

President & CEO Martina Cheung attributed the MI growth to a fundamental revenue transformation involving commercial team structure, simplified incentive plans, and fine-tuned performance metrics. She noted strong organic ACV growth supports sustainability. CFO Eric Abouaf added that while performance is strong, two quarters remain, and results are in line with their internal plans, justifying the unchanged guidance. Martina Cheung also mentioned that while AI is expected to contribute to revenue over time, specific numbers are not disclosed, highlighting the rapid integration of acquisitions like Pronto NLP.

Toni Kaplan inquired about the timing and rationale for the Mobility division spin-off, potential data licensing agreements post-separation, and any initial estimates on financial dis-synergies.

Answer

CEO Martina Cheung explained the decision followed a rigorous internal analysis and is considered the best path to maximize long-term shareholder value. CFO Eric Aboaf added that while the carve-out process is underway, initial analysis suggests any dis-synergies or stranded costs will be relatively immaterial to S&P Global's overall financials, with more details to be provided later.

Toni Kaplan from Morgan Stanley sought more detail on the competitive landscape and pricing sensitivity mentioned in the Market Intelligence segment, asking about specific areas and competitors.

Answer

President and CEO Martina Cheung clarified the comment largely reflected the market softness seen throughout 2024. She highlighted that S&P Global's competitive breadth allows it to benefit from vendor consolidation and that strengthening high-level client relationships through the new Chief Client Office helps demonstrate the full value of their differentiated products.

Toni Kaplan asked incoming CEO Martina Cheung for a broad overview of what she considers the most significant areas of opportunity for investment.

Answer

Incoming President and CEO Martina Cheung reaffirmed the company's commitment to the five secular growth trends identified at the 2022 Investor Day: Benchmarks, Private Markets, Sustainability & Energy Transition, Enterprise Data, and Generative AI. She added that recent strategic reviews have not only validated this focus but also identified new opportunities for incremental growth within these areas.

Toni Kaplan questioned the differentiation and competitive moat for CoCounsel products against general AI competitors, particularly for summarization and drafting, and the risk of commoditization. She also asked about the differentiation strategy for the tax and accounting business.

Answer

CEO Steve Hasker emphasized the high stakes in legal, requiring correctness, data privacy, and security, which necessitates highly curated, trusted data sources and expert-trained agentic tools for CoCounsel. For tax and accounting, he highlighted the stickiness and high performance of proprietary tax calculation engines (UltraTax, GoSystem Tax, ONESOURCE) that are constantly updated and accurate. He noted the opportunity to extend this position into 'shoulder activities' like data ingestion (SurePrep) and e-filing (SafeSend) to address the industry's acute talent shortage.

Toni Kaplan questioned the competitive moat for CoCounsel products, particularly for use cases like summarization and drafting, and the risk of commoditization. She also asked about the differentiation and moat in the tax and accounting business.

Answer

CEO Steve Hasker emphasized the high stakes for attorneys requiring correctness, data privacy, and accountability, which necessitates AI training on highly curated, trusted data and by deep experts. He believes TR's leadership in research provides a strong foundation for workflow tools. For tax and accounting, he highlighted the stickiness of fast, accurate, and constantly updated tax calculation engines (UltraTax, ONESOURCE) and the opportunity to extend into 'shoulder activities' to address the industry's acute talent shortage.

Toni Kaplan asked about Thomson Reuters' strategy regarding partnerships, particularly in light of a competitor's partnership for distribution, and whether TR needs to partner given its content and AI capabilities.

Answer

CEO Steve Hasker stated that Thomson Reuters is confident in its fully integrated Co-Counsel for legal, which combines content and editorial expertise, and therefore does not see a need for broad distribution partnerships like some competitors. He noted that TR is open to partnering for specific point solutions within the legal tech ecosystem but already possesses leading distribution in the industry.

Toni Kaplan asked about Thomson Reuters' strategy regarding partnerships, specifically whether there's an advantage to partnering for increased distribution, contrasting with a competitor's approach, given Thomson Reuters' existing content and AI capabilities.

Answer

CEO Steve Hasker expressed confidence in Thomson Reuters' position with Co-Counsel for legal, fully integrated with their content and editorial expertise, and stated they do not see a need for broad partnerships for distribution. He noted they are open to partnering for AI-driven 'point solutions' in very specific legal areas where innovative teams have developed complementary solutions, but emphasized their leading distribution in the industry.

Toni Kaplan of Morgan Stanley asked if the 22% of ACV from GenAI-enabled products could be broken down by business segment. She also inquired about what the company believes will unlock the significant AI opportunity in the Tax & Accounting space.

Answer

CEO Steve Hasker explained that the key driver for AI adoption in Tax & Accounting is the acute talent shortage in the profession, making technology essential for firms to manage rising workloads. CFO Michael Eastwood noted that while the GenAI-enabled ACV is not broken down externally, the Legal segment currently represents the larger portion due to Westlaw Precision's head start. However, he expects all segments to grow, with Legal remaining the largest portion over time due to its scale.

Toni Kaplan of Morgan Stanley inquired about the company's investment strategy in a potential economic slowdown and asked for an update on the demand and integration progress for the recently acquired Pagero business.

Answer

CFO Mike Eastwood stated that due to the business's resilience, he would not anticipate significant changes to strategic investments in a slowdown. CEO Steve Hasker added that their products' efficiency benefits could increase demand. Regarding Pagero, Hasker confirmed the integration is on track and demand is strong, driven by e-invoicing mandates, with future opportunities in Latin America and Southeast Asia.

Toni Kaplan of Morgan Stanley questioned the future investment plans for TR Ventures and the methodology for measuring its ROI. She also asked about the drivers behind the implied EBITDA margin deceleration in the second half of 2024.

Answer

CFO Mike Eastwood confirmed that Thomson Reuters is prepared to make additional investments in TR Ventures beyond 2024, applying rigorous financial and strategic metrics to measure ROI. Regarding the H2 margin, Eastwood explained the expected Q3 low point (34% margin) is due to a convergence of four factors: seasonally lower revenue, planned organic investments in innovation, inorganic integration costs for acquisitions like Pagero, and higher incentive compensation expense from strong revenue performance.

Toni Kaplan asked about the remaining hurdles and timing for lenders and resellers to adopt VantageScore in the mortgage market. She also inquired about the momentum in the government vertical, particularly with OB3, and how error rate targets are influencing state behavior, including any seasonality.

Answer

Mark Begor, Chief Executive Officer, stated that the primary hurdle for VantageScore adoption is the FHFA, Fannie Mae, and Freddie Mac completing their work, which is expected to be 'imminent' but lacks a firm timeline. He noted strong market interest, with many lenders testing and some smaller non-agency lenders already using VantageScore due to cost and performance benefits. John Gamble, Chief Financial Officer, clarified that Equifax is indifferent to FICO's direct model regarding operating profit, as there's no margin on FICO score pass-through. For the government vertical, Mr. Begor highlighted increased federal and state focus on improper payments due to OB3, driving broad commercial engagement and sequential improvement in Q3 and Q4 2025. He expects OB3-specific revenue impact in H2 2026 and 2027, with government projected to be Equifax's fastest-growing business.

Toni Kaplan inquired about the remaining hurdles for lenders and resellers to adopt VantageScore, the timing for resolution, and the momentum observed in the government vertical, particularly with OB3, including the impact of error rate targets on state behavior and any seasonality.

Answer

CEO Mark Begor stated that the primary hurdle for VantageScore adoption is the FHFA, Fannie, and Freddie completing their work, with timing uncertain but expected to be imminent. He noted strong market interest and some smaller non-agency lenders already converting. CFO John Gamble clarified that Equifax is indifferent to FICO's direct model regarding operating profit. For the government vertical, Begor highlighted increased state engagement due to OB3, leading to sequential improvement in Q3 and Q4, and expects government to be the fastest-growing business due to unique data and new solutions like continuous monitoring.

Toni Kaplan asked about the expected ramp-up of the government business, particularly concerning state adoption of solutions ahead of the government fiscal year-end, and the process for implementing OB3-driven opportunities.

Answer

Mark Begor, Chief Executive Officer, indicated a mix of both, noting a rapid increase in federal and state conversations post-OB3 signing. He explained that while OB3's full revenue impact is expected in late 2026 and 2027, states are engaging now to address current error rates and avoid future benefit cost shifts, with the impact from 2024 CMS funding changes now largely behind them.

Toni Kaplan asked about the ramp-up of government discussions, particularly regarding OB3 legislation and state adoption of Equifax's solutions, and whether states would preemptively use solutions ahead of the late 2026/2027 sweet spot for OB3 impacts.

Answer

CEO Mark Begor indicated a rapid increase in federal and state conversations post-OB3 signing. He explained that while OB3's full revenue impact is expected in late 2026 and 2027, states are engaging now to address current error rates and avoid future costs, noting that the impact from 2024 CMS funding changes is now behind them.

Toni Kaplan asked about expectations for VantageScore's price competition in the mortgage market and sought clarification on the drivers behind the lower full-year EBITDA margin guidance despite a revenue increase.

Answer

CEO Mark Begor stated it's still early to predict VantageScore's pricing impact, emphasizing the complexity and time required for industry adoption. CFO John Gamble explained the EBITDA margin guidance reduction was driven by the dilutive effect of FX, higher corporate litigation costs, and some one-time employee exit costs, while noting that business unit margins are performing well.

Toni Kaplan sought confirmation on the low double-digit growth guidance for the Government vertical in Q2 and asked about the drivers for the strong performance in the Talent Solutions vertical in Q1.

Answer

CFO John Gamble confirmed the low double-digit growth guidance for Government in Q2. CEO Mark Begor explained the SSA contract revenue would ramp normally, not disproportionately in Q2. Regarding Talent, Begor attributed the Q1 strength to a better-than-expected hiring market, strong execution on new products, and increased penetration. Gamble added the Q2 Talent guide reflects tougher comps and an assumption of weakening hiring.

Toni Kaplan inquired about the deceleration in USIS non-mortgage growth and the broader opportunity in the government vertical, particularly how Equifax sells into an environment of potential program changes.

Answer

CFO John Gamble attributed the USIS non-mortgage slowdown to tough comps in the Financial Marketing Services (FMS) business. CEO Mark Begor expressed strong optimism for the government vertical, citing a $5 billion TAM and a federal focus on payment accuracy, which he views as a positive macro trend for Equifax's verified data solutions.

Toni Kaplan from Morgan Stanley asked if the reduction in CapEx for 2025 would be a large step-down or more gradual, and what the next phase of the technology plan is. She also inquired about any emerging 'green shoots' in the consumer credit environment for 2025.

Answer

CEO Mark Begor indicated that CapEx will continue to decline in 2025 as the company moves toward its long-term 6-7% of revenue target, with the next phase of technology focused on leveraging the cloud for innovation. Regarding consumer credit, Begor sees the market as stable. He identified the primary potential 'green shoot' as Fed rate reductions, which would benefit not only the mortgage market but also other interest-rate-sensitive areas like auto and personal loans.

Toni Kaplan asked if AI had a greater impact on renewal conversations in Q4, client feedback regarding AI as a substitute, and whether the overall challenging environment (DOGE, tariffs) is showing signs of improvement.

Answer

CEO Gene Hall stated that AI is the highest demand topic, but clients are not frequently citing it as a substitute for Gartner, with internal tracking showing it's not a significant concern. He noted that the main issues remain internal client budgets, DOGE, and tariffs. For DOGE, cancellations are expected to largely pass after Q1 2026, and tariff issues have stabilized for some companies. Gartner is increasing value through BTI transformation to drive engagement and retention.

Toni Kaplan inquired if AI had a greater impact on renewal conversations in Q4, specifically regarding client decision-making on adding or removing seats, and sought feedback on the overall client environment, including whether issues like DOGE and tariffs were improving.

Answer

CEO Gene Hall stated that AI is the single highest demand topic, but clients are not using it as a substitute for Gartner; if anything, it was less of a concern in Q4. He noted that issues like internal budgets, DOGE, and tariffs are the real problems. Regarding DOGE, he expects cancellations from U.S. federal government clients to largely conclude after Q1 2026, returning to a more normal environment. For other clients, the BTI transformation aims to increase value and engagement, thereby improving retention. He also mentioned that tariff impacts have stabilized for some companies.

Toni Kaplan followed up on sales headcount growth expectations for 2026 for both GTS and GBS segments. She also asked if current trends like corporate headcount reductions and AI efficiency impact Gartner's view on its seat-based model, and if an enterprise-based model would be considered.

Answer

Craig Safian (CFO, Gartner) stated that the base-level assumption for sales headcount growth in 2026 should be three to four points slower than expected CV growth, with investments aimed at sustaining growth into 2027 and beyond. Gene Hall (Chairman and CEO, Gartner) explained that staff reductions at clients don't directly affect Gartner's target C-level and direct report clients. He noted that an enterprise license doesn't add value for their current content, which is targeted at specific senior executives, but acknowledged it's a potential future growth avenue.

Toni Kaplan inquired about Gartner's expectations for sales headcount growth in 2026 for both GTS and GBS segments. She also asked for Gartner's view on its seat-based model in light of corporate headcount reductions and AI-driven efficiency, and whether an enterprise-based model would ever be considered.

Answer

CFO Craig Safian stated that sales headcount growth in 2026 is expected to be approximately 3-4 points slower than the anticipated CV growth, aiming to sustain growth into 2027 and beyond. Chairman and CEO Gene Hall explained that Gartner's seat-based model targets C-level executives and their direct reports, roles that are generally less impacted by broader corporate headcount reductions. He noted that Gartner's content is tailored for these senior roles, making an enterprise-wide license less relevant for the entire organization, but acknowledged that developing products for a broader audience could be a future growth avenue.

Toni Kaplan asked about the most common client questions regarding AI, Gartner's differentiation against other AI tools, and for details on client feedback during renewals, particularly regarding seat reductions.

Answer

CEO & Chairman Eugene Hall detailed that Gartner assists clients with long-term 'mission-critical priorities,' a journey-based approach that commodity AI cannot replicate, leveraging vast proprietary data from over 500,000 annual client interactions. He also noted that a key trend in Q2 was the escalation of purchase decisions to the CFO or CEO due to cost-cutting pressures, especially in tariff-impacted industries, which extends sales cycles.

Toni Kaplan asked for more detail on the full-year guidance, questioning if it reflects the entire first quarter's trends or is more weighted towards the recent slowdown. She also asked about trends in other government sectors and the potential for federal win-backs.

Answer

CFO Craig Safian confirmed the guidance incorporates the trends from the latter part of Q1, particularly March, which is the most significant month. CEO Gene Hall added that state, local, and international government segments are not experiencing similar issues and that Gartner is positioned to win back federal business over time due to its strong value proposition.

Toni Kaplan asked for an update on the tech vendor business, questioning if its challenges are resolved and if accelerating growth should be expected. She also inquired about the share buyback strategy, given the conservative guidance assumption despite significant cash on the balance sheet.

Answer

Executive Eugene Hall confirmed the tech vendor market has recovered nicely and Gartner expects it to return to a more normalized state and continue accelerating over the next several quarters. CFO Craig Safian addressed the buyback, reaffirming their commitment to returning capital but emphasizing a philosophy of being 'price-sensitive, opportunistic, and disciplined.' He noted that market volatility should provide opportunities to be more aggressive than the baseline guidance suggests.

Toni Kaplan inquired about client conversations regarding 2025 budgets and the selling environment, and also requested an update on sales force tenure, retention, and headcount levels.

Answer

CEO Gene Hall reported that clients are currently expecting 2025 to be a better year than 2024. He also stated that associate turnover is low and sales force tenure has been slowly rising, despite a recent acceleration in hiring which adds newer associates to the mix.

Toni Kaplan, Executive Director at Morgan Stanley, questioned WM about the Healthcare business's 2026 outlook, specifically the 3% growth and 4.2% pricing, asking if Stericycle customer issues like credit memos are resolved, the future growth trajectory, and market conditions in medical waste. She also inquired about WM's focus areas for efficiency and technology in 2026, and which areas offer the most runway for automation improvements.

Answer

CEO Jim Fish confirmed that customer service metrics for Healthcare Solutions have improved, with credit memos peaking in Q4 2025, and expressed confidence in the business's growth trajectory, citing demographic tailwinds and pricing power despite initial volume impacts from lost accounts. Jim Fish and President John Morris highlighted ongoing technology and automation benefits in Recycling, expansion of the connected truck platform to residential, and early-stage IoT implementation in landfills as key areas for continued efficiency and cost reduction.

Toni Kaplan asked about the Healthcare business's 3% growth and 4.2% pricing for 2026, inquiring if Stericycle customer issues and credit memos would be resolved this year, and about future growth and medical waste market conditions. She also asked about the most focused areas for efficiency and technology improvements in 2026 and which areas have the most runway for automation.

Answer

CEO Jim Fish stated that customer service metrics for Healthcare Solutions are now above the legacy business, credit memos peaked in Q4, and the 2026 growth reflects lost accounts that will anniversary. He expressed confidence in the business's strategic case and growth trajectory. He also highlighted technology benefits in recycling, connected truck expansion to residential, and early innings for post-collection (landfills) with IoT for cost reduction.

Toni Kaplan asked about the yield performance in Q3 2025 and the outlook for 2026, specifically regarding customer conversations. She also inquired about the reasons for the industrial yield being the lowest since COVID and the M&A pipeline, valuations, and strategy for 2026.

Answer

Jim Fish (CEO) stated that MSW yield was 6.7%, Commercial 4.7%, and Residential 6.5%, emphasizing the focus on maintaining a delta between cost and price. John Morris (President and COO) attributed the lower industrial yield (2.3%) to a mix shift towards temporary business and an uptick in permanent hauls, also mentioning national accounts. For M&A, John Morris noted $450 million closed year-to-date, with 2026 likely returning to a normal $100-$200 million range. Jim Fish added that with $3.8 billion in projected 2026 free cash flow, capital allocation would include dividends, M&A, and substantial share repurchases.

Toni Kaplan asked about the company's yield performance in Q3 and expectations for 2026, including customer conversations. She specifically questioned the industrial yield, noting it was the lowest since COVID, and asked about the M&A pipeline, valuations, and whether 2026 would be a larger year for acquisitions or if the company is still integrating the healthcare business.

Answer

CEO Jim Fish stated that MSW, commercial, and residential yields were strong, with a focus on maintaining the delta between cost and price. President and COO John Morris attributed the industrial yield to a mix of healthcare internalization, rebounding temporary business, and an uptick in permanent hauls, while noting the industrial core price was 5.7%. John Morris also updated on M&A, indicating approximately $450 million closed year-to-date in traditional solid waste, with 2026 likely returning to a normal $100-$200 million range, but with capacity for strategic assets. Jim Fish added that 2026's $3.8 billion free cash flow would support dividends, M&A, and substantial share repurchases.

Toni Kaplan of Morgan Stanley asked for more color on the strong volume performance beyond wildfire cleanups, details on a large residential contract loss, and the reason for the widening gap between core price and yield.

Answer

CEO Jim Fish highlighted encouraging volume strength in MSW and C&D waste streams, noting June was the strongest month of the quarter. President & COO John Morris explained the residential contract loss was a strategic decision to exit an underperforming franchise, which impacted residential volume by 185 basis points. Regarding pricing, Jim Fish stated that core price is on track, and the difference to yield is a mix issue.

Toni Kaplan asked a broad question about the company's resilience compared to prior downturns, specifically how the sustainability and new healthcare businesses might perform in a slower economy. She also inquired about the potential impact of tariffs on fleet-related capital expenditures in 2026 and beyond.

Answer

President and CEO Jim Fish emphasized that the sustainability and healthcare acquisitions add diversification and are highly resilient, noting that recent volume softness was weather-related, not economic. EVP and COO John Morris addressed the tariff question, stating that for 2025, the company is in excellent shape with front-loaded truck deliveries and committed equipment, resulting in minimal financial impact for the year.

Toni Kaplan of Morgan Stanley asked for the rationale behind certain residential contracts being unprofitable and inquired about the potential volume impact from the California wildfires, asking if it was included in guidance.

Answer

EVP and COO John Morris explained that residential profitability has been pressured by inflation, particularly in labor, and that shedding is a portfolio-wide effort, not tied to a specific contract type. While John Morris initially suggested minimal impact from wildfires was in the guidance, EVP and CFO Devina Rankin clarified that about 0.5 points of volume growth was included. President and CEO Jim Fish added that such events are unpredictable and not typically factored into initial guidance.

Toni Kaplan inquired about the primary drivers for the full-year revenue guidance increase and the current and forward-looking trend for the price-cost spread.

Answer

EVP & CFO Devina Rankin attributed the Q3 revenue strength to higher recycled commodity prices and landfill volumes but expressed caution on recycling prices for Q4 due to port strike uncertainties. President & CEO Jim Fish added that the results suggest a healthy economic backdrop. EVP & COO John Morris confirmed that the price-cost spread remains positive, with disciplined pricing outpacing easing CPI, though he noted frontline wage inflation continues to be a pressure point.

Toni Kaplan from Morgan Stanley inquired about the most impactful AI launches for near-to-medium term adoption, client interest levels, and the potential impact on MSCI's growth rate in 2026 and beyond.

Answer

Henry Fernandez, Chairman and CEO of MSCI, explained that AI applications began 3-4 years ago, initially focusing on operational efficiency (e.g., ESG controversies, private market data gathering). Product-focused AI applications include analytics insights for portfolios and automating custom index creation. He highlighted that AI agents are speeding up processes and providing deeper insights, with the company transforming into a 'total AI machine'.

Toni Kaplan asked about the most impactful AI launches for adoption in the near to medium term, client interest levels, and the potential impact on MSCI's growth rate for 2026 and beyond.

Answer

Henry Fernandez, Chairman and CEO of MSCI, explained that AI's journey began with operational applications (e.g., ESG controversies, private market data gathering) and has expanded to products, such as AI insights in analytics and automating custom index creation. He highlighted that while it's still early, the company is excited about AI's potential to augment capabilities and accelerate product development across the board.

Toni Kaplan asked for an update on MSCI's leverage of AI models for new product development, identifying the greatest opportunities for AI on both revenue and cost sides, including quantification, specific product examples, and potential cost savings.

Answer

Henry Fernandez, Chairman and CEO, MSCI, stated that AI is a 'godsend' for MSCI, enabling dramatic scaling of data capture, enhancing investment and risk models, and improving content delivery. He noted that almost 100% of employees use AI daily, leading to hundreds of new hire savings in operations and tens of millions in efficiency gains. He highlighted AI-powered custom index methodologies and geospatial datasets, with $15-$20 million in sales from AI-powered products this year. He projected significant margin increases from AI, which would be reinvested for faster growth.

Toni Kaplan asked for an update on MSCI's leverage of AI models, focusing on the greatest opportunities for revenue generation and cost savings, including specific product examples and quantification.

Answer

Henry Fernandez (Chairman and CEO, MSCI) described AI as a 'godsend,' enabling dramatic scaling of data capture, enhancing investment/risk models, and improving content delivery. He noted AI's permeation across employees and operations, saving millions in potential hires, and driving new product development (e.g., custom index factory, geospatial datasets). He expects AI to dramatically increase margins by reducing operating expenses and freeing up resources for investment.

Toni Kaplan asked for an update on the impact of client consolidation in the asset management industry on MSCI's upcoming results and whether this trend is showing signs of dissipating.

Answer

Chairman & CEO Henry Fernandez stated that while consolidation is an ongoing secular trend, MSCI does not foresee an acceleration that would significantly impact its forecasts. He emphasized that the industry's transformation, particularly the shift from traditional mutual funds to active ETFs, represents a more significant trend and a major growth opportunity for MSCI.

Toni Kaplan inquired about the current selling environment, particularly regarding new sales in the Index and Sustainability segments, and whether there was any client reluctance or deal delays.

Answer

President and COO C. Pettit stated that while the environment is highly uncertain, MSCI has not yet seen evidence of a change in client purchasing habits. He noted that the sales pipeline remains in decent shape, client engagement is high, and some deals that did not close in Q1 are expected to close in Q2. He also highlighted client demand for transparency and investment opportunities outside the U.S.

Toni Kaplan inquired about the long-term growth outlook for MSCI's ESG subscription business, excluding climate, asking if the current slowdown is cyclical or a new normal.

Answer

CEO Henry Fernandez stated that commitment to sustainability remains strong, particularly in Europe, despite a temporary pause from new regulations. He emphasized that the product line must evolve from ratings to underlying data and materiality signals to meet client demand. Fernandez expressed bullishness on the opportunity, noting new regulations in Asia Pacific and a secular shift toward private sector focus in the U.S., while also mentioning that MSCI is re-evaluating its long-term targets for the segment.

Toni Kaplan inquired about the early outlook for the client budget environment in 2025 and MSCI's corresponding pricing strategy.

Answer

CFO Andrew Wiechmann noted gradual signs of improvement in client dialogues but expects elevated cancellations and longer sales cycles to persist in the near term due to tight asset manager budgets. He stated that MSCI is moderating its price increases to foster long-term partnerships, a strategy that may be less aggressive than some competitors.

Toni Kaplan asked about Cintas's long-term growth drivers beyond current high single-digit growth, including key verticals, new geographies, and new products, and the sustainability of this growth.

Answer

Todd Schneider, President and CEO, expressed satisfaction with current mid to high single-digit organic growth, supplemented by M&A. He highlighted that key verticals are growing faster, new products/services are continuously launched, and the Fire business offers geographic expansion. He emphasized ongoing investments in capacity, new offerings, and technology to sustain these growth levels, which enable leverage and margin expansion. Scott Garula, Executive Vice President and Chief Financial Officer, added that while Q2 had favorable comparisons, the second half faces tougher comps, but the full-year guide remains within the target mid to high single-digit growth range, reflecting confidence in their growth algorithm.

Toni Kaplan asked about Cintas's long-term growth drivers beyond current high single-digit levels, specifically inquiring about contributions from key verticals, new geographies, and new products, and the sustainability of current growth levels.

Answer

President and CEO Todd Schneider affirmed confidence in current growth levels, noting that verticals are growing faster, and Cintas continuously launches new products and services. He highlighted ongoing geographic expansion in the Fire business and emphasized sustained investment in capacity, new products, services, and technologies to maintain growth and achieve margin expansion. Executive Vice President and CFO Scott Garula added that despite tougher comps in the second half, the full-year guide remains within the mid-to-high single-digit range, reinforcing confidence in the growth algorithm.

Toni Kaplan asked if Cintas anticipates any impact from changes to visa requirements on their customers' hiring practices and sought clarification on whether the SG&A step-up in the 'all-other' segment should be expected to continue at a similar level throughout the year.

Answer

President and CEO Todd Schneider stated that Cintas is monitoring immigration policy but is not seeing any material impact on customer hiring from visa changes, nor hearing significant concerns from customers. Regarding SG&A, he indicated that the current investment level is appropriate, with no expected ramp-up or ramp-down, and noted a 10 basis point improvement in company-wide SG&A, suggesting the 'all-other' segment's trend is more of a timing issue.

Toni Kaplan asked if Cintas anticipates any impact from changes to visa requirements on its customers' hiring. She also inquired whether a similar level of SG&A investment in the 'all-other' segment should be expected throughout the year and how overall SG&A would progress.

Answer

Todd Schneider, President and CEO, stated that Cintas is monitoring immigration policy but is not seeing any material impact from visa changes on customer hiring. Regarding SG&A, he indicated that the current investment level is appropriate, with no expected ramp-up or ramp-down. He noted a 10 basis point improvement in overall company SG&A year-over-year, viewing the 'all-other' segment's SG&A as a timing issue, and expects leverage over time.

Toni Kaplan inquired whether Cintas anticipates any impact on its customers' hiring due to recent news and changes regarding visa requirements.

Answer

Todd Schneider, President and CEO, stated Cintas is monitoring immigration policy but is not seeing any material impact on customer hiring or in its results, noting the H1B visa subject seems more relevant to the technology sector. For a follow-up on the 'all-other' segment's SG&A, Mr. Schneider indicated that the current SG&A investment level is appropriate, and he doesn't expect a significant ramp up or down. He noted the company achieved a 10 basis point improvement in overall SG&A as a percentage of revenue year-over-year and views the 'all-other' segment's SG&A as a timing issue, expecting leverage over time.

Toni Kaplan asked for an update on cross-selling efforts and whether the trend of outsourcing accelerates during periods of economic uncertainty and budget tightening.

Answer

President and CEO Todd Schneider described cross-selling as being in the 'early innings' with immense opportunity, especially for the Fire and First Aid businesses. He confirmed that during budget tightening, customers often look to outsource to reduce costs, which creates an opportunity for Cintas to consolidate services and demonstrate its value proposition.

Toni Kaplan inquired about the long-term growth outlook for the Direct Sales business and asked for an update on the percentage of customers using services from more than one segment. She also questioned the sustainability of the high margins in the First Aid business and the level of investment there.

Answer

CEO Todd Schneider stated that while other businesses will grow faster, Direct Sales is a strategic entry point to large customers. He described cross-selling as being in the 'very early innings.' He affirmed that First Aid margins are sustainable, supported by a favorable product mix and sourcing efficiencies, and that Cintas is investing heavily to continue its growth.

Toni Kaplan (Morgan Stanley) questioned why FactSet's fiscal year 2026 guidance implies a deceleration in organic ASV growth despite recent acceleration, strong pipeline, and investments, asking if this reflects conservatism or specific factors that might slow growth later in the year.

Answer

Sanoke Viswanathan, CEO of FactSet, affirmed confidence in the pipeline but stated that it's early in the year with significant business yet to be acquired. He emphasized a prudent and focused approach to winning deals, hoping to support the current growth trajectory in future quarters.

Toni Kaplan questioned why FactSet's FY26 guidance implies a deceleration in organic ASV growth from its current accelerating trend, despite strong confidence, pipeline, and investments, asking if this reflects conservatism or specific factors suggesting a slowdown towards the fiscal year-end.

Answer

CEO Sanoke Viswanathan reiterated confidence in the pipeline but stated that it is still early in the year with significant business yet to be acquired. He emphasized a prudent and conservative approach to guidance, with the hope to continue supporting the recent growth trajectory in future quarters.

Toni Kaplan asked a longer-term question regarding FactSet's adjusted operating margins, specifically whether the 37-38% target from the November investor day is still achievable in the medium term, given the current fiscal 2026 guidance below 35%, and what factors have changed.

Answer

Helen Shan, CFO, stated that FactSet is not making changes to its medium-term guidance at this time, focusing on fiscal 2026. She reiterated that the 2026 investments (250 basis points, split between growth and structural) are designed to drive top-line growth and future operating leverage. She also noted approximately 100 basis points of cost reduction and productivity gains expected in 2026 from lower professional fees and third-party content, anticipating improved productivity and top-line leverage going forward.

Toni Kaplan asked Helen Shan about FactSet's medium-term adjusted operating margin target of 37-38% from the November investor day, inquiring whether this target is still achievable in the next few years and what factors have changed since 10 months ago.

Answer

Helen Shan, CFO, FactSet, stated that she would focus on fiscal 2026 guidance and was not making changes to the medium-term guidance at this moment. She detailed that fiscal 2026 investments (250 basis points) are split between growth drivers (data expansion, wealth, portfolio lifecycle, AI) and structural improvements for efficiency. She also noted about 100 basis points of cost reduction from productivity in lower professional fees and third-party content, expecting future leverage from these efforts.

Toni Kaplan asked a longer-term question regarding FactSet's adjusted operating margins, specifically whether the 37-38% target from the November Investor Day is still achievable in the next few years, and what factors have changed since that guidance was provided.

Answer

Helen Shan, CFO, stated that FactSet is not making changes to its medium-term guidance at this time, focusing on 2026. She explained that current investments, totaling about 250 basis points, are directed towards top-line growth drivers like data expansion, wealth solutions, portfolio lifecycle, and AI. The remaining structural investments, along with approximately 100 basis points of cost reduction and productivity gains (from lower professional fees and third-party content), are expected to provide operating leverage and drive top-line growth, which will ultimately contribute to margin expansion.

Toni Kaplan from Morgan Stanley asked about the early success of the GenAI tool PitchCreator, inquiring if the initial deals were with new or existing clients and about the competitive landscape.

Answer

Chief Revenue Officer Goran Skoko clarified that most of the initial signed deals for PitchCreator are with existing clients. However, he noted that the tool is a significant factor in new business discussions and is expected to contribute to winning new logos in the future.

Toni Kaplan followed up on the price increase, noting the headwind from lower CPI, and asked if the confidence in a second-half growth inflection is primarily driven by the strength of the sales pipeline.

Answer

Chief Revenue Officer Goran Skoko confirmed that confidence is high due to several factors. He noted that year-to-date booked ASV is higher than in prior years, the sales pipeline is stronger and more diverse, and they have better visibility into downside risk with no material client losses expected in the second half. This combination is expected to improve year-over-year retention and drive the growth inflection.

Toni Kaplan asked for more detail on the wealth management segment, questioning if the Q1 deceleration indicated elongated decision-making or changes in the competitive environment.

Answer

CEO Frederick Snow attributed the deceleration primarily to lapping a very large deal from Q1 of the prior year, not a fundamental market change. Chief Revenue Officer Goran Skoko expressed confidence that wealth ASV growth will reaccelerate, citing an uptick in new business, competitor displacements, and geographic expansion, reiterating the expectation for double-digit growth for the year.

Toni Kaplan of Morgan Stanley revisited the wealth management segment, asking for more color on the quarterly deceleration, whether decision-making timelines are elongating, and any changes in the competitive landscape.

Answer

CEO Frederick Snow clarified the deceleration was primarily due to lapping a very large deal from the prior year's Q1 and expressed confidence in a quick snap-back. Chief Revenue Officer Goran Skoko reiterated confidence that wealth growth will reaccelerate, citing an uptick in new business, seat growth, competitor displacements, and geographic expansion efforts.

Toni Kaplan asked about FactSet's long-term margin outlook, questioning if fiscal 2025 should be considered a normal year after a significant period of margin expansion.

Answer

Executive Frederick Snow characterized fiscal 2025 as a "reset year," noting that while margins have expanded significantly, the company is now in a great position to invest. CFO Helen Shan elaborated that about half of the margin difference from 2024 is due to resetting the bonus pool, with the rest covering technology costs. She described the guided margin range as a more normalized level, with new investments being self-funded.

Toni Kaplan asked about the margin trajectory, specifically how new wins impact costs during ramp-up, and what AI or other efficiency initiatives are expected to contribute to 2026 margins.

Answer

CFO Jim Tarangelo highlighted consistent margin appreciation, moving from 4.6% to 5.3% in fiscal 2025, with a 5.7% midpoint projected for 2026. He stated that incremental startup costs from large new wins would be offset by continued productivity in the supply chain, leveraging AI, and scaling overhead without significant new above-unit costs. CEO John Zillmer added that normalized opening costs are baked into projections, and margin accretion is expected to continue. Kaplan also inquired about the double-digit growth in collegiate sports and the pipeline for converting education contracts. Zillmer explained that Aramark engages both collegiate hospitality and sports & entertainment teams for opportunities like Arizona State and Oklahoma, pursuing large university athletic programs, and leveraging the SNE team's expertise, especially for alcohol management, in a strong marketplace with self-operated and competitive bids.

Toni Kaplan asked about the margin trajectory given new wins, specifically addressing potential ramp-up costs and the contribution of AI initiatives or other efficiency efforts to 2026 margins, also inquiring about the pipeline and conversion progress in collegiate sports.

Answer

CFO Jim Tarangelo highlighted consistent margin appreciation, projecting 5.7% at the midpoint for 2026, and stated that startup costs for large wins would be offset by supply chain productivity, AI leverage, and SG&A scaling. CEO John Zillmer added that normalized opening costs are baked into guidance and that efficiency gains would offset cost increases. Zillmer also detailed the collaborative approach between collegiate hospitality and sports & entertainment teams for university athletic programs, noting significant growth opportunities in self-operated institutions and competitive bids.

Toni Kaplan of Morgan Stanley inquired about the progress in cross-selling between university and collegiate sports clients and asked about the Fenway Park labor dispute, specifically regarding automation's role and potential future labor issues.

Answer

CEO John Zillmer highlighted significant progress in collegiate sports, now serving 34 Division I stadiums by leveraging synergies between business lines. Regarding the Fenway labor issue, he stated that automation is aimed at improving fan experience, not reducing labor, and expressed confidence in resolving the negotiations.

Toni Kaplan requested more detail on the specific operating metrics and business verticals expected to drive the significant revenue acceleration in the second half of the year. She also asked about enrollment trends within Aramark's education portfolio.

Answer

CFO Jim Tarangelo highlighted expected acceleration from the base business in higher education, new business in corrections, and continued momentum in B&I, noting that the required new business wins are already secured. CEO John Zillmer added that Q4 pricing cycles in Education and Corrections will also be a factor. He expressed confidence in their education portfolio, stating they see strong enrollment and are not concerned about a potential 'enrollment cliff' affecting their accounts.

Toni Kaplan asked about the first-time outsourcing trend, questioning whether it has accelerated recently and what factors are driving its sustainability.

Answer

CEO John Zillmer responded that the level of first-time outsourcing is very similar to the prior year and remains a strong, supportive trend across various industries and geographies. He stated that Aramark does not see any signs of it slowing and views it as a continued tailwind for the balance of the year and into fiscal 2026.

Toni Kaplan asked for an update on the labor force and the price/cost spread outlook for fiscal 2025. She also inquired about the potential for industry consolidation and the current M&A environment.

Answer

CEO John Zillmer stated the company expects to fully recover food and labor inflation (4-5%) through normalized pricing (2-3%). CFO Jim Tarangelo added that lower agency costs also provide an offset. Regarding M&A, Zillmer said there are no major consolidation discussions ongoing and that future activity will likely be limited to smaller, regional players.

Toni Kaplan of Morgan Stanley asked about the drivers of the strong C&D landfill volumes and whether the current labor disruptions are viewed as a contained issue or a broader industry-wide cost concern.

Answer

CFO Brian Delghiaccio attributed the strong C&D landfill volumes entirely to event-driven hurricane cleanup activities, noting that broader construction activity, reflected in large container volumes, remains negative. CEO Jon Vander Ark stated that the labor disruptions are considered contained and specific, not an industry-wide issue, as the company negotiates contracts locally and feels confident in its current cost position.

Toni Kaplan of Morgan Stanley asked about the strong C&D landfill volumes, questioning if it was due to geographic advantages or market share gains. She also asked if the current labor disruptions are specific issues or indicative of a broader industry cost trend.

Answer

CFO Brian Delghiaccio clarified that the strong C&D volume was entirely due to event-driven hurricane cleanup activity, not broad construction market strength, which remains negative. CEO Jon Vander Ark added that landfill proximity is key in these events. On labor, Vander Ark stated the issues are contained and specific, as Republic has local contracts, not a national one, and the company feels comfortable with its current cost position.

Toni Kaplan questioned why the strong Q1 margin expansion is expected to moderate to meet the full-year guide and asked about the timeline for the shedding of underperforming residential contracts.

Answer

CFO Brian DelGhiaccio explained that the price-to-cost spread is expected to modulate and the company faces tougher year-over-year comparisons in subsequent quarters. CEO Jon Vander Ark added that the residential volume shedding, driven by M&A integration and strategic pricing, may continue for a few more quarters as they focus on improving returns in the municipal market.

Toni Kaplan from Morgan Stanley sought additional details on the drivers of core price deceleration in the quarter and inquired about the outlook for volume trends, especially in the cyclical special waste and construction sectors.

Answer

CFO Brian DelGhiaccio attributed the price deceleration to the anniversarying of new fees and a sequential step-down in restricted pricing, which was expected. CEO Jon Vander Ark noted a flat to slightly negative demand environment driven by cyclical softness but expressed optimism for construction and special waste recovery in the coming 3 to 12 months, citing pent-up demand and a strong project pipeline.

Toni Kaplan from Morgan Stanley inquired about the drivers behind the worsening enrollment trends, specifically asking if the issue was sudden and localized, and questioned the company's strategy regarding the closure of underperforming centers.

Answer

CEO Paul Thompson clarified that the enrollment softening was observed in June during the summer transition and was localized, equating to a decline of one to two children per center. He highlighted that the lowest-performing quintile of centers actually saw occupancy improvement. CFO Tony Amandy affirmed that the strategy for center closures remains unchanged, involving individual assessments based on performance and lease renewals, with a general target of closing about 1% of the portfolio annually.

Toni Kaplan inquired about the alternatives parents are using amid delayed enrollment decisions and asked about the historical resilience of the Champions after-school business during periods of economic uncertainty.

Answer

CEO Paul Thompson suggested that for infant care, parents may be taking longer parental leave, thus delaying enrollment. He emphasized that strong inquiry and tour levels indicate the demand is delayed, not lost. Regarding the Champions business, he explained its resilience stems from its lower weekly cost compared to full-time care, positioning it as an essential service for working parents.

Toni Kaplan requested clarification on the percentage of revenue tied to federal government funding, specifically the CCDBG, and asked about the funding outlook for 2025. She also asked if the Champions and Creme brands receive government funds.

Answer

CEO Paul Thompson confirmed that the Child Care and Development Block Grant (CCDBG) represents about 35% of total revenue. He highlighted recent conversations with lawmakers and noted that both House and Senate budget recommendations include increases, indicating strong bipartisan support. He also clarified that government funding for the Champions program is minimal and is nearly zero for the Creme brand.

Toni Kaplan inquired about the potential impact of the recent election and new administration on government expenditures for childcare, and asked for an update on initiatives to improve performance in underperforming centers.

Answer

CEO Paul Thompson expressed confidence in the durability of government support for childcare, citing its historical bipartisan growth. He noted that initiatives to improve underperforming centers include new digital tools rolled out in Q2 and Q3 to enhance operational consistency, which are expected to show greater impact in 2025.

Toni Kaplan of Morgan Stanley questioned whether the demand headwinds were concentrated in specific customer end markets, such as HOAs or hotels. She also asked about the company's strategy for leveraging AI and technology for back-office and supply chain efficiencies.

Answer

President and CEO Dale Asplund clarified that headwinds were more market-driven than segment-specific, citing examples like HOAs in areas with high snow removal or insurance costs. Regarding technology, he acknowledged historical underinvestment and highlighted current investments in new HRIS and field service management platforms. These systems are key to leveraging data, improving efficiency, and moving non-value-added work from branches, contributing to the overall G&A savings strategy.

Toni Kaplan asked about changing trends in client conversations and demand from early 2025 versus more recently, and requested more detail on what constitutes recurring versus discretionary ancillary services.

Answer

CEO Dale Asplund noted a shift in client tone from optimism early in the year to more hesitation in signing new work in April and May due to macro uncertainty, though the quote pipeline remains robust. CFO Brett Urban clarified that true discretionary enhancements represent only about 10% of revenue (ex-snow), with the majority of ancillary work like seasonal mulching and irrigation start-ups being part of their predictable, recurring revenue base.

Toni Kaplan of Morgan Stanley asked for details on the dynamics of volume shedding, including the timing of contract anniversaries, and questioned the long-term outlook for volume recovery.

Answer

CFO Mary Whitney explained that Q3 would likely be the most negative quarter for volumes due to ongoing shedding and a muted seasonal ramp, with some impacts anniversarying into 2026. CEO Ronald Mittelstaedt specified that a large contract anniversaries on October 1st and broke down the negative volume into three parts: conscious price/volume trade-offs, purposeful contract shedding, and underlying economic softness in construction.

Yehuda Silverman, on for Toni Kaplan of Morgan Stanley, asked about the inflation assumptions in the margin guidance and which business segments are most exposed to an economic slowdown.

Answer

CFO Mary Anne Whitney stated that cost inflation of 4-4.5% is comfortably covered by 6% core pricing, providing a healthy spread. She noted that the company could absorb higher inflation with pricing already in place. She identified the roll-off collection business and C&D landfill volumes, representing about 10% of revenue, as the most cyclically sensitive areas.

Toni Kaplan asked about the expected trajectory and potential bottom for core pricing in 2025 and requested an update on the company's initiatives for PFAS treatment.

Answer

CFO Mary Anne Whitney projected 2025 core pricing at about 6%, with CPI-linked markets stepping down to around 4% and competitive markets seeing 7-7.5%. She noted strong pricing retention and high visibility for the year. Executive Ronald Mittelstaedt detailed that the company is actively using multiple PFAS treatment solutions, primarily foam fractionation, at various sites with 'very, very good' early results, ensuring continued access to POTWs for leachate disposal.

Speaking for Toni Kaplan of Morgan Stanley, Yehuda Selberman asked about the M&A environment, including valuations and the competitive landscape. He also followed up on the weather impact, asking if the strong demand in June and July was broad-based.

Answer

President & CEO Jerry Gahlhoff described the M&A market as still competitive, particularly for smaller tuck-ins, but noted no radical shifts in valuations. He highlighted the recently acquired Sela as a successful example. Gahlhoff confirmed that the strong demand rebound in June, which carried into July, was seen across all business segments.

Toni Kaplan asked about the company's marketing strategy in the current environment and what factors might alter its spending trajectory. She also inquired about the long-term drivers behind the sustained high growth in the termite business.

Answer

CFO Ken Krause stated that marketing strategy is driven by market conditions and strategic initiatives, while CEO Jerry Gahlhoff noted they can pivot spend between channels if costs shift. On termite growth, Jerry Gahlhoff attributed the success to cross-selling additional services to their existing, trusted customer base. Ken Krause reinforced this, mentioning the multiple 'shots on goal' they have with each customer.

Toni Kaplan asked whether the increased growth investments would continue or if Q3 was a catch-up, which segments were targeted, and about the pricing strategy for 2025 amid cooling inflation.

Answer

EVP and CFO Kenneth Krause confirmed investments will continue, detailing Q3's impact as a ~30 basis point headwind on gross margins from service tech hiring and a ~100 basis point impact from sales force expansion and advertising. President and CEO Jerry Gahlhoff noted double-digit YoY staffing growth in Orkin's sales teams. On pricing, Gahlhoff stated that data supports continuing to seek a fair price, and Krause added that with CPI around 2.5%, there is no reason to pull back from their 'CPI plus' model.

Toni Kaplan from Morgan Stanley inquired about the potential financial impact from recent hurricanes on quarterly results and guidance. She also asked for an update on ADT's strategic thinking regarding M&A targets, including their geographic and technological focus.

Answer

CFO Jeff Likosar stated that while the company is assessing hurricane impacts for Q4, they are not expected to be material and are factored into the tightened guidance ranges. Chairman, President and CEO Jim DeVries clarified that ADT's M&A focus is primarily on domestic, in-industry, tuck-in acquisitions. Mr. Likosar added that the company's strong capital structure, with leverage now at 2.9x, provides flexibility for opportunistic capital deployment.

Asked for details on the new Konfir partnership for employment verification in the U.K. and its potential U.S. expansion. Also inquired about the outlook for 2024 based on client conversations and key tailwinds for the business.

Answer

The Konfir partnership automates a manual verification process in the U.K. and Ireland, with plans to expand to other international markets. A U.S. rollout is a possibility they'd love to pursue, but for now, the focus is international. Regarding 2024, it's too early to give guidance, but client planning processes are returning to normal. Key tailwinds for 2024 include the return to long-term new business growth targets and a strong pipeline with larger deal sizes.