S&P Global Inc.

Good morning and welcome to S&P Global's first quarter 2022 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 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. Mark Grant, Senior Vice President of Investor Relations for S&P Global. Sir, you may begin.

Thank you for joining today's S&P Global first quarter 2022 earnings call. Presenting on today's call are Doug Peterson, President and Chief Executive Officer, and Avout Steenbergen, Executive Vice President and Chief Financial Officer. We issued a press 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. 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. A discussion of these risks and uncertainties can be found in our forms 10-K, 10-Q, and other periodic reports filed with the U.S. Securities and Exchange Commission. 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 contains exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with US GAAP. 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 S&P Global should contact Investor Relations to better understand the potential impact of this legislation on the investor and the company. We're aware that we 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 our media relations team whose contact information can be found in the press release. At this time, I would like to turn the call over to Doug Peterson. Doug?

Thank you, Mark. Welcome to today's first quarter earnings call. I'd like to start by highlighting the historic event that occurred in the first quarter of 2022. We completed our merger with IHS Market, and I'm incredibly excited to be joining you for our first quarterly earnings call as a combined company. The promise of the merger has already begun to manifest itself in our culture and our financial performance. Beginning with a few financial highlights. We reported strong financial results with adjusted pro forma revenue increasing 2% and adjusted pro forma diluted EPS increasing one cent year over year, despite one of the most challenging issuance environments in recent history. We saw positive revenue growth in five of our six divisions, including double-digit growth in three of them. Adjusted pro forma expenses increased 8% as we continue to invest in events, people, and technology, though much of this expense growth is non-recurring, as we'll discuss later on. We're updating our guidance to reflect the increased uncertainty caused by the macroeconomic and geopolitical landscape, and Eva will walk through these details in a moment. I'd also like to share a few highlights from the first quarter. As I mentioned, we completed the merger with IHS Mark and had a number of exciting achievements. We announced a $12 billion accelerated share repurchase, or ASR, and launched the first tranche of $7 billion in March, with the remainder to be executed by the end of the year. We took advantage of this still historically low interest rate environment to optimize our capital structure and lower our average cost of debt. And we had strong attendance at some of the industry's most important conferences, including CERA Week, World Petrochemical Conference, and TPM 22. While we've only been together for two months, we're already starting to see validation of our investment thesis, and the results of our comprehensive planning are paying off. We've begun leveraging technology like Kensho across the broader organization to automate processes and increase efficiencies. We've begun development of several new products and features across the divisions. We're integrating our divisional commercial teams, and we've already closed synergy deals in multiple divisions. I want to take a moment to touch on culture and leadership. We brought our combined leadership team together in person for the first time in March. We were thrilled to see so many of our colleagues brainstorming, planning, working, and functioning as if they had already been together for years. We saw the free exchange of ideas, strong proposals for new growth engines, and clear alignment on our strategy, purpose, and values. We also heard a unified voice among our leadership in support of our People First initiatives and our commitment to diversity, equity, and inclusion. We came away energized and full of confidence that we'll be able to take the absolute best, not only from each company, but from each person in the organization and create something exceptional at S&P Global. I have never been more inspired by our people, and I'm more excited than ever to work with them to drive sustainable, profitable growth. When we announced the merger in November 2020, we noted that we needed regulatory approval in multiple jurisdictions. We received final regulatory approval on February 25, 2022, and officially closed the merger three days later on February 28. We immediately went to work optimizing the capital structure, issuing $5.5 billion in new debt, most of which was used to refinance existing debt at lower rates. We completed that refinancing in April 2022. In order to secure regulatory approval for the merger, we were required to divest a number of businesses. The table on this slide lays out the details of those divestitures. As we have shared with you before, the aggregate 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 were in. We're confident that we negotiated well on behalf of our shareholders in these transactions, evidenced by the approximately 9.5 times revenue multiple paid by the acquirers of these businesses in aggregate. Net after-tax proceeds will total $2.85 billion. Now, to recap the financial results for the first quarter, revenue increased 2% to $3.1 billion. Our adjusted operating profit decreased 6% to $1.4 billion. Our adjusted pro forma operating profit margin decreased approximately 340 basis points to 45% as both profits and margin were negatively impacted by the decrease in ratings transaction revenue and the expense growth I mentioned earlier. As you know, we measure and track adjusted segment operating profit margin on a trailing 12-month basis, which decreased 60 basis points to 47%. In addition to our strong overall revenue performance and continued expense management, we launched a $7 billion ASR and began optimizing our capital structure. Combined with tax effects of merger-related synergies and prudent investment, we increased adjusted pro forma diluted EPS year over year. Looking across the six divisions, I'm encouraged by the fact that even in a challenging macroeconomic environment, we were able to deliver strong revenue across five of our six divisions, including double-digit growth in commodity insights, mobility, and indices. In line with the expectations we laid out on our call in March, we did see a year-over-year decrease in ratings driven by an exceptionally soft issuance environment. During the first quarter, global bond issuance decreased 12%. This understates the impact to our business, however, as high-yield issuance declined far more dramatically. In the U.S., issuance in aggregate decreased 25%. As investment grade decreased 19%, high-yield decreased 75%. Public finance decreased 15%. Structured finance increased 9% due to large increases in mortgage-backed securities offset by declines in structured credit. Bank loan ratings declined 35% year over year. European issuance decreased 14%, as investment grade decreased 11%, high yield decreased 54%, and structured finance increased 27% due to increases in RMBS and covered bonds, partially offset by declines in ABS, CMBS, and structured credit. In Asia, issuance was flat. The next two slides look at the difference we saw in the quarter between investment grade issuance and issuance of high yield and leveraged loans. This slide shows that investment-grade issuance was resilient relative to other categories, decreasing only 5% year over year. This slide depicts the combination of high-yield issuance and leveraged loan volume. This quarter, we saw a decrease of over 50% from the incredible levels in the year-ago period. High-yield was particularly impacted by the uncertainty in the market, with issuance decreasing 68% year over year. While difficult to pinpoint exact causes, Issuance in the first quarter was impacted both by the pull forward we witnessed and discussed last year, as well as the intentional delay we're hearing from customers, as many issuers wait for clear signs of stability before reentering the market. Now, turning to some of the factors that made this quarter successful for S&P Global, we saw significant increases in engagement and usage of our products and our content this quarter. The metrics on this slide are clear evidence that in periods of increased uncertainty, whether that's in the macroeconomic picture, market volatility, or geopolitical tensions, our customers turn to us. They turn to us for the insights, data, and tools that they need to make well-informed business and investment decisions. It's also important to remember that S&P Global's stronger, more diverse product portfolio allows areas of the business to thrive in times of elevated volatility and uncertainty. Within the S&P Dow Jones Indices business, We saw more than 20% growth in revenue from our exchange-traded derivatives, whose volumes are directly correlated with market volatility. In the commodities markets, our global trading services business within Commodity Insights grew 17% year over year. During the first quarter, we held a number of premier conferences, attracting thousands of leaders from multiple industries. Several of these conferences returned to being in-person events for the first time in three years. One of these was CERA Week. For some S&P Global investors, Sarah Week may be unfamiliar. Sarah Week is the world's leading event for the energy industry, taking place in the first quarter each year and hosted in Houston, Texas. We were thrilled to welcome attendees back in person, and it was clear that all of the factors impacting the energy industry right now, industry and government leaders wanted to be there. We had record attendance with over 5,200 delegates, 900 speakers, and 50 senior government officials. With the combined resources of S&P Global Platts and IHS Markit, we're confident that SARA Week will continue to grow and set itself apart as the must-attend event for energy industry leaders. We also hosted the annual World Petrochemical Conference and the TPM Conference in the first quarter. Both conferences aim to help industry leaders navigate some of the most pressing challenges facing our global economy. WPC convened this year to discuss how the chemical industry can help facilitate and thrive in a world progressing towards more sustainable operations, including net zero emissions targets. Our conferences bring people together to drive innovation and growth in different industries, but they also demonstrate the strength of S&P Global as a source and a destination for global leadership. We're thrilled with the progress we've made as we celebrate the first anniversary of Sustainable One. ESG revenue growth accelerated on both a reported and organic basis in the first quarter, growing 57% year-over-year to reach nearly $50 million. We continued to introduce new ESG-related products and product enhancements at a rapid pace. In the first quarter, we saw the launch of 17 ESG ETFs based on our indices, and we ended the first quarter with AUM in ESG ETFs, growing 28% to surpass $33 billion. Our indices and commodity insights teams collaborated to launch the S&P GSCI Electric Vehicle Metals Index, and we continue to enhance ESG scores made available through our Capital IQ Pro platform. One of the greatest advantages we have in ESG is the robust set of data that comes to us through the active participation of covered companies. Our 2021 Corporate Sustainability Assessment saw a 64% increase in the number of companies working with us directly to ensure the datasets behind our ESG scores are robust, accurate, and comprehensive. Our coverage of more than 11,000 companies includes approximately 2,300, which provide datasets and disclosure directly to CSA. Our commitment to active partnership with covered companies ensures our ESG scores are informed by the best data available. Now turning to our outlook. We have updated our bond issuance forecast for the year to reflect the decrease seen in the first quarter, as well as to better reflect the ongoing impact of macroeconomic uncertainty and the ongoing conflict in Ukraine. We now expect global issuance to decline approximately 5% year over year, within a range of down 14% to flat in 2022. We expect corporates to see a 12% decrease in issuance, partially offset by a 2% increase in financial services issuance. We expect U.S. public finance and structured finance to each soften by 7% and international public finance to shrink by about 1.5%. As we evaluate the remainder of the year, we wanted to discuss some of the assumptions that underpin our guidance. Let me start with our response to the tragic events taking place in Ukraine and the impact on our business. As we've shared with you previously, combined revenue from Russia and Belarus is less than 1% of our total revenue. We have suspended commercial operations in Russia and Belarus, including all customer contracts. We've suspended ratings of Russian entities and removed stocks and bonds listed or domiciled in Russia from our indices. While the direct financial impact on our business is not material, we acknowledge the indirect impact on the issuance environment and market volatility. We also wanted to illustrate some of the changes in the macroeconomic environment that inform our financial outlook for the company. In addition to lower debt issuance, we now expect slightly lower global GDP growth. Inflation is also likely to have a greater impact on our business and the economy as a whole relative to our expectations earlier this year. We're seeing some upward pressure on compensation expense that we expect to continue throughout the rest of the year. Commodities prices remain elevated relative to our early expectations as well. To be clear, this is not meant to be a comprehensive list of all metrics that inform our outlook, but we wanted to help investors understand the changes in some of the assumptions we make about the global economy when formulating guidance. Before handing it over to Avout, I'd like to reiterate how pleased we are with the execution and success we've seen in a challenging quarter. Our ability to drive positive growth in both revenue and adjusted pro forma earnings per share in a quarter like this would have been much more challenging before our merger with IHS Markit. The strength, stability, and scale of our businesses gives us great confidence to invest for future growth and be optimistic about the years ahead. We remain committed to our strategic organic investments, as illustrated on this slide, and we remain confident these investments will power significant future growth and profitability for the company. With that, I'll turn it over to Avout to walk through our results and guidance.