S&P Global Inc.

Welcome to S&P Global's third quarter 2021 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 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.

Thank you for joining today's S&P Global Third Quarter 2021 Earnings Call. Presenting on today's call are Doug Peterson, President and CEO, and Avad Seedbergen, 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.sbglobal.com. Before we begin, I need to provide certain cautionary remarks about forward-looking statements. Except for historical information, the matters discussed in today's conference call 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 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 late last year, S&P Global and IHS Markit entered into a definitive merger agreement. In March, shareholders of both companies overwhelmingly voted in favor of the merger. The merger is pending regulatory approval, and we currently expect to close in the first quarter of 2022. This call will touch on the merger, but 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 prospectus made in 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 includes a joint proxy statement and a prospectus. S&P Global and IGES Market have filed other documents regarding the proposed transaction with the SEC. Investors and security holders of S&P Global or IGES Market stock are urged to carefully read the entire registration statement and joint proxy statement prospectus, which is available on our website and sec.gov. In today's earnings release and during the conference call, or 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. The earnings release and the slides contain 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 for 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 SAB 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 Ola Farahansi at 212-438-2296. At this time, I would like to turn the call over to Doug Peterson. Doug?

Thank you, Chip. Welcome to today's third quarter earnings call. I'd like to start with some of the highlights of the quarter. We reported exceptional financial results with revenue increasing 13% and all four businesses delivering strong revenue and adjusted operating profit growth. Indices delivered the strongest revenue growth for the second straight quarter due to large gains in ETF AUM. Adjusted expenses increased 7%, largely due to investment spending, commissions, and royalties. After raising guidance on both the first quarter and second quarter earnings calls, we are raising 2021 guidance again based on these strong results and our expectations for the remainder of the year. Avout will provide details in a moment. I would also like to share some additional highlights from the third quarter. The most important initiative of the year continues to be our upcoming merger with IHS Market. This is an incredibly transformative opportunity for our company and our customers. The regulatory path to closing the merger is now becoming clear. We launched S&P Capital IQ Pro and Platts Dimensions Pro. And Sustainable One, our ESG business, is gaining momentum as we build internal capabilities and product offerings expand. I'll come back to all of these highlights in more detail, but let's start with the merger. When we announced the merger in November 2020, we noted that we needed regulatory approval in five jurisdictions, Canada, the European Union, Taiwan, the United Kingdom, and the United States. We've made substantial progress with all these regulators, and there are a number of remedies we must undertake in order to complete the merger. IHS market must divest the opus, the coal, metals, and mining, and the pet chem wire businesses, the sale of these assets to News Corp has already been announced. In addition, IHS market must divest its base chemicals business. S&P Global must divest QSIP global services and leverage commentary and data together with related family of leverage loan indices. S&P Global and IHS market will begin the process of selling these additional businesses shortly. In order to provide time to undertake these sales processes, we now expect to close the merger in the first quarter of 2022. Collectively, the revenue from all of the businesses being divested is approximately $425 million, and the margins for each of these businesses are higher than the margins for each of the divisions they are in. In a moment, Avout will provide an update on our merger synergy expectations, and you will see that despite these divestitures, we are raising both our cost and revenue synergy targets. To recap the financial results for the third quarter, revenue increased 13% to $2.1 billion. Our adjusted operating profit increased 18%, and our adjusted operating profit margin increased 250 basis points to 55.4%. As you know, we measure and track adjusted operating profit margin on a trailing four-quarter basis, which increased 130 basis points to 55.1%. As a result, our adjusted diluted EPS increased 24%. Each quarter, we highlight a few key business drivers and important projects underway. This quarter, let's start with ratings bond issuance trends. During the third quarter, global bond issuance increased 3%. In the U.S., bond issuance in aggregate increased 6%. as investment grade decreased 12%, high-yield decreased 16%, public finance decreased 24%, while structured finance increased 105% due to large increases in every category, particularly CLOs, which increased 340%. European bond issuance increased 4%, as investment grade decreased 7%, high-yield decreased 4%, and structured finance increased 70%. with gains in every asset class except RMBS. Of particular note, CMBS increased 375 percent. In Asia, bond issuance decreased 2 percent overall. The data on this slide only depicts bond issuance. When we include new bank loan volumes, overall global issuance increased 9 percent. The next two slides look at the combined high yield issuance and leveraged loan volume for the U.S. and Europe. Data is not readily available for the rest of the world. This slide shows that the combination of global leverage loan and high-yield issuance in the third quarter continued to be very strong, surpassing every quarter in 2018, 19, and 20. This slide depicts the combination of high-yield issuance and leverage loan volume by the use of proceeds of the funds raised. This quarter, both general corporate purpose and refinancing-related issuance was lower than the third quarter of 2020. The surge in activity is entirely due to M&A, LBOs, buybacks, and dividends. These are opportunistic categories that aren't pulled forward. The surge in issuance is not pulling forward issuance from future years, and it is additive to future financing needs. Since bank loan ratings are an important element of ratings revenue, we like to disclose our bank loan ratings revenue each quarter. The unprecedented strength of bank loan ratings revenue continued in the third quarter and year-to-date revenues already surpassed any of the previous 10 full years. The leveraged loan market and the CLO market are dependent on one another, as many of the leveraged loans end up in CLOs. As you can see here, CLO issuance continued to accelerate in the third quarter. During the third quarter, we rebranded our market intelligence platform as S&P Capital IQ Pro. This recognizes the value of the Capital IQ brand as we continue to upgrade the platform with additional content and functionality. We currently have approximately 290,000 active desktop users, of which 90,000 are utilizing S&P Capital IQ Pro. The inaugural release of S&P Capital IQ Pro includes a number of capabilities not found in the market intelligence platform. A new Kensho-enabled document viewer incorporates AI-based search to speed up users' discovery of text-based insights across filings and transcripts. It's based on technology that Kensho originally developed for U.S. security and military agencies and is now re-engineered for S&P Capital IQ Pro. For example, it gives investors the ability to quickly screen comments made over years of earnings calls within minutes. The new platform features frequent coverage of private markets, including data around fundraising trends, dry powder, fund performance, and LP investor allocations. Also included is the ability for users to screen on non-traditional industry criteria, such as crypto, therapeutics, and cleantech. S&P Capital IQ Pro also includes ratings direct coverage of corporates and financial institutions, Our users can now incorporate the full suite of S&P Capital IQ Pro tools and functionality and interact with S&P Global ratings content in ways not previously possible. Platts has been on a long journey to consolidate its product platforms as well. With the acquisitions of Bentec, Eclipse, Seaflow, Petromedia, and others, there has been a tremendous effort to consolidate all of these capabilities into a single platform. This quarter, Platts introduced Platts Dimensions Pro, which provides users with a seamless one-stop shop experience across Platts benchmark price assessments, news, and analytics, spanning 13 commodities, including energy transition. And like S&P Capital IQ Pro, this content is available on a web-based portal that is mobile-friendly, via machine-to-machine delivery, and as an Excel add-in. Periodically, we like to provide updates on new product launches. The first two charts on this slide depict the acceptance by market participants of our JKM marker for liquefied natural gas and our low sulfur marine fuel assessment. Both have exhibited very strong growth recently. The chart on the right shows the cumulative number of new assessments we have launched in the energy transition space in the last four years. These include a new suite of Australian hydrogen prices covering what is expected to be one of the key producers of this future fuel. the methane performance certificate, which reflects production of natural gas in the U.S. with zero methane emissions, and upstream values for the measured carbon emissions associated with crude oil production and transportation, covering an initial suite of 14 crudes from around the world and aiming to provide the backbone for low-carbon crude trading. Buyers can start to make active choices based on the relative carbon impact of different crude sources with this crude carbon intensity product. Turning to our investments in ESG, our Sustainable One milestones and product launches continue to build. Third quarter Sustainable One revenue increased 58% to $24 million versus the prior period. With the launch of second-party opinions, Ratings now has five products. Overall, Ratings completed 10 ESG evaluations, 13 green evaluations, 13 SEM benchmark engagements, and 11 social and sustainability framework alignment opinions in the quarter. In market intelligence, we're close to wrapping up the annual CSA survey, and so far in 2021, corporate participation increased 34% to over 1,800 companies. On the back of these surveys, we relaunched our S&P Global ESG scores on 8,000 companies during the quarter. We're targeting to have scores on more than 11,000 companies by the end of this year's assessment cycle in the first quarter of 2022. In indices, we had $26.5 billion of ESG ETF AUM at the end of the third quarter. This is an increase of 178% since the end of the third quarter of last year. Our indices business also added to its ESG indices offerings with the launch of the S&P NZX 50 Tilted Index with the New Zealand Stock Exchange. Platts added products to both its suite of carbon assessments and its recycled plastic offerings. And finally, S&P Global is a founding member of Novata, a new technology platform designed to provide private equity firms and the private markets with ESG measurement, data collection, and benchmarking capabilities to help improve the management and tracking of ESG performance. By providing rich, detailed data on a wide array of ESG topics, the corporate sustainability assessment is an integral part of our ESG scores. Since we purchased the capability from RobicoSAM in late 2019, we've expanded the number of corporate participants by about 500 companies, and the group has almost doubled corporate participation in the last four years. Today's participating companies represent 45% of global market capitalization. In addition, you can see this is a global endeavor. We view the CSA input as a key differentiator to our Sustainable One effort. Let me now turn to our outlook for global issuance and GDP. The 2021 issuance forecast continued to creep higher and is now relatively flat versus 2020 issuance. The latest forecast was issued earlier this week and also covers 2022 issuance for the first time. 2022 issuance is forecast to decline 2%. This is based on a 7% decrease in non-financial corporates, a 1% increase in financial services, a 3% increase in structured finance, and a 2% increase in U.S. public finance. Looking forward, inflation concerns, prospects for rising rates, high cash balances, and possible tax reform all translate to headwinds for issuance in 2022. We expect that they will lead to a second year of contraction in issuance total. Please note that this is a bond issuance forecast. This is not a revenue forecast. For example, it doesn't address non-transaction revenue and doesn't include leveraged loan activity. The macro outlook is little change from three months ago. Our economists expect growth to moderate in 2022, with growth in Europe and many emerging markets improving, while growth rates drop in the U.S. and China. Commodity prices have rebound due to strong retail sales, weather events, and supply chain imbalances. However, inflation pressures appear to be peaking, with some emerging market central banks raising rates, the U.S. Federal Reserve moving up its tapering timeline, and the ECB firmly on hold for now. Finally, Platts Analytics believes that current fundamentals should remain supportive of oil prices in the mid-70s. This is positive for the health of the oil industry. I will now turn the call over to Avout Steenbergen, who is going to provide additional insights into our financial performance and outlook. Avout? Thank you, Doug.