S&P Global Inc.

Good morning, and welcome to S&P Global's first quarter 2020 earnings conference call. I'd like to inform you 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. I'll 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.

Thank you for joining us today for S&P Global's first quarter earnest call. Presenting on today's call are Doug Peterson, President and CEO, and Abel Steenburgen, Executive Vice President and Chief Financial Officer. As you would expect, we are calling remotely instead of hosting this call together from our headquarters. If you notice any delays, we thank you for your understanding. We issued a news release with our first quarter 2020 results earlier today. If you need a copy of the release and financial schedules, they can be downloaded at investor.sbglobal.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 I 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 with the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates, and descriptions of future events. Any such statements, especially those relating to our outlook and associated scenarios regarding the impact of COVID-19 pandemic, 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 European regulation. Any investor who has or expects to obtain ownership of 5% or more of SME 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 this call. However, this call is intended for investors. And we would ask that questions from the media be directed to Dave Carino at 212-438-1471. 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. I hope everyone has adjusted to your new working environment and is staying healthy and safe. The world is a completely different place than we've ever seen before. I want to start by acknowledging that this is a very challenging time for all of us, and our thoughts are with those most impacted by COVID-19. I want to especially thank first responders and essential employees who are on the front lines of the crisis. Today, I'd like to share with you what we're doing at S&P Global to support our employees and serve the market, our communities, and our customers in this unprecedented and uncertain time. We're very proud of how quickly we've been able to move to remote work-from-home environments And I'll share some of those examples with you today. We'll also share with you how our company's financials could be impacted for the remainder of the year under a variety of scenarios. We're pleased to report strong first quarter financial results. Revenue increased 14% and adjusted diluted EPS increased 29%. We have a solid balance sheet and ample liquidity. We've spent a great deal of time positioning for an event like COVID-19. by enabling nearly all our employees to seamlessly work remotely. Putting our people first and keeping them safe and healthy informs all our decisions. We continue to actively engage with clients, regulators, and government, providing data, analytics, ratings, and research in a timely and transparent manner. We're very pleased that we've been able to deliver uninterrupted product access across our businesses throughout entire transition to our employees working from home. It's in uncertain times like these that our data, analytics, ratings, and research are most important to our customers. Usage of many of our products has surged since early March. While none of our businesses are consumer-facing, our businesses are impacted by the health of both our corporate customers as well as the financial and commodity markets. The health of many of our customers will be tested as the year progresses. Nevertheless, we believe that it's essential to continue to advance our growth investment and ongoing cost reduction programs. We're proactively analyzing the impact of the pandemic on our businesses and the management actions we need to take. Abel will review these in a moment. In response to COVID-19, we start with our employees. In putting our people first, we were an early adopter of work-from-home policies and travel restrictions. We also retained a dedicated chief medical officer as a consultant, increased mental and emotional health services, and even began shipping meals to employees in India who were unable to secure them on their own. As of now, it's not our intention to furlough or lay off employees because of COVID-19. We'll obviously evaluate that as scenarios play out. We're successfully operating with over 99% of our employees working from home. We shipped over 3,000 desktops to those employees' homes who did not have company laptops, provided significant technical support, and expanded our VPN to accommodate a six-fold increase in usage. We have also reached out to help our communities. We've introduced a free COVID-19 website so that anyone can access our special research. We've provided complimentary access to Tanchita supply chain information to hospitals to track essential items. And we've donated 100,000 medical-grade face masks to first responders in various parts of the world. And the S&P Global Foundation has donated $4 million to support small businesses and other COVID-19 relief efforts. Interactions with governments and regulators are also critical in times of market strength. We've had over 40 COVID-19-related interactions with roughly 20 different regulators discussing our views on markets and economic conditions. We've engaged with countless state and local governments, public health officials, and universities to provide free access to various data platforms with supply chain and credit market information and engaged with central banks to discuss credit market conditions and emergency lending facilities. We're acutely aware that our clients are facing challenges of working in new ways. It's been imperative that we continue to serve them during these difficult times. In ratings, we've been deploying technologies which have helped ensure continuity of surveillance and facilitated the issuance over 2,000 new ratings in the quarter. And since the beginning of the year, we have taken over 1,300 negative rating actions, which included grading downgrades, credit watch changes, and outlook revisions. In market intelligence, our global operations centers remain fully operational, and we've delivered uninterrupted availability across our product suite. In fact, we have 90% plus productivity in all core data and tech operations, which, based on survey information for locations in India, is best in class. Platt's market-on-close process saw our teams from around the world step up to maintain accurate and timely price reporting despite our employees working from home. Indice's real-time systems have maintained 100% uptime as it calculated critical market indicators such as the S&P 500 and the Dow Jones Industrial Average, all under incredibly volatile market conditions. We continue to serve the markets with research and analytics. Depicted on the right are examples of some of the many research papers we've made available. Much of this content is available from a free COVID-19 website I mentioned. I would highly recommend you visit the site. We've created deep content analysis covering the financial and commodity markets. We've seen a significant increase in engagement with our insights through webinars and digital online offerings. You can see some of the usage statistics on this slide. We've endured economic downturns in the past, most notably the recent financial crisis in 2008. This chart depicts our revenue for the past 15 years. We included SNL data for the entire period, even though we didn't purchase it until 2015. We'll also note a jump in revenue in indices in 2013 from the addition of Dow Jones Indices as part of the formation of the S&P Dow Jones Indices Joint Venture. Any year that is declining revenue is depicted in dark blue. The most notable takeaway is that there were no revenue declines in any of the businesses except ratings. And as a reminder, the vast majority of the decline in ratings revenue in 2008 was related to structured finance and USRBS in particular. While these may be interesting data points, we're not suggesting that the current pandemic-related economic downturn will have the same impact on revenue performance as in past downturns because the circumstances around the global pandemic are new for all of us. Despite our resilience and financial strength, we're not immune to structural risks arising from COVID-19. These include risks to the macroeconomic environment, to bond and credit markets, to equity markets, and to oil markets. We could see low volumes in bond issuance, weak new sales and renewals for subscription data products, or further drops in AUMs amongst the many risks that could arise. We're staying close to the trends. The longer the pandemic continues, the greater the risk. Now turning to the first quarter results. All four divisions delivered revenue and adjusted operating profit growth. We delivered significant margin improvement as revenue growth and productivity initiatives offset stepped-up investment spending associated with our growth initiative. Our adjusted diluted EPS grew 29% in the quarter. We think that it's important to continue to invest in growth initiatives such as ESG, China, and Marketplace, despite economic uncertainty, as these projects are important elements of our future growth. We also launched several new products during the quarter, which I'll review with you in a moment. And we named Dan Draper, CEO of S&P Dow Jones Indices, replacing Alex Maturi, effective mid-June. Alex has been the anchor of our indices business for the past 12 years. His industry knowledge is unparalleled, and he has been instrumental in overseeing indices transformation into the growing and leading global index provider it is today. Dan joins us from Invesco Distributors, where he serves as the company's managing director and global head of exchange traded funds. To recap the financial results for the first quarter, revenue increased 14% to almost $1.8 billion. Our adjusted operating profit increased 28%, and our adjusted operating profit margin increased 580 basis points to 53.1%. As you know, we measure and track adjusted margin on a trailing four-quarter basis which increased 260 basis points to 51.5%. In addition, we reduced shares outstanding by 2%, which contributed to the 29% increase in adjusted delivered EPS. Each quarter, we highlight a few key drivers to our business and important projects underway. This quarter, let's start with ratings issuance trends. During the first quarter, global bond issuance increased 11%, with mixed performance in various geographies and asset classes. We also include bank loan ratings volume. Total global issuance increased 10%. What was striking was how issuance unfolded with very strong high-yield issuance for the first seven weeks. A two-week lull and then a surge in liquidity-driven investment grade issuance after the Federal Reserve initiated several credit facilities to support the economy and companies across industries enhanced their cash positions. In the U.S., bond issuance in aggregate increased 34%. as investment grade increased 54%, high yield increased 9%, public finance increased 12%, while structured finance increased 16% with gains in CLOs, CMBS, and RMBS, partially offset by a decrease in ABS volume. European bond issuance decreased 14%, as investment grade decreased 17%, high yield increased 20%, and structured finance decreased 20% due to declines in covered bonds and CLMs, partially offset by gains in RMBS and ABS. In Asia, bond issuance increased 6% overall. During the quarter, ratings issued five new domestic ratings in China. Despite working from home, our commercial team actively interacted with issuers, investors, and intermediaries via phone and other digital media. The pipeline of prospects continues to progress. Bank loan rating activity is not captured in issuance data. However, since it is an important element of ratings revenue, we like to disclose this bank loan rating revenue each quarter. In the first quarter, it increased 31% over the prior period to $87 million. During the quarter, we had some new product launches I want to share with you on this slide. The Platts platform was launched in March. It's a digital environment that delivers real-time information. wherever, whenever, and however the user needs it. It consolidates content from companies like Bentec and Pyra that we have acquired over the years into one location. We already have 130 corporate customers actively using the Platts platform, and the mobile app has been downloaded 1,300 times. Platts Market on Close is the process market reporters use to assess prices for crude oil, petroleum products, and related swaps. Platts has been working with Kensho to accelerate the assessment process and improve efficiencies for Platts pricing reporters, while adding analytical value for our customers. The first-ever Kensho-powered price assessment went live to the Platts production database this quarter. ICE has launched a new version of its market data platform, ICE Connect, which is designed specifically for participants in the global oil markets. Providing our data onto the site is a way for us to further monetize a rich body of existing oil analytics assets. Indices launched the S&P GSCI Carbon Emission Allowance Index. The new index, which is the first of its kind, provides investors with a reliable and publicly available investment performance benchmark for European carbon emission allowances and is an expansion of the single commodity series of indices based on the S&P GSCI. Finally, we launched the Market Intelligence Marketplace. Eval will discuss in a moment. I want to give you a brief update on our efforts to continue to strengthen our footprint in the ESG marketplace. While there are numerous items on this slide, I'll just highlight a few. In ratings, we've had 65 ESG evaluations that have been completed or in process. This is a combination of both published and private evaluations. There's a considerable appetite for companies to get an independent, forward-looking, qualitative, and data-driven assessment of an entity's ESG performance and preparedness for future risks and opportunities. We've largely completed the integration of the ESG ratings business of Robico SAM into our ratings business. This has brought an outstanding addition of talent, experience, and expertise. I'm really pleased with the progress. We recently entered into ESG ETF partnership with BlackRock to enable them to create sustainable investing options for U.S. equities based on our indices. And Platts recently expanded its suite of daily hydrogen price assessments to meet the needs of the marketplace and the growing interest in independent price references as the energy sector seeks to understand the dynamics of a clean energy future. Next, I'd like to provide additional information about our evolving outlook for 2020. The longest U.S. economic expansion on record has ended with another record, the sharpest contraction in economic activity since World War II, where COVID-19 has restricted the movement of more than 90 percent of the U.S. population. Our economists have recently updated the global GDP forecast in light of the rapidly advancing global pandemic and declining and volatile oil prices. They now expect global GDP to decline 2.4% in 2020. They know that the balance of risk remains on the downside as much can change on the health, economic, and policy front. We have compiled forecasting analysis from our economic credit, oil, and other specialists across S&P Global. You can see key drivers of the economy in our business include S&P 500 level, unemployment, issuance, defaults, and oil prices. This includes a forecasted drop in U.S. real GDP of about 35% in the second quarter. We've used these forecasts to inform the financial scenarios that Ava will discuss in a moment. In closing, these are trying times for everyone. I can only say that we have a resilient collection of businesses, and I'm proud and grateful to work with a group of exceptionally talented employees who, while supporting each other, are helping to navigate rapidly changing societal and economic landscapes. And now I'd like to turn the call over to Evert Steenburgen, who is going to provide additional insights into our financial performance and outlook.