S&P Global Inc.

Good morning and welcome to S&P Global's second quarter 2019 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 additional 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, and thank you for joining S&P Global's earnings call. Presenting on this morning's call are Doug Peterson, President and CEO, and About Seenbergen, Executive Vice President and Chief Financial Officer. This morning we issued a news release with our second quarter 2019 results. If you need a copy of the release and financial schedules, they can be downloaded at investor.sdglobal.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. The 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 periodic 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 SMB 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 directed to Jason Feuchwanger at 212-438-1247. 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. We're pleased to report excellent second quarter financial results. All four divisions delivered revenue growth and adjusted operating profit margin expansion. Between revenue growth and progress on our productivity initiatives, we achieved significant margin improvement, contributing to a 12% increase in adjusted diluted EPS. Based on these results and our expectations for the rest of the year, we're raising our 2019 adjusted EPS guidance, which Aval will detail in a moment. Share repurchases are an important component of capital return, and in late July, we concluded the $500 million ASR that we initiated in February. We anticipate initiating another $500 million ASR later this month. As you know, we've earmarked funds to make investments in meaningful growth opportunities. In a moment, I'll share details around several of these, including our first ratings in the domestic Chinese bond market, our first ratings ESG evaluations, and the successful launch by CME Group of micro e-mini index futures. To recap the financial results for the second quarter, revenue increased 6% to more than $1.7 billion. Our adjusted operating profit increased 11%, and our adjusted operating profit margin increased 220 basis points to 51.3%. While this is a meaningful improvement, we measure and track adjusted margins on a trailing four-quarter basis, which increased 230 basis points to 49.5%. In addition, we reduced shares outstanding by 2%, which contributed to the 12% increase in adjusted diluted EPS. Thank you. Each quarter, we take an opportunity to highlight key drivers to our business and important projects underway. This quarter, let's start with ratings issuance trends. During the second quarter, global bond issuance decreased 3%, with mixed performance across geographies and asset classes. If we also include bank loan ratings, total global issuance declined 13%. In the U.S., bond issuance in aggregate declined 4%. As investment grade increased 5%, high yields soared 41%, public finance declined 11%, and structured finance dropped 19%, with declines in CLOs partially offset by gains in RMBS and CMBS. In Europe, bond issuance decreased 12% as investment grade decreased 17%, high yield declined 4%, and structured finance decreased 1% due to declines in CLOs and ABS partially offset by gains in RMBS and covered bonds. In Asia, bond issuance increased 10% overall. On the fourth quarter 2018 earnings call, we introduced this chart to attempt to track debt issuance and global cash balances of the 50 companies with the most overseas cash at the end of 2017. As you can see here, the cash balances of these companies continue to decline. and bond issuance among these companies is increasing compared to the NEMEX 2018. The latest 2019 global bond issuance forecast is modestly more upbeat than the previous forecast. Excluding international public finance, which has minimal impact on our financial results, issuance is expected to increase 1.4%. Investor demand for leveraged loans was more appealing when rates were rising as loans hit variable rates. Now that the tone from the Federal Reserve is more dovish, expectations have shifted to a rate decrease. In this environment, high-yield debt with its fixed rates looks relatively more attractive than loans to investors. This led to a decrease in bank loan ratings revenue in the second quarter to $85 million versus $121 million in the second quarter of 2018. 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. I'm pleased to share great progress on a number of our new initiatives in the areas of global, customer orientation, and innovation. Last month, S&P Global China Ratings published its inaugural credit rating in the domestic Chinese bond market. This first rating issued was for ICBC Financial Leasing Company Limited, a leading Chinese leasing company, which was assigned a rating of AAA on S&P Global China Ratings National Scale. And just this week, the second rating was issued to Luzhou Banking Company Limited, a city commercial bank headquartered in Luzhou City of Sichuan Province. It was issued a BBB rating on the same scale. These two ratings begin to demonstrate the wider rating spectrum that they can expect as S&P Global China Ratings brings a fresh perspective to a market of significant domestic and global interest built on our longstanding principles of objectivity and transparency. In doing so, we hope to contribute to the goals China has for the evolution of its domestic financial markets and its connectivity to the global financial system. S&P Global Ratings issued its first ESG evaluation. Separate from a credit rating, the new ESG evaluation is for companies looking to help their investors gain a better understanding of their strategy, purpose, and management quality. The ESG evaluation is grounded in environmental, social, and governance factors to assess an entity's sustainability efforts. The ESG evaluation process is unique as it includes interactions between our ratings analysts and the company's management. I recently met with several investors who expect the granular factors considered, such as greenhouse gas emissions, water usage, safety management, and transparency in reporting, that each have a score, will further differentiate our ESG approach. You can see the factors on this slide. The first ESG evaluation in the U.S. was for NextEra Energy, the world's largest producer of wind and solar energy. The first ESG evaluation in Europe was for MassMobile, Spain's fourth largest telecom operator, providing fixed and mobile voice and Internet services to business and retail customers. Each year, S&P Dow Jones Indices releases the annual survey of assets. This chart depicts the highlights of that survey for 2018. Due to the stock market correction that occurred late last year, asset levels in actively managed funds that benchmark against our indices were actually down versus the end of 2017, to $7.7 trillion. The assets and passive funds invested in products indexed to our indices were unchanged year-over-year at $4.8 trillion. Numerous indices support the $4.8 trillion. Clearly, the S&P 500 is the largest, with $3.6 trillion in assets. Other categories include smart beta and fixed income, which both declined, and ESG and other, which increased, with ESG more than tripling in the past year. S&P Dow Jones Indices is continuing to advance opportunities in ESG. The S&P Dow Jones Indices ESG scores serve as the foundation for index eligibility. In May, 22 new indices were added to the ESG index family, with versions of well-known country and regional benchmarks, including the S&P Global 1200 ESG, S&P ASX 200 ESG, and S&P Japan 500 ESG. On our first quarter earnings call, we shared that UBS had just launched an ETF in Europe based on our S&P 500 ESG index. Early this week, the AUM for the ETF reached $125 million. In June, DWS launched the X-Trackers S&P 500 ESG ETF based on this same index, which screens out firms with the lowest environmental, social, and government profiles. In May, micro e-mini futures were launched at the CME to make trading more accessible. Micro e-mini futures are one-tenth the size of existing e-mini equity index futures, and thus more affordable for certain investors. These new micro e-mini futures are based on four prominent indices, including the S&P 500 and the Dow Jones Industrial Average. The new micro e-minis were recently dubbed the most successful launch in CME Group's history. with 2.6 million contracts traded in the first full week. This chart shows the average daily volume of each of the products, with the S&P 500 contracts seeing the largest trading volume. Delivering innovation, delivering innovative new products, and nurturing existing benchmarks is an important emphasis at S&P Global. Indices recently launched eight new sector indices in Chile, with a focus on local investors of the Santiago Stock Exchange. Examples include the S&P CLX Construction and Real Estate Index and the S&P CLX Food and Beverages Index. The development of a market for U.S. crude delivered into Europe took a further step forward last month with the first-ever trade of a delivered WTI Midland Cargo in the Platts Market on Close assessment process. Two price assessments that we have discussed on a number of earnings calls have been the 0.5% sulfur marine fuel and the JKM LNG marker. Both of these are being added to the PLATS eWindow. The market on close, or MOC, is PLATS' process for offering transparency into bid offers and transactions submitted by participants to PLATS editors. eWindow enhances the MOC process. The inclusion on eWindow is an important milestone in the ongoing maturity and evolution of marine fuel and LNG markets. And now I'd like to turn the call over to Evert Steenbergen, who will provide additional insights into our financial performance and outlook. Evert?