S&P Global Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. S&P Global provides ratings, benchmarks, analytics and data through Ratings, Market Intelligence, Platts and Indices. The interim financial statements were reviewed by Ernst & Young; this review is narrower in scope than an audit.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2,087 million | $1,846 million | $6,209 million | $5,575 million |
| Operating profit | $1,083 million | $944 million | $3,317 million | $2,960 million |
| Operating margin | 52% | 51% | 53% | 53% |
| Net income attributable to S&P Global | $797 million | $455 million | $2,349 million | $1,885 million |
| Diluted EPS | $3.30 | $1.88 | $9.72 | $7.78 |
Q3 revenue grew 13% and operating profit 15%; nine-month revenue grew 11% and operating profit 12%. Diluted EPS increased 75% for the quarter and 25% year to date. Growth reflected higher revenue across all four segments. In Q3, segment revenue grew 14% at Ratings, 7% at Market Intelligence, 8% at Platts and 28% at Indices. Indices benefited from higher ETF and mutual-fund assets under management.
For the nine months, the effective tax rate was 22.8%, versus 21.6% in 2020; Q3 rates were 19.9% and 21.7%, respectively. Interest expense declined year over year, while prior-year results included a $279 million loss on extinguishment of debt.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $2,658 million, up from $2,426 million. Company-defined free cash flow was $2,454 million, compared with $2,240 million; it deducts capital expenditures and net distributions to noncontrolling holders from operating cash flow.
- Investing activities used $42 million and financing activities used $772 million in the first nine months. Financing outflow was lower mainly because the company made no cash share repurchases in 2021, versus $1,164 million in 2020.
- Cash and cash equivalents were $5,899 million at September 30, 2021. Long-term debt was $4,113 million. The company reported no commercial paper or credit-facility borrowings.
- Current assets were $7,638 million and current liabilities $3,386 million. A new $1.5 billion revolving credit facility runs to April 2026; the company said it expects cash, operating cash flow and facility availability to cover foreseeable operating and recurring cash needs.
Material changes, outlook and risks
- Selling and general expenses rose 24% in Q3 and 22% year to date, including IHS Markit merger costs of $54 million and $153 million, respectively. Management attributed underlying cost increases largely to compensation, incentive costs and headcount; year-to-date operating profit growth was also supported by lower occupancy and travel costs.
- The IHS Markit merger had shareholder approval and was expected to close in Q1 2022, subject to closing conditions, including regulatory approvals. Management described integration, regulatory milestones and synergy realization as priorities. The filing provides no specific quantitative full-year earnings or revenue guidance.
- Management reported no material adverse effect from COVID-19 on the periods presented but said its ultimate effects on future results, financial position and cash flows were uncertain.
- Risks include market and issuance conditions affecting Ratings, demand and trading activity affecting Indices and Platts, competition, cybersecurity and data protection, regulatory compliance, merger execution and integration, and foreign-exchange and interest-rate exposure. The company identified Australian lawsuits concerning pre-financial-crisis CDO ratings and said outcomes of litigation and regulatory matters could not generally be predicted or reasonably estimated.
- Redeemable noncontrolling interest, associated with the 27% minority interest in S&P Dow Jones Indices, was $3,186 million, up from $2,781 million at year-end; redemption-value adjustments affect retained income. The company also disclosed Platts information services to certain Iran-linked subscribers; it recorded no related revenue or net profit in Q3.
Key facts for investors to verify
- Merger closing conditions, timing, transaction costs, integration risks and whether expected synergies are realized.
- Whether revenue growth and margins remain resilient if credit issuance, ETF assets or market trading activity weaken.
- Cash generation and capital allocation, including dividends, any resumption of share repurchases and liquidity after the merger.
- The valuation and potential redemption exposure of the S&P Dow Jones Indices noncontrolling interest.
- Developments in the Australian litigation and regulatory matters, and any resulting financial or operating impact.