S&P Global Inc.

Good morning and welcome to S&P Global's fourth quarter and full year 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 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.

Thank you for joining today's S&P Global fourth quarter and full year 2021 earnings call. Presenting on today's call are Doug Peterson, President and CEO, and Avon Steenbergen, 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.svglobal.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 the cautionary statements contained in our Form 10-Ks, 10-Qs, and other periodic reports filed with the U.S. Securities Exchange Commission. In addition, as announced late in 2020, S&P Global and IHS Markit entered into a definitive merger agreement. In March last year, shareholders of both companies overwhelmingly voted in favor of the merger. The merger is pending regulatory approval, and we currently expect to close this quarter. 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 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 a Form S-4 with the SEC, which includes a joint proxy statement and a prospectus. S&P Global and IHS Market have filed other documents regarding the proposed transaction with the SEC. Investors and security holders of S&P Global or IHS market stock are urged to carefully read the entire registration statement and joint proxy statement and prospectus, which are 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. 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 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 SV 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 questions from the media be directed to Ola Farhansi at 438-2296. At this time, I would like to turn the call over to Doug Peterson. Doug.

Thank you, Chip. Welcome to everyone joining today's earnings call. The first thing I'd like to do is thank our people at S&P Global for their dedication and commitment throughout 2021. We've asked a lot of our people this year as they do their day jobs while also preparing for the expected merger with IHS Market, and all the while dealing with the uncertainty of the pandemic. So on behalf of the board and our management team, thank you. Now let me turn to the key financial achievements in 2021. S&P Global delivered 12% organic revenue growth and 17% adjusted diluted earnings per share growth. All four businesses contributed with growth in both revenue and adjusted operating profit margins. This is quite an achievement following the remarkable results of 2020. We generated $3.5 billion of free cash flow, excluding certain items, and returned $743 million in dividends. In addition to the very strong financial results, we made significant progress on our key initiatives as well. Clearly, the most important initiative of the year has been on preparation for the merger and the multiple rounds of synergy validation. Upon closing the merger, we're well prepared to rapidly begin operating as one company and to begin to realize both the cost and revenue synergies we've already outlined to you. In fact, on a run rate basis, we have already achieved pre-realized synergies of $25 million by the end of 2021. Also, after the merger is completed, we will host a post-merger investor call to provide an update on the merged company's strategy, business segment details, synergies, investment programs, share repurchase plans, and guidance. The other key initiatives achieved in 2021 include the rapid progress achieved on our 2020 multi-year productivity program, numerous new product launches and expanded product capabilities resulting from our strategic investment initiatives, the creation of Sustainable One to manage and drive significant expansion and coordination of ESG product offerings across the company. the launch of S&P Platts Dimensions Pro, a fully integrated user experience connecting pricing, market commentary, news, and analytics with special emphasis on energy transition, and continued progress in China, with one example being the issuance of 57 domestic ratings in China, up over 150% from 2020. This included the first dual-rated bond. I'll provide more detail on many of these items in today's call. These are the strategic initiatives that we shared with you on our fourth quarter earnings call last year. We made great strides in each of these items and will remark in more detail on many of them today. To recap the financial results for the full year, organic revenue increased 12% to $8.3 billion. Our adjusted operating profit increased 15%. our adjusted operating profit margin increased 190 basis points to 55.2%, and we delivered a 17% increase in adjusted diluted EPS. It's important to note that adjusted EPS of $13.70 far exceeded our original 2021 guidance of $12.25 to $12.45, and that the adjusted operating profit margin of 55.2% far exceeded our original guidance of 53.8% to 54.3%. Much of this was due to unexpected outperformance in ratings following what was a very strong 2020. Avout will review our fourth quarter financial performance in a moment. All four divisions delivered revenue growth and adjusted operating profit improvement. The largest revenue gain was the 16% in indices. After several years of elevated investment spending, market intelligence delivered the largest adjusted operating profit margin increase with a gain of 190 basis points. It's important to remember that our 2021 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 8% for revenue. And we have averaged 217 basis points per year of adjusted operating profit margin expansion. And this has resulted in a nearly doubling of our adjusted diluted EPS over that timeframe. The company also continued to advance its own industry leading practices in sustainability. We issued our 10th annual sustainability impact report and third annual TCFD report. We expanded parental leave to 26 weeks and introduced a flexible time-off policy with no prescribed maximum in all eligible jurisdictions. We established a $1.5 billion senior unsecured revolving credit facility tied to our published science-based target goals, one of the first sustainability-linked banking facilities in the U.S. Our S&P Global Foundation increased its grants by 30% to $15 million to organizations that support COVID-19 relief, diversity, economic inclusion, and environmental sustainability. And our efforts have been recognized by several leading third parties. While we continue to improve our own internal sustainability programs, we're investing in our ESG business. In 2021, we launched Sustainable One to elevate and coordinate external ESG efforts across the company. This resulted in ESG revenue of $98 million, a 51% increase over 2020. All our key ESG products contributed to this growth. We completed 59 ESG evaluations up 48%, 43 green evaluations up 79%, 103 SAM benchmark engagements up 36%, And we launched social and sustainability framework alignment opinions and completed 42 of them. We ended 2021 with ESG ETF AUM reaching $32.2 billion, an increase of 59% versus year-end 2020. At the core of our ESG efforts are the corporate sustainability assessments. These are a key differentiator versus our competitors as they enable us to collect an enormous amount of data directly from corporations around the world. For the methodology year that ends in March, we have already increased CSA survey participation by 58% to 2,190 companies. We also enhanced ESG offerings available on Capital IQ Pro, expanded S&P Global ESG scores coverage to 11,500 companies, and expanded coverage of climate risk analytics to more than 3 million physical assets such as mines, power stations, and buildings. In addition to excellent commercial progress and expanded capabilities, we also launched numerous new ESG products and initiatives in 2021. While I don't have time to delve into each one of them, let me just comment on a few. Second-party opinions assess a transaction against a sustainable finance framework for alignment with consistent and comparable market principles and standards. Climate change has created the need to evaluate the impact of different climate-related scenarios on counterparties, investments, and portfolios. To support these efforts, Market Intelligence and Oliver Wyman created Climate Credit Analytics, a climate scenario analysis and credit analytics model suite. And in December, we acquired the Climate Service. The company sells the Climanomics platform, a tool that quantifies physical climate risk for corporates, investors, and governments. Kencho continues to be a driving force for productivity improvement for the company and increasingly for our customers. The key capabilities they have created are listed on this slide. Codex is an AI-powered document viewer that enables efficient navigation and extraction of relevant information from large quantities of documents. There have been over 300,000 client uses to date. Codex is available on Capital IQ Pro. Kencho Agave has transformed Platt's process for creating price assessments The Agave tool developed by engineers at Kensho and Platts has transformed the process for creating price assessments. Platts has implemented Agave in 40 of 57 markets targeted, and on average, daily price assessments are completed 70 minutes faster. Internally, Kensho Link facilitated quicker data ingestion by providing automated mappings for 60 million company entities. Externally, Kensho Link was used by our customers to efficiently map 16 million of their own entities to S&P Global unique identifiers. Many of our customers have taken note of Kensho's capabilities, and we've begun monetizing Kensho Link, Kensho Scribe, RPA, data extraction, and machine learning development. While the innovation we create internally is what drives much of our success, key industry trends also help. One of those is the shift into passive investing. This chart illustrates the $1.9 trillion of cumulative AUM US equity flows in the past 10 years. We are a prime beneficiary of this trend. If we look at ETF AUM associated with our indices, there has been a 173% increase over the past five years to $2.8 trillion. We believe that this trend will continue. The increase in global issuance has been another positive trend for the company. It's hard to believe, but 2021 issuance growth of 15% exceeded 2020 issuance growth of 13%. As is often the case, there were pockets of strength and pockets of weakness. In 2020, global investment grade and high yield were the strongest, while in 2021, leveraged loans and structured products were the fastest growing categories. The market clearly favored leveraged loans over high yield in 2021. The bars on these charts depict leveraged loan volume, which soared in 2021. The lines depict the percentage of loans that we rated, which reached new heights of 95% in the U.S. and 93% in Europe. I'd now like to shift the presentation to our outlook for 2022. The latest global refinancing study was issued earlier this month. The total amount of global debt maturing in this study is $11 trillion over the next five years. This is down 3% from the $11.3 trillion highlighted in last year's study. The chart on the right depicts the global high yield debt and leveraged loans maturing over the next five years. It totals $2.9 trillion down 3 percent from $3 trillion in last year's study. It appears that 2021 issuance benefited from a bit of extra pull forward. Let's put this small decline in upcoming maturities into perspective. This chart shows total global corporate debt outstanding for the past six years. It has increased at a compounded annual growth rate of 6 percent. The vast majority of this debt will get refinanced, and the pool of debt that needs to be refinanced just keeps getting larger. After exceptional issuance growth in 2020 and 2021, our ratings research group anticipates that issuance will decrease 2% in 2022. The forecast calls for gains in structured, U.S. municipal, and financial services issuance of 3%, 2%, and 1%, respectively, and a decrease in non-financials of 7%. Please note that this is an issuance forecast, not a revenue forecast, and it does not include leveraged loans. Now let's start with the latest view from our economists. They are forecasting global GDP growth at 4.2% in 2022. The global economy is in the midst of a robust but uneven rebound from the pandemic. Demand growth is outrunning supply growth and inflation has risen quickly almost everywhere. GDP growth in the US and Europe reached multi-decade highs in 2021 and has continued in 2022. Inflation has proven to be more persistent than thought and now presents a key policy challenge in the U.S. and Europe. Our economists now expect at least three Fed rate hikes this year starting in March. Each year, we carefully assess the external factors facing the company. This slide depicts those that we think are most important going into 2022. Probably the most important positive factors are the expectation for continued healthy economic growth. borrowing costs that remain historically low, continued AUM flows from active to passive, elevated commodity levels that help the financial stability of commodity producers, and ample liquidity. The most significant negative factors are geopolitical uncertainty, sticky inflation, central bank rate increases, and a repricing of equities. And of course, the pandemic and supply chain disruptions remain general risks facing the global economy. Before I finish, I want to say that I'm incredibly proud of the team we've built at S&P Global, and I look forward to welcoming the talented IHS market employees to S&P Global. We're hopeful we'll be speaking with you soon to update you on the merger. Once the merger is complete, we will immediately begin building a new company with 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?