S&P Global Inc. — Q3 2023 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2023. S&P Global provides credit ratings, benchmarks, analytics and workflow solutions through Market Intelligence, Ratings, Commodity Insights, Mobility, Indices and Engineering Solutions. Engineering Solutions was sold on May 2, 2023; its results are included through that date. The interim statements are unaudited and were reviewed by the independent auditor, which reported no material modifications needed for GAAP conformity.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $3.084bn | $2.861bn | $9.345bn | $8.244bn |
| Operating profit | $1.074bn | $853m | $3.130bn | $4.228bn |
| Operating margin | 35% | 30% | 33% | 51% |
| Net income attributable to S&P Global | $742m | $608m | $2.047bn | $2.815bn |
| Diluted EPS | $2.33 | $1.84 | $6.40 | $8.91 |
| Cash provided by operating activities | — | $2.376bn | $1.490bn |
- Q3 revenue rose 8%, operating profit 26%, net income attributable to S&P Global 22%, and diluted EPS 27% year over year. Revenue growth reflected gains across Ratings, Market Intelligence, Commodity Insights, Mobility and Indices; higher refinancing activity supported Ratings transaction revenue.
- For the first nine months, revenue increased 13%, while operating profit fell 26% and diluted EPS fell 28%. The comparison is distorted by roughly $1.9bn of disposition gains recognized in 2022, principally the CUSIP Global Services sale. Management said operating profit increased 10% excluding specified unusual items and other comparison effects; this is a non-GAAP-style comparison, not the reported GAAP change.
- Q3 operating profit growth was 10% excluding specified prior-year and current-year items, according to management. Revenue growth was partly offset by increased incentives and compensation costs.
- Nine-month free cash flow, a company-defined non-GAAP measure, was $2.070bn, up 68% from $1.232bn. It equals operating cash flow less capital expenditures and distributions to noncontrolling interest holders.
Liquidity, debt and capital allocation
- At September 30, cash and cash equivalents were $1.645bn; total debt was $11.462bn, including $47m current debt and $11.415bn long-term debt. The company had no commercial paper outstanding and had access to a $2.0bn credit facility maturing in April 2026.
- In September, S&P Global issued $750m of 5.25% senior notes due 2033 and used the net proceeds to repay commercial paper. Net interest expense for the quarter was $84m, versus $71m a year earlier.
- Management said cash on hand, operating cash flows and credit-facility availability should cover operating and recurring cash needs into the foreseeable future. The credit facility’s maximum indebtedness-to-cash-flow covenant is 4-to-1; the company said it has never exceeded that threshold.
- Cash dividends paid during the first nine months were $864m. Share repurchases were $2.001bn, versus $11.003bn in the prior-year period. The quarterly dividend was raised to $0.90 per share; 21.5m shares remained available under the repurchase program at quarter-end.
Segments and material changes
- Q3 revenue growth was broad-based: Market Intelligence +8%, Ratings +20%, Commodity Insights +11%, Mobility +10% and Indices +6%. Ratings’ increase reflected stronger high-yield and bank-loan issuance and higher surveillance revenue. Mobility benefited from pricing, new business and the Market Scan acquisition.
- Q3 segment operating profit increased at Market Intelligence (+12%), Ratings (+22%) and Commodity Insights (+31%); it declined at Mobility (10%) and Indices (2%).
- The Engineering Solutions sale generated $975m in cash proceeds, subject to purchase-price adjustments, and a reported $120m pretax loss plus $16m of disposition-related costs. The company estimated approximately $750m of after-tax proceeds.
- The effective tax rate was 18.2% for Q3 and 21.8% for the first nine months, compared with 17.6% and 25.8%, respectively, in 2022. The company said Section 174 R&D capitalization rules adversely affected 2023 cash taxes and could keep cash taxes above the prior-year level if the law is not changed.
Outlook, risks and contingencies
- The filing provides no specific numerical full-year earnings or revenue guidance. Management outlined priorities including organic growth, margin targets, merger synergies, customer-focused investment and cloud and technology initiatives, while cautioning that execution is not assured.
- Remaining performance obligations were $3.7bn; the company expects to recognize about half within 12 months and three-quarters within 24 months. This excludes certain short-term and usage-based royalty contracts.
- Risks include economic and credit-market conditions, debt issuance and trading volumes, competition, regulation, cybersecurity and data protection, foreign exchange and interest rates, and the ability to realize IHS Markit merger synergies. The filing added a risk concerning the uncertain commercial, legal and competitive consequences of integrating generative AI and protecting data and intellectual property.
- Legal and regulatory matters include Australian litigation relating to pre-financial-crisis collateralized debt obligations and ongoing regulatory inquiries. The company said outcomes and potential losses generally cannot be predicted or reasonably estimated, and adverse judgments, fines or restrictions could materially affect the business.
- AWS collaboration carries a $1.0bn purchase obligation over five years, before incremental credits. The company also disclosed limited Iran-related information transactions or data sourcing; it reported no Q3 revenue or net profit from the described Commodity Insights dealings and de minimis amounts attributable to Market Intelligence data sourcing.
Most important facts for investors to verify
- How much of reported growth reflects recurring organic demand versus acquisitions, foreign exchange, issuance volumes and one-time or catch-up revenue.
- The effect of the 2022 disposition gains and 2023 Engineering Solutions sale on comparisons, cash proceeds and ongoing earnings.
- Whether operating cash flow and free cash flow remain strong after working-capital movements, cash taxes, dividends and share repurchases.
- Debt, interest expense, covenant headroom and the funding implications of the AWS commitment and future capital returns.
- Progress on merger synergies, restructuring and cost control, alongside the potential impacts of AI, regulation, cybersecurity and pending litigation.