S&P Global Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited interim financial statements; the independent auditor’s review found no material modifications required. S&P Global provides credit ratings, benchmarks, analytics and workflow solutions. On February 28, it completed its all-stock acquisition of IHS Markit, so reported results include IHS Markit only from the acquisition date.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $2.389 billion | $2.016 billion | +18%; includes only one month of IHS Markit |
| Operating profit | $1.892 billion | $1.081 billion | +75%; includes a $1.344 billion gain on the sale of CUSIP Global Services |
| Operating margin | 79% | 54% | Substantially elevated by the CUSIP sale gain; management said operating profit increased 3% excluding specified unusual items and their effects |
| Net income | $1.299 billion | $808 million | +61% |
| Net income attributable to S&P Global | $1.235 billion | $755 million | +64% |
| Diluted EPS | $4.47 | $3.12 | +43% |
| Cash from operating activities | $222 million | $768 million | Down $546 million |
| Free cash flow (non-GAAP) | $151 million | $681 million | Down $530 million; defined as operating cash flow less capital expenditures and distributions to noncontrolling interests |
Revenue and segment trends
- Subscription revenue rose 44% to $1.125 billion; non-subscription/transaction revenue fell 14% to $512 million. Revenue growth reflected the acquisition, subscription growth in Market Intelligence and Commodity Insights, and higher Indices asset-linked fees.
- Ratings revenue declined 15% to $868 million, as transaction revenue fell 31% amid lower corporate, bank loan and structured-finance issuance. Commodity Insights revenue increased 51% to $363 million; Market Intelligence rose 39% to $727 million, including the CUSIP disposal gain in segment profit; Indices revenue rose 19% to $322 million.
- Management reported pro forma combined revenue of $3.072 billion for Q1 2022 versus $3.022 billion for Q1 2021, assuming IHS Markit had been acquired at the start of 2021. This supplemental information is not necessarily indicative of actual results and excludes transaction costs, synergies and other expected benefits.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $4.405 billion at March 31, down from $6.497 billion at year-end 2021. Total assets were $66.092 billion, including $33.642 billion of goodwill and $21.177 billion of intangibles, largely reflecting the IHS Markit acquisition.
- Total debt was $11.392 billion ($66 million current and $11.326 billion long-term), versus $4.114 billion at December 31. Net interest expense rose 77% to $57 million. The company issued $5.5 billion of senior notes in March and assumed IHS Markit debt; debt refinancing and tender transactions produced a $17 million net extinguishment loss.
- Cash provided by investing activities was $2.901 billion, including $2.618 billion of disposition proceeds. Financing activities used $5.205 billion, including $7.003 billion for share repurchases and $186 million of dividends.
- Management said cash on hand, operating cash flow and credit availability should cover operating and recurring cash needs into the foreseeable future. The company had a $2.0 billion revolving credit facility, no commercial paper outstanding, and reported compliance with its debt-to-cash-flow covenant.
Material changes, outlook and risks
- Acquisition and divestitures: IHS Markit was acquired for approximately $43.5 billion in equity consideration. The preliminary purchase-price allocation included $30.136 billion of goodwill and $20.002 billion of acquired intangibles and remains subject to measurement-period adjustments. Regulatory divestitures included CUSIP Global Services and OPIS; the company recorded a $1.344 billion pretax CUSIP sale gain and a $999 million after-tax gain.
- Unusual costs and items: Q1 included $230 million of IHS Markit merger costs, a $200 million S&P Foundation grant, $78 million of employee severance charges, $15 million of acquisition-related costs and $5 million of lease impairments. The effective tax rate rose to 30.4% from 23.4%, primarily due to tax on merger-related divestitures and nondeductible deal costs.
- Management commentary: Priorities include integration, achieving first-year merger cost and revenue synergy targets, organic growth and investment in areas including ESG, energy transition, China and private markets. These are strategic priorities, not quantified financial guidance; the filing provides no clear full-year revenue or earnings forecast. Management cautioned that Q1 results are not necessarily indicative of full-year results.
- Risks: Integration and realization of expected synergies; market-sensitive Ratings issuance volumes; macroeconomic and geopolitical uncertainty, including the Russia-Ukraine conflict; regulatory, cyber and litigation exposure; and exposure to cyclicality in automotive and upstream energy markets. The company said it was suspending existing operations in Russia and Belarus, with no material effect on results to date.
- Contingencies: S&P Global Ratings was in active discussions with the SEC over an investigation relating to a 2017 rating analysis; no definitive settlement had been reached. Australian litigation relates to ratings of collateralized debt obligations before the financial crisis. The company said outcomes and potential losses in certain proceedings cannot be predicted or reasonably estimated.
Important facts for investors to verify
- How comparable post-acquisition revenue, operating profit and margins are, given IHS Markit is consolidated for only one month and the reported operating profit includes the CUSIP gain.
- Whether the preliminary IHS Markit purchase-price allocation, integration costs and expected synergies change materially as accounting and integration work progresses.
- Cash generation and debt trajectory after the $7 billion share repurchase, acquisition-related financing and lower quarterly operating cash flow.
- Ratings issuance trends and whether subscription growth and other businesses offset continued weakness in transaction-based ratings revenue.
- Developments in the SEC inquiry, Australian litigation and other regulatory matters, as well as the effects of geopolitical and market disruption.