S&P Global Inc.

Good morning and welcome to S&P Global's fourth quarter 2018 earnings conference call. I would like to inform you that this call is being recorded for broadcast. All participants are in a listen-only mode. We will open the conference to questions and answers after the presentation and instructions will follow at that time. To access the webcast and slides, go to investor.spglobal.com. If you need any technical assistance, please press star zero, and I will assist you momentarily. I would now like to introduce Mr. Chip Merritt, Senior Vice President of Investor Relations for S&P Global. Sir, you may begin.

Good morning. Thank you for joining us for S&P Global's Ernest Call. Presenting on this morning's call are Doug Peterson, President and CEO, and Avon Steenbergen, Executive Vice President and Chief Financial Officer. This morning, we've seen a news release with our fourth quarter 2018 results. If you need a copy of the release and financial schedules, they can be downloaded at investor.spglobal.com. In today's earnings release and during the conference call, we're providing adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the corporation's operating performance between periods and to view the corporation's business from the same perspective as management's. This earnings release contains exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with U.S. GAAP. Before we begin, I need to provide certain cautionary remarks about forward-looking statements. Except for historical information, the matters discussed in the teleconference may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates, and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our form 10-Ks, 10-Qs, and other pre-rata reports filed with the U.S. Securities and Exchange Commission. I would also like to call your attention to a European regulation Any investor who has or expects to obtain ownership of 5% or more of S&P Global should give me a call to better understand the impact of this legislation on the investor and potentially the company. We're aware that we do have some media representatives with us on the call. However, this call is intended for investors, and we would ask that questions from the media be delivered to Sooyoung Jordan at 212-438-7000. At this time, I would like to turn the call over to Doug Peterson.

Doug? Thank you, Chip. Good morning and welcome to today's earnings call. As the S&P global team focused on powering the markets to the future, volatility and uncertainty returned to the markets in 2018. The causes were numerous, rising interest rates, trade negotiations, Brexit, and the unwinding of global monetary stimulus. And during the fourth quarter, this volatility and uncertainty impacted debt issuance, and therefore our ratings business. Fortunately, our remaining three businesses performed well and the company delivered strong financial results. I'm going to review our full year highlights and Aval will review the fourth quarter results in a moment. In 2018, we delivered 3% revenue growth and 23% adjusted diluted EPS growth. We generated significant margin improvement in every business. We reported $2 billion in free cash flow, excluding certain items, an 8% increase year over year. We returned $2.2 billion through share repurchases and dividends. As you know, our target is to return at least 75% of free cash flow, excluding certain items to shareholders, but we returned more than 100% in 2018. We're initiating a new $500 million ASR in the next few days, and we made great strides towards our Investor Day targets. But in the meantime, we always need to build for the future, both through organic projects and by adding new capabilities from outside the company. To that end, we added leading-edge technology and unique data sets with the acquisitions of Kensho, Pangeva, and RateWatch. Revenue for 2018 increased 3% despite a 4% decline in our rating segment. Our adjusted operating profit increased 8%. and our adjusted operating profit margin increased 230 basis points to 48.8%. This marks great progress on our Investor Day adjusted operating profit margin target over the next three to four years of low 50s. In addition, we continue to reduce our shares outstanding. The 2% reduction achieved in 2018 helped us reduce shares by 10% over the past five years. Finally, our adjusted diluted EPS increased by 23%. While revenue growth, margin improvement, and share count reduction played a role, approximately one-half of the increase in 2018 was the benefit U.S. tax reform had on effective tax rates. Revenue growth and productivity efforts propelled the adjusted operating profit margin in 2018. Revenue declined in ratings due to reduced issuance. Despite this decline, ratings delivered greater margin improvement than any other segment. I'm pleased with the efforts of our employees to continue to drive revenue growth and productivity gains across S&P Global. This performance extended our succession of solid revenue growth and adjusted operating margin growth. We've delivered a four-year CAGR for revenue of 6% and improved our adjusted operating profit margin by more than 1,200 basis points in the past four years. The results of these collective efforts has been a 21% compounded annual growth rate of adjusted diluted EPS over the past four years. As we've delivered these results, we've continued to invest for future growth and productivity. In 2018, we continued to invest in technology and data. We acquired world-class artificial intelligence and machine learning technology with Kensho, unique technology and supply chain data with Pangeva, differentiated banking data with RateWatch, and in the fourth quarter, certain index intellectual property rights. In addition to these acquisitions, we invested in companies pioneering new technologies. These included RegTech solutions of fiscal note and energy production information was expansive. We also licensed private company data from Crunchbase, and through our other agreements, licensed new data sets for companies in China and the UK. Finally, we accelerated our ESG investments organically and through the full acquisition of the climate data pioneer TrueCost. This has allowed us to expand TrueCost's unique data across S&P Global and combine our data resources with our world-class data operations in market intelligence. In aggregate, during 2018, we invested more than $800 million in acquisitions, and we made another $60 million in internal investments that were expensed for work associated with Kensho, Pangeva, RateWatch, ESG, and China. One of the highlights of 2019 so far has been our recent approval to enter the China domestic bond market. We're honored to receive the first approval for a wholly owned subsidiary of an international CRA to rate domestic Chinese bonds. We're now authorized to rate issuers and issuances from financial institutions, corporates, structured finance bonds, and PANDA bonds, or renminbi-denominated bonds from foreign issuers. Our new entity, S&P Ratings China Limited, will be headquartered in Beijing and has 36 employees, 31 of which are ratings analysts. We're able to assemble an exceptional team made up of our existing ratings employees as well as experts from the Chinese debt capital markets and local ratings agencies. It's important to understand that S&P Ratings China Limited and S&P Global Ratings are two independent entities, each with their own methodologies and analytical autonomies. The methodologies in the new business have been developed with reference to and leveraged from S&P Global ratings methodologies. This brings our total presence in greater China for ratings to more than 200 employees. We plan to initiate coverage on the roughly 400 existing corporate clients that already issue cross-border bonds. Today, issuance spreads within China's bond markets are virtually uncorrelated with domestic rating categories. We intend to offer a national scale rating for issuers in the Chinese markets. we're well prepared and ready to issue Chinese domestic ratings. Both our ratings business and our indices businesses can be impacted by short-term market movements. I'd like to put some of these movements into perspective, starting with 2018 issuance. Global issuance decreased 6% in the volatile market environment. In particular, high-yield issuance declined 40%. This category has a disproportionate impact on our revenue since few of any of these companies are in frequent issuer programs. We often talk about the correlation between spreads and issuance. This can be seen very clearly in the high-yield market. Issuance levels have a strong negative correlation with spreads, so as spreads widened and 2018 progressed, especially in the fourth quarter, issuance was impacted. Just for comparison purposes, you can see that the correlation between spreads and issuance is not nearly as strong in investment grade, where GDP growth, business confidence, and maturity pipeline are more highly correlated to issuance volumes. While the impact from U.S. tax reform has been positive for our bottom line, it has, as we expected, been a drag on issuance. In fact, the 50 U.S. companies with the largest overseas cash balances at the end of 2017 reported issued $170 billion of debt in 2017 and only $42 billion in 2018. This drop is responsible for a 10% decline overall in investment-grade issuance. In aggregate over 2018, the global cash balances of these 50 companies have declined by $91 billion, or 10%. About 18 of these companies have returned to the bond market, We expect more will return as cash balances continue to normalize. We'll continue to monitor this very closely. During the fourth quarter, global issuance decreased 19% as the weakness in corporate issuance exceeded strength in some pockets of the structured market. In the U.S., issuance declined 36% as investment grade decreased 34%, high yield cratered 79%, In fact, December was the first month since LCD began tracking issuance in 2005 that there was no high-yield issuance. Public finance decreased 44%, and structured finance declined 16%, with gains in RMBS offset by declines in ABS, CLOs, and CMBS. In Europe, issuance decreased 11%, as investment grade decreased 25%, high-yield declined 73%, and structured finance increased 59%, almost entirely due to strength in covered bonds, a category where we have very little presence. In Asia, issuance increased 8%. Since much of this is made up of local Chinese debt that we currently don't raise, this increase is not meaningful to our results. While these declines are very significant, let me put the fourth quarter global issuance into perspective. This slide depicts quarterly global issuance for the past six years. The fourth quarter of each year is highlighted in dark blue. As you can see, the fourth quarter of 2018 was in line with historical fourth quarters. It's the exceptional issuance in the fourth quarter of 2017 which created a very difficult comparison. There's another dynamic increasingly impacting high-yield issuance. This chart shows that US speculative-grade borrowers are increasingly turning to the bank loan market. The light and dark blue bars illustrate leveraged loans, and the brown bars depict high-yield bonds. The movement from high-yield bonds to leveraged loans is not a concern for the company. These charts depict that in both the US and Europe, leveraged loan volumes have increased, and the percentage of these loans that we rate is also increasing. In fact, in 2018, we rated 92% of US leveraged loans and 84% of European leverage loans. And so our bank loan ratings revenue continues to increase, reaching 380 million in 2018. Remember when doing your analysis, leverage loan activity is not included in bond issuance data. Now let me turn to indices. The savings to investors from the lower fees associated with index investing has been dramatic. The bars on this chart depict the growth in total index assets invested in products linked to the S&P 500, S&P mid-cap 400, and the S&P small-cap 600. At the end of 2017, they totaled $3.6 trillion. The line on this chart depicts the fees saved by investors on these products, more than $150 billion in the last 10 years. Turning to industry trends affecting our indices business, this chart depicts the continuing outflows from actively managed U.S. mutual funds into index-based ETFs and mutual funds, a trend that has benefited us as we've worked with the markets to provide index products and solutions. And much of this success arose from the visionary legend in the index investment world who passed away last month, Jack Bogle, the father of indexing. Jack wanted to help individual investors save and give them, as he would say, a fair shake. And we're grateful for his vision. In 1976, Jack introduced the first indexed mutual fund, now called the Vanguard 500 Index Fund. Today, this fund, based on the S&P 500, is one of the largest mutual funds in the world with more than $400 billion in AUM. Jack didn't just build a fund. He built an industry. Specifically to ETF AUM associated with our indices, we saw a decline in 2018 due to the year-end market correction. For the full year, market declines led to a $125 billion reduction in year-end ETF AUM. Despite this decline, inflows continued, adding $90 billion in ETF AUM. I'd like to shift to our 2019 outlook. Our economists expect 2019 global GDP growth of 3.6%, slightly lower than the 2018 forecast of 3.8%, with lower growth in the US, Europe, and China. Our economists believe that there is only a 15% to 20% chance of a US recession in 2019. Last month, Ratings issued its annual global refinancing study. This yearly study shows debt maturities for the upcoming five years. The chart on the left illustrates data from the 2018 and 2019 studies. The five-year period in the 2019 study shows a $400 billion increase in the total debt maturing versus the 2018 study. We used this study along with other market-based data to forecast issuance. Taking a closer look at data from the study reveals an important trend in high-yield maturities. Over the next five years, the level of high-yield debt maturing significantly increases each year, which is a potential source of revenue in the coming years. The company updated its 2019 bond issuance forecast in a report issued last week. Excluding international public finance, issuance is expected to decrease less than 1%. During Investor Day, we introduced the framework Powering the Markets of the Future, including six foundational capabilities. We used this framework to set our goals and allocate resources. So in 2019, here's some of the top projects and initiatives we've prioritized and aligned to this framework. Under Global, we believe that they're in a unique position to bring additional transparency and independent analytics to the capital markets in China. The ratings opportunity that I just discussed is one example. In addition, market intelligence will be expanding its private company and local content with enriched data, risk analytics, and models in China. Plats will be extending its commercial presence in Asia in additional locations with a larger sales force. Under customer orientation, we continue to build out the market intelligence platform, which will be rebranded as the S&P Global Platform. We'll continue to migrate both Capital IQ content and Capital IQ users to the platform. In addition, we'll be adding Platts pricing and news content to the platform and expanding the ratings 360 content. These efforts are intended to create an increasingly rich user experience for our customers. Under innovation, we're ramping up our ESG data factory by centralizing data sets from across the company, as well as adding new data sets. We're also creating new data feeds for our customers. Our indices business will be expanding its offering of ESG and smart beta indices. Under technology, we're moving out of several data centers and into cloud operations. In addition, as Eval will review in a moment, we're implementing numerous Kensho-related projects. Under operational excellence, we'll continue our efforts to optimize the management of data ingestion and operations. We'll also be leveraging artificial intelligence and machine learning capabilities throughout our data operations. And while cybersecurity has already been an area of focus, it's important that we keep improving our capabilities as benchmarked against the NIST framework. Under people, we'll extend a program that was initiated in 2018 to raise the technological acumen of all of our employees through a series of online and classroom training courses. We'll also maintain our commitment to diversity and inclusion. And finally, I want to bring your attention to a campaign that we introduced at the World Economic Forum in Davos last month. It's entitled Change Pays. Using our data and insights, we were able to demonstrate that greater workforce inclusivity leads to healthier, stronger economies. Our campaign illuminates the positive impact of women in the workforce on companies, organizations, economies, and global communities. Please take a look at our research and watch the Change Pays video. And while you're at it, take a look at our 2018 Corporate Responsibility Report for all we are doing in ESG. And now I'd like to turn the call over to Evald Steenbergen, who will provide additional insights into our capital plans and financial performance. Evald?