S&P Global Inc.

Good morning, and thank you for joining today's S&P Global third 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 non-GAAP adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the company's operating performance between periods and to view the company'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 U.S. GAAP. I would also like to call your attention to a specific European regulation. Any investor who has or expects to obtain ownership of 5 percent 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 are 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. We're pleased to discuss our third quarter results and how we're growing, innovating, and executing with discipline, even in the face of a challenging macroeconomic backdrop. With each quarter that passes, we see further evidence of the strength of our combined company, While no one could have predicted what this year would have looked like, we have benefited from the diversification of our revenue and profit streams and that balance has provided great resilience as we continue to navigate choppy waters. It's been nearly two years since we announced the merger and I'm proud of the progress we've made. We continue to put the customer at the core of everything we do and we continue to demonstrate a clear commitment to our people while maintaining a high standard of operational excellence. We have an incredibly bright future and I'm excited to share more with you about our strategic vision at our Investor Day on December 1st. As we look at our third quarter financial highlights, I want to remind you that the adjusted financial metrics we'll be discussing today refer to non-GAAP adjusted metrics in the current period and non-GAAP pro forma adjusted metrics in the year-ago period. Revenue decreased 8% year-over-year, or 6% XFX, with growth in four of our six divisions being offset by continued decreases in ratings, as well as a year-over-year decline in engineering solutions this quarter due to the timing impact of a single product that Eval will discuss later. Recurring revenue increased 2% year-over-year, representing 84% of revenue in the quarter. Adjusted expenses declined 5% year-over-year as cost synergies and disciplined expense management offset some of the inflationary impact we're seeing in labor and technology. Outside of the ratings business, we saw an average of approximately 250 basis points of adjusted operating margin expansion year over year. We're updating our guidance ranges to reflect continued headwinds in ratings, as well as better than expected performance in indices. Guidance ranges for our other four divisions are unchanged from last quarter. I would also like to share a few other highlights from the third quarter. As I mentioned, we're coming up on two years since the merger was announced and nearly eight months since the close. Our post-merger integration efforts are proceeding on track, but very importantly, we're outperforming on both cost and revenue synergies. Our customer conversations remain encouraging despite the economic environment. We continue to see significant growth in multiple business lines due to secular trends who will likely benefit us for years to come, like energy transition, as well as the near-term benefit we see from volatility and the need for insights and analytics in times of turbulence. We also remain committed to the capital allocation plan we laid out for you at the time the merger closed. We're on track to deploy the full $12 billion in funds for accelerated share repurchases by year end. Turning to the commercial success we're seeing in the business, the merger continues to generate encouraging conversations with our customers about the increased value we offer as a combined company. In market intelligence, we developed a strong commercial pipeline in September and we believe we will see re-acceleration of the desktop business in the fourth quarter. Between market intelligence and commodity insights, we've generated well over 3,000 cross-sell referrals since the merger closed, and the conversion rates are strong. Despite the issuance environment, our ratings teams remain highly engaged. We remain connected with investors and issuers to maintain relationships and ensure we have the appropriate understanding of their needs in advance of any recovery in the debt markets. Commodity insights and mobility are both seeing significantly improved retention rates relative to recent history, as well as strong competitive wins and new customer growth. We saw a very important win in our indices business this quarter as a large Japanese asset manager launched the first cross-asset ETF in Japan based on both IBOX fixed income and S&P Dow Jones equity indices. While it's still early in our efforts in cross-asset indices, This launches powerful proof of the demand for such products among global asset managers. Now to recap the financial results for the third quarter. Revenue decreased 8% to $2.86 billion, or 6% constant currency. Our adjusted operating profit decreased 12% to $1.3 billion. Our adjusted pro forma operating profit margin decreased approximately 200 basis points to 46%. as both profits and margin were negatively impacted by the decrease in ratings transaction revenue, partially offset by cost synergies realized in the quarter. Our non-ratings businesses in aggregate grew revenue 4% in the quarter compared to prior year. As you know, we measure and track adjusted segment operating profit margin on a trailing 12-month basis, which was 45.5% as of the third quarter. Despite the impact of the issuance environment, we benefited from the resiliency of our businesses, as well as disciplined cost management and cost synergies to significantly moderate the impact to our adjusted EPS, which declined only 4% year over year. Looking across the six divisions, I'm pleased to report positive growth across four of our divisions, with ratings continuing to work through a difficult issuance cycle and engineering solutions entering an off-cycle quarter without the sale of a core product that is released once every two years. Throughout the year, we've seen outsized growth in certain products as customers depend on our data and information to make informed decisions during uncertain times. We saw double-digit revenue growth in multiple product lines as a result. Within our indices business, revenue from exchange-traded derivatives outperformed our internal expectations, growing nearly 40% year over year. Our CDS indices, which include the CDX and ITRAX index families, increased 66%. Markets continue to recognize our leadership in areas like climate and financial data, and we provide a consolidated platform on which to access information. Whether it's tracking market movements, company performance, or identifying physical risk from weather events, our customers continue to come to us for help navigating the uncertainty. This is evident in the growth we saw in key product offerings for market intelligence, including true cost and equities, data, and analytics. I'm pleased to mark the first anniversary of the launch of Platts Dimensions Pro, a one-stop experience across Platts benchmark price assessments, news and analytics spanning 13 commodities, including energy transition. Over the last year, we've continuously increased functionality, introducing new features on a regular basis. This unified platform is gaining clear recognition with active user growth nearly doubling in just the last six months. Moreover, some of our newer benchmarks continue to expand the market presence. Our low sulfur marine fuel assessment is a great indicator of the trajectory of a successful new benchmark. Assessments like this often take multiple years to truly scale and become literal market benchmarks. In the third quarter, approximately 1.3 billion barrels of fuel were traded based on our price assessment, representing a 15% increase compared to last year. Our iron ore assessment has been the primary physical market pricing reference for seaborne fine iron ore delivered to China for over 10 years, and it's still growing at an impressive rate. We understand the importance of reliable market benchmarks to the secular energy transition story, and we're positioning ourselves for long-term success. The chart on the right shows the cumulative number of new assessments we have launched in energy transition over the last two years. These include a new suite of Australian hydrogen prices covering one of the key producers of this future fuel, as well as the methane performance certificate that we believe will be an integral component of low carbon crude trading. Now turning to issuance. During the third quarter, global rated issuance decreased 40% year over year. In the U.S., rated issuance in aggregate decreased 47%. European rated issuance decreased 19%, and in Asia, rated issuance declined 47%. High yield was down by 80% year-over-year in both United States and Europe, and was down nearly 100% in Asia. Structured finance in Europe was the only positive regional category in the quarter, increasing 7% year-over-year. We've included additional details on the subcomponents of issuance by region in the slide deck. We continue to make significant progress in our sustainability products. ESG revenue increased nearly 40% year over year to nearly $50 million in the quarter. We saw continued innovation in our ESG indices and market recognition of our strength. We launched the S&P net zero 2050 carbon budget indices And we ended the quarter with ESG ETF AUM of $35 billion, an increase of 7% year over year in a down market. Within market intelligence, we launched enhanced physical risk exposure scores and financial impact data sets to support clients as they seek to understand and manage the physical and financial exposure to climate change. Our ratings division continues to see success here as well, completing 13 ESG evaluations and 23 sustainable financing opinions in the quarter. One of the most important competitive advantages in our ESG efforts is the corporate sustainability assessment, which is an annual comprehensive assessment completed in partnership with participating companies. The S&P Global brand and everything it stands for continues to drive growth in the number of companies seeking to partner with us in this assessment process. Year to date, we've seen more than 2,300 companies opt in, a more than 25% increase from the same time last year. Now turning to the outlook for the remainder of the year. Beginning with our issuance forecast, our ratings research team is expecting an approximately 19% decline in global market issuance, including both rated and unrated issuance for the full year. This compares to the previous forecast of down 16%. Importantly, our financial results and guidance are more closely tied to build issuance, which can differ materially from market issuance as we described last quarter. Year to date, market issuance has declined approximately 14%, while build issuance has declined approximately 42%. Based on the trends we saw in September and October, we now expect build issuance to be down approximately 45 to 50% for the full year. When we look to the broader macroeconomic environment for the rest of 2022, We continue to see further deterioration from what we expected in August. In addition to the downward trend in issuance, our expectations for GDP growth, inflation, and the commodities markets have all lowered. With only two months left in 2022, we wanted to provide what will likely be the final update on some of the macroeconomic indicators we're using to help inform our financial guidance for the year. We'll not be discussing our expectations for 2023 on this call, but we will be closely monitoring both the internal and external indicators of our business over the coming months. And we'll plan to provide our initial 2023 outlook at the customary time when we report our fourth quarter results early next year. Before I turn the call over to Avout, I want to thank the incredible people we have at S&P Global. Our people have executed well in a challenging environment this year, and have delivered great value for our customers and the organization while managing a complex integration. I'm confident that we're well positioned to drive long-term growth and create long-term value for our shareholders. With that, I'll turn the call over to Evald to walk through financials and guidance. Evald?

Thank you, Doug. Doug has already discussed the headline financial results, and I would like to cover a few other items. As Doug mentioned, the adjusted financial metrics we will be discussing today refer to non-GAAP adjusted metrics for the current period and non-GAAP pro forma adjusted metrics in the year-ago period, unless explicitly called out as GAAP. Adjusted results also exclude the contribution from divested businesses in all periods. Adjusted corporate unallocated expenses improved from a year ago, driven by a combination of synergies and reduced incentive cost. Our net interest expense decreased 17% as we benefit from lower effort rates due to refinancing following the merger. Adjusted effective tax rate was up modestly, but towards the low end of the guidance range we expect for the full year. As most are aware, we exclude the impact of certain items from our adjusted diluted EPS numbers. Among those items in the third quarter were approximately $108 million in merger-related expenses, the details of which can be found in the appendix. We generated adjusted free cash flow, excluding certain items of $965 million. We remain committed to returning the majority of this cash flow to shareholders through dividends and share repurchases. Year-to-date, we have deployed $11 billion towards share repurchases, and we expect the final $1 billion of our previously announced ASR program to be completed by year end. We note that the US dollar remains strong against many foreign currencies, and we've seen a corresponding impact on both our revenue and expenses. As a reminder, approximately three quarters of our international revenue is invoiced in US dollars, which provides some protection to revenue against FX volatility. In addition to the natural hedges that exist due to the global footprint of our people, we have a hedging program in place that further mitigates the ultimate impact on our earnings. For the third quarter, we saw a 3 cent favorable impact to EPS from foreign exchange and hedging programs. Turning to expenses, we are committed to disciplined expense management in this current environment And, similar to last quarter, we highlight the levers we continue to pull to protect margins where we can, while still preserving our investments to drive future growth. Actions taken include pull forward in synergies, a reduction in incentive accruals, adjustments to the timing of certain investments, and pausing select hiring and limiting consulting spend in some areas. Through cost synergies and other management actions we have taken so far this year, We expect to generate more than $400 million in expense savings for 2022. Now I would like to provide an update on our synergy progress. In the third quarter, we achieved $165 million in cumulative cost synergies, and our current annualized run rate is $311 million. I'm pleased to report we continue to outperform our initial timeline on both revenue and cost synergies year-to-date. The cumulative integration and cost to achieve synergies through the end of the third quarter is $641 million. Given the outperformance on the timing of our synergies, we now expect to achieve slightly more than the 35% to 40% of total cost synergies in 2022 that we were targeting previously. Now, let's turn to the division results and begin with market intelligence. Market intelligence revenue increased 4% with strong growth in data and analytics offset by slower growth in desktop and flat growth in enterprise solutions. For this quarter, recurring revenue accounted for approximately 96% of market intelligence total revenue. Expenses were roughly flat this quarter, with increases in compensation expense, cloud spend and outside services being offset by cost synergies and lower incentive compensation. Market intelligence remains the biggest driver of cost synergies from the merger and the synergy outperformance we have seen year-to-date. Segment operating profit increased 13%, and the segment operating profit margin increased 260 basis points to 33.9%. On a trading 12-month basis, adjusted segment operating profit margin was 30.9%. The Ostra joint venture that complements the operations of our market intelligence division contributed $19 million in adjusted operating profit to the company. As a reminder, because the JV is a 50% owned joint venture operating independent of the company, we recognize their results on an after-tax basis and do not include the financial results of Ostra in the market intelligence division. Looking across market intelligence, there was growth in most categories, and on a pro forma basis, desktop revenue grew 3%, data and advisory solutions revenue grew 7%, enterprise solutions revenue was flat, and credit and risk solutions revenue grew 7%. For desktop, we saw slower growth this quarter, driven in part by the timing of certain revenue recognition items, and we expect desktop to re-accelerate in the fourth quarter. For enterprise solutions, the business line continues to see headwinds in several of our volume-driven products that rely on equity and debt capital markets activity under variable subscription terms. Excluding the impact of FX and these volume-driven products, growth across market intelligence would have been approximately 7% year over year. While we remain confident in the long-term growth of all these product lines, we expect deceleration in categories outside of desktop to persist in the fourth quarter. Now turning to ratings. Ratings continue to face difficult market conditions this quarter as issuance volumes remained muted, with revenue decreasing 33% year-over-year. Transaction revenue decreased 56% on the continued softness in issuance we highlighted earlier. Non-transaction revenue decreased 6% on a reported basis and 2% on a constant currency basis, primarily due to lower rating evaluation services and initial issuer credit ratings, partially offset by increases in CRISL. ICR and RES revenue are historically correlated with the relative strength of the issuance environment and M&A activity, respectively, and the declines we are seeing here are purely indicative of those market conditions. Expenses decreased 19%, primarily driven by disciplined expense management, including lower incentive expenses, partially offset by increased salary and fringe expenses. This resulted in a 41% decrease in segment operating profit and a 750 basis points decrease in segment operating profit margin to 55.9%. On a trading 12-month basis, adjusted segment operating profit margin was 57.9%. Now looking at ratings revenue by its end markets, the largest contributors to the decrease in ratings revenue were a 44% decrease in corporates and a 31% decrease in structured finance, driven predominantly by structured credit. In addition, financial services decreased 20%, governments decreased 33%, and the crystal and other category increased 9%. And now turning to commodity insights, Revenue increased 5%, driven by strong performance of subscription products, including those within price assessments and energy and resources data and insights lines. However, that growth was impacted by the Russia-Ukraine conflict. As noted on the slide, revenue related to Russia contributed $12 million in the third quarter last year and made no contribution in the third quarter this year. Excluding this impact, commodity insights would have grown approximately 8%, in the third quarter. There's no change to the expected impact from this conflict, but as a reminder, on an annualized run rate basis, we expect Commodity Insights revenue and operating income to be lower by approximately $52 million and $51 million, respectively. For this quarter, recurring revenue contributed 91% of Commodity Insights revenues. Expenses increased 1%, primarily due to salary and fringe, and an increase in T&E expense, partially offset by merger-related synergies, lower consulting spend, and lower real estate cost. Segment operating profit increased 9%, and the segment operating profit margin increased 190 basis points to 45.8%. The trading 12-month adjusted segment operating profit margin was 43.8%. Looking across the Commodity Insights business categories, price assessments grew 8% compared to the prior year, driven by continued commercial momentum and strong subscription growth for market data offerings. Energy and resources data and insights also grew 8% in the quarter, driven by strength in gas, power and renewables, and in petrochemicals. Advisory and transactional services decreased 1% in the third quarter. The upstream business was down 2% compared to prior year, mainly driven by higher comps for software and analytics products offerings, as well as the impact of Russia. Excluding that impact and the impact of FX, upstream ACV growth would have been positive in the quarter. In our mobility division, revenue increased 8% year-over-year, driven primarily by continued high retention rates and new business growth in Carfax. For this quarter, recurring revenue contributed 78% of Mobility's total revenue. Expenses grew 5% year-over-year, as we have yet to lap planned increases in headcounts, and we saw continued cloud expense growth, which were partially offset by lower data cost and favorable effects. This resulted in a 14% growth in adjusted operating profit and 200 basis points of margin expansion year-over-year. On the training 12-month basis, the adjusted segment operating profit margin was 40%. Dealer revenue increased 10% year over year, driven by strong demand for Carfax as dealerships' profitability remain at elevated levels. Manufacturing grew 4% year over year, driven by strength in subscriptions and an uptick in the recall business. Inventory shortfalls continued to temper growth as OEMs spent on marketing initiatives powered by mobility products remains muted. Financials and other increased 9%, primarily driven by continued strength in our insurance underwriting products and new business. SAP Dow Jones indices revenue increased 3% year over year, with strong margin expansion despite lower assets under management. For the third quarter, recurring revenue contributed 84% of the total for indices. During the quarter, expenses were roughly flat as strategic investments and higher information services costs were offset primarily by lower incentives and other expenses. Segment operating profit increased 5% and the segment operating profit margin increased 100 basis points to 70.3%. On the trailing 12-month basis, the adjusted segment operating profit margin was 68.8%. Asset linked fees were down 5%, primarily driven by lower AUM in ETFs. Exchange traded derivative revenue increased 37% on increased trading volumes across key contracts, including a more than 60% increase in S&P 500 index options volume. Data and custom subscriptions increased 10%, driven by new business activities. Over the past year, market depreciation totaled $472 billion. ETF AUM net inflows were $194 billion. This resulted in quarter ending ETF AUM of $2.3 trillion, which is an 11% decrease compared to one year ago. Our ETF revenue is based on average AUM, which decreased 4% year over year. As a reminder, revenue tends to lack changes in asset prices. Given the declines across equity markets so far in the back half of this year, we continue to expect softness in asset-linked fees as we close out 2022. Engineering solutions revenue declined 8% in the quarter, driven primarily by the negative impact of the timing of the Boiler Pressure Vessel Code, or BPVC, which was last released in August of 2021. The BPVC contributed approximately $1 million in revenue this quarter, compared to approximately $8 million in the year-ago period. For this quarter, 94% of engineering solutions revenues were classified as recurring. Adjusted expenses decreased 7% due to favorable impact on BPVC royalties. On a trading 12-month basis, the adjusted segment operating profit margin was 19.1%. Non-subscription revenue in engineering solutions decreased 63% year over year for the reasons I mentioned on the previous slide, while subscription revenue increased 3% over the same period. Now moving to our guidance. This slide depicts our new GAAP guidance. And this slide depicts our updated 2022 adjusted pro forma guidance. Due to the continued softening of the issuance environment, we now expect revenue to decrease mid-single digits compared to our prior guidance. Some of that impact is offset by the outperformance in indices. The net impact of our lower ratings revenue expectations combined with the cost measures and capital allocation measures we have outlined today result in our slightly lower margin outlook and a new adjusted EPS range of $11 to $11.15. This margin outlook reflects our continued expectation for approximately 180 basis points of margin expansion outside of our ratings business. Interest expense is expected in the range of $345 to $355 million, slightly lower than our previous guidance due to a higher interest on our cash deposits and positive impact from currency hedges. We're also reducing our outlook for capital expenditures to $115 million due to intentional delays in real estate investments. Adjusted free cash flow excluding certain items is now expected to be approximately $4 billion. The following slide illustrates our guidance by division. Based on this past quarter's performance, we're updating our expectations for adjusted revenue growth and adjusted operating profit margin for ratings and indices. The guidance ranges for our other divisions are unchanged. In closing, despite the geopolitical tensions and a challenging macroeconomic environment weighing on the markets, our portfolio of strong businesses continue to prove resilient. Furthermore, I'm pleased with the progress our teams have made since the closing of the merger earlier this year. We look forward to providing you with a deep dive into our businesses and the longer-term outlook of the company at our Investor Day on December 1st. And with that, let me turn the call back over to Mark for your questions.