S&P Global Inc.

Good morning, and welcome to S&P Global's first quarter and full 2020 earnings conference call. I'd 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'd 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 today's S&P Global fourth quarter and full year 2020 earnings call. Presenting on today's call are Doug Peterson, President and CEO, and Avon Steenburgen, Executive Vice President and Chief Financial Officer. We issued a news release with our results earlier today. If you need a copy of the release, and financial schedules, they can be downloaded at investor.spglobal.com. 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. In addition, as announced on November 30th, S&P Global and IHS Markit entered into a definitive merger agreement. this call will touch on the transaction. Please note, this call does not constitute an offer to sell or buy or the solicitation of any offer to buy or sell any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities law of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933. In connection with the proposed transaction, S&P Global and IHS Market have filed a registration statement on Form S-4 with the SEC, which will include a joint proxy statement and a prospectus. S&P Global and IHS Market will file other documents regarding the proposed transaction with the SEC. Before making any voting or investment decisions, investors and security holders must of S&P Global or IHS market stock are encouraged to carefully read this entire registration statement and proxy statement prospectus, which is available on our website and sec.gov. 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. This call, especially the discussion of our outlook, contains statements about expected future events that are forward-looking and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from expectations can be found in our filings with the SEC and on our website. 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 the questions from the media be directed at Dave Guarino at 212-438-1471. At this time... I'd like to turn the call over to Doug Peterson. Doug?

Thank you, Chip. Welcome to all of you joining today's earnings call. The first thing I'd like to do is thank our people at SAP Global for their dedication and commitment throughout 2020. As the pandemic continues to take its toll across the globe, our people remain focused on supporting each other, our customers, and our communities. Together, they continue to provide relevant and timely benchmarks, data, and research to help our clients navigate through this turbulent economy. So to all 23,000 of you, let me say thank you. Now let me turn to the key financial achievements in 2020. S&P Global delivered 10% organic revenue growth and 23% adjusted diluted earnings per share growth. All four businesses contributed with growth in both revenue and adjusted operating profit. We generated $3.3 billion of free cash flow, excluding certain items, and returned $1.8 billion through share repurchases and dividends. In addition to the very strong financial results, we made significant progress on our key initiatives as well. The expertise and technology that we've developed over a number of years enabled the creation of new products, product enhancements, and productivity improvements. By funding growth investments to leverage our technology, we were able to deliver the largest collection of new product launches I can remember. We also continue to expand our ESG and climate product offerings, including the new S&P Global ESG scores. I'll share more about all of these new products in a moment. Another highlight was the completion of our Investor Day productivity target as we surpassed the target and achieved $120 million of annual savings. Upon completion, we then initiated a new $120 million program in October, which is targeted to be completed in two to three years. There are two common questions that investors have been asking for years. What will your results look like in a recession? And do you really have any more opportunities to improve margins? I think 2020 went a long way in answering both of those questions. To recap the financial results for the full year, organic revenue increased 10% to $7.4 billion. Our adjusted operating profit increased 18%. and our adjusted operating profit margin increased 310 basis points to 53.3%. In addition, shares outstanding decreased 2% over the past year, contributing to the 23% increase in adjusted diluted EPS. Aval will review our fourth quarter financial performance in a moment. I'm particularly pleased that all four businesses contributed to the company's overall revenue growth and adjusted operating profit improvement. Ratings led the way with organic revenue up 15%, and it suggested operating profit margin of 460 basis points to 62.4%. The only business with a decline in its adjusted operating profit margin was S&P Dow Jones Indices at 69.1%. This was primarily due to higher legal expenses, ESG expansion, and incentives. It's important to remember that our 2020 financial results are part of a solid track record of performance. Over the past four years, we've posted a compound annual growth rate of 7% for revenue, and we have averaged more than 250 basis points per year of adjusted operating profit margin expansion. And this has resulted in more than doubling of our adjusted diluted EPS over that timeframe. We also made large strides in non-financial metrics in 2020 by enhancing the company's environmental performance and improving our social outreach. We issued our second annual TCFD report featuring 2019 carbon-adjusted EPS. We secured approval from the science-based target initiative for a new target to reduce absolute scope 1 and 2 greenhouse gas emissions 25% by 2025. This is from a 2019 base. We're targeting to achieve net zero by 2040. We supported work from home arrangements with flexibility for those simultaneously caring for children or elderly family. We enhanced benefits for sick leave, global care leave, and days off for volunteering efforts and wellness. And the contributions by the S&P Global Foundation increased 170% to $11 million. These donations support COVID-19 relief, racial equity, social justice, economic inclusion, environmental sustainability, and gender equality. We've also made substantial progress on our external ESG initiatives. ESG revenue reached $65 million in 2020, a 40% increase over 2019. The new product launches and ratings are all gaining momentum with the number of ESG evaluations, green evaluations, and SAM benchmarks shown here. We also saw an increase of 220 companies completing the corporate sustainability assessment. These assessments are integral to much of our ESG effort. Market Intelligence launched numerous products including S&P Global ESG scores covering 7,300 companies and true cost climate analytics and environmental data that contain environmental data on 15,000 companies. These are both available on the Market Intelligence platform or as a data feed. In indices, ESG exchange traded funds assets under management increased by more than 200% to $20 billion, and the year was filled with new ESG indices being introduced and our customers creating new ETFs and options. In Platts, the energy transition is becoming increasingly important. We continue to support the markets with new price assessments for commodities like battery metals and hydrogen. Last year, we told you about the shipping industry moving to low-sulfur fuel and our launch of new low-sulfur marine fuel price assessments. There are now a range of related future contracts based on our prices, with open interest growing steadily. We also continue to advance our China initiatives in 2020. We introduced Mandarin language versions of both Ratings360 and the Market Intelligence platform. We released a beta version of the China Credit Analytics platform. This is an integrated desktop solution that generates credit insights on public and private companies, using unique content and localized analytics aligned with the S&P global standards. We completed nine public ratings in the fourth quarter, including the first non-bank corporate rating, bringing the 2020 total to 22 ratings. We completed our registration-enabling ratings in the exchange bond market, which accounts for approximately 40% of the total number of bond issuance in China. It is also encouraging that the Chinese bond market continues to develop, we continue to see positive signs from the Chinese regulators who are driving change in the local credit ratings markets. In addition, following several recent high-profile defaults, there is an increased sensitivity and awareness among local market participants to the quality of credit ratings. Internally, 2020 has been dubbed the year of new product launches. I can't remember a year with so many launches. This was a direct result of the increase in investment spending over the past two years, combined with our exceptional technology expertise. The launches included Marketplace, the Snowflake Partnership, RiskAge, ProSpread, and the Platts platform, all of which we have discussed on previous earnings calls. There are two new items we haven't discussed yet. The first is the launch of S&P risk-casting indices, which use artificial intelligence to adjust the weighting of equity and fixed income positions in response to market signals. The second is the S&P Kensho Moonshots Index, which measures a company's propensity to innovate. The index excludes the mega-cap technology names, instead focusing on the next generation of innovative companies. In addition, Ratings360 launched comprehensive data, models, and tools for the CLO user base and enhanced content for international and U.S. public finance. While we included the S&P Kensho Moonshots Index on the last slide, we needed a separate slide to cover all of the new products, product enhancements, and productivity improvements Kensho developed in 2020. These include OmniSearch on the market intelligence platform, a high-speed revamp of the PLATS market on close process, Utilizing AI, publication times for assessments were reduced by an average of 80%. We've converted 66 markets to the Kensho MOC process already and will continue to migrate additional markets in 2021. Kensho Extract, which enables information to be replicated exactly as found in the original document. Kensho's indices have also made great progress with the SPDR S&P Kensho New Economies Composite ETF, ending 2020 with over $2.3 billion in AUM, a tenfold increase this year. And we've made several Kensho solutions available in our recently launched marketplace. The first is Kensho Scribe, a tool that enabled us to create 36,000 transcripts last year while expanding our corporate coverage by 1,500 companies. This tool is now available for our clients to convert speech to text. The second is Kensho Link, a tool that enabled us to have datasets on 11 million entities from CreditSafe, Prequin, and IPQuery. This tool is also available to our clients to help link datasets. Taken together, cognitive automation from KenshoLink, KenshoScribe, and several other machine learning tools have delivered an estimated 700,000 hours of savings. While we have developed exceptional technology capabilities among our IT community, We've also made great strides to expand technological skills of all employees. A great example is robotic process automation, or RPA. Employees from around the company have embraced RPA, taken internal classes, and created their own bots, generating an estimated savings of 300,000 hours in 2020. While all of the work that we do internally is what drives much of our success, key industry trends also help. The shift into passive investing continues. This chart shows the cumulative US equity flows of $1.8 trillion in the past 10 years. And we are prime beneficiary of this trend. If we look at ETF AUM associated with our indices, there has been an almost 150% increase over the past five years to $2 trillion. Over the long run, we believe this trend will continue. The increase in global issuance has been another positive trend for the company. While 2020 issuance in aggregate increased 13%, as is often the case, there were pockets of strength and pockets of weakness. Global investment grade and high yield were the strongest categories, increasing 26% and 27% respectively. This is due to incredible activity in the U.S., which increased 53% and 66% respectively. Meanwhile, both structured and leveraged loans lagged in 2020. The market clearly favored high yield issuance over leveraged loans in 2020. Besides the decline in leveraged loan issuance in the US and Europe, this slide depicts the percentage of loans that we rated, which was 91% in both the US and Europe. I'd now like to shift the presentation to our outlook for 2021. Let's start with the latest view from our economists. They're forecasting global GDP growth of 5% in 2021, With growth accelerating during the years, vaccinations proceed and lockdowns recede. They believe fiscal and monetary policy will remain very accommodative and flexible. While the correlation between GDP and issuance was severed by the pandemic, we expect the long-term correlation to remain intact. The latest global refinancing study was issued earlier this week. The total amount of global debt maturity in this study is $11.3 trillion over the next five years. This is up 5% from the $10.8 trillion highlighted in last year's study. The chart on the right depicts the global high yield debt maturing over the next five years. It totals to $3 trillion, up 20% from $2.5 trillion in last year's study. This bodes well for future high yield issuance. After issuance growth of 15% in 2019 and 17% in 2020, our ratings research group anticipates that issuance will decrease 3% in 2021. The forecast calls for gains in financials and structure to 4% and 3%, respectively, and decreases in non-financials and U.S. municipal issuance of 9% and 5%, respectively. Please note that this is an issuance forecast, not a revenue forecast. Despite the forecasted decline, supporting factors in 2021 include favorable financing conditions, increasing amounts of sovereign debt with negative yields, and a renewed M&A pipeline for corporations. On this slide, I want to share some of the key initiatives that we're focused on in 2021. Asia, and China in particular, continue to be attractive markets for new product development and expanded capabilities. We want to continue to provide customers with new offerings, including the S&P Global Platform, additional indices solutions, expanded Platts products, and broadening Ratings360 coverage to additional issuer categories. We also want to focus on innovation and technology. We will do this by bolstering our data and systems capabilities to support growth while leveraging technology for new products and improve customer experiences. And we will continue to enhance our data extraction and ingestion capabilities. We're especially pleased to integrate our company-wide ESG offerings, creating new ESG products and extending our existing ESG coverage universe. The most important initiative of the year will be our upcoming merger with IHS Markit, This is an incredibly transformative opportunity for our company and our customers. The combination of S&P Global and IHS market creates a strong company. It will have increased scale and world-class products across numerous core markets with a track record of deploying cutting-edge technology to accelerate our Powering the Markets to the Future strategy. The pro forma company will serve a global customer base across financial information and services, ratings, indices, commodities and energy, and transportation and engineering. Together, we will offer differentiated data, analytics, research, and benchmarks important to the workflows of many of the world's leading companies and governments. We expect the combined company to deliver EBITDA synergies of approximately $680 million, resulting in a highly profitable combined company with continued opportunity for margin expansion. The acquisition is expected to generate a return on invested capital in excess of our weighted cost of capital after full synergy realization, consistent with our M&A philosophy. For the employees of both companies, we will combine two best-in-class workforces and deep expertise and complementary cultures focused on serving the global needs of our customers. I'm incredibly proud of the team we've built at S&P Global, I look forward to welcoming the talented IHS Market employees to S&P Global. There are three parallel paths that are underway to close the transaction and prepare for the combination. The first is shareholder approval. The form S-4 was filed and became effective last month. This enabled us to establish record dates and schedule shareholder meetings. Both shareholder meetings are scheduled for March 11th. The second is regulatory approval. We're working toward regulatory approval in the countries listed. We continue to expect closing in the second half of 2021. The third is pre-close integration planning. We have created integration teams focused on day one readiness. These teams are developing plans that focus on organizational integration, real estate consolidation, technology scale and efficiency, cross-selling, and new product development. And we've created a value capture work stream similar to what we established on our SNL acquisition to pursue and track synergies. The new company will have six businesses. Martina Chung will lead ratings. Martina will also be responsible for leading ESG across the company. Adam Kanzler will lead market intelligence and financial services. Sogata Saha will lead plats and resources. Dan Draper will lead indices. Edward Tavernier will lead transportation. In addition to being CFO, Evald Steenbergen will lead consolidated markets and solutions. And after the merger is closed, John Beresford will lead all of our integration efforts together with Avout. I'm optimistic that S&P Global has a great future as a standalone company with exceptional assets, technology, and people. Combining our company with IHS Market makes for an even brighter future. And now I'd like to turn the call over to Avout Steenburgen, who is going to provide additional insights into our financial performance and outlook. Avout?