S&P Global Inc. — Q2 2020 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2020; comparisons are with the same 2019 periods. S&P Global provides ratings, financial and commodity-market data, analytics, and indices through Ratings, Market Intelligence, Platts, and Indices. Interim statements were reviewed by EY, not audited.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1.943 billion | $1.704 billion | $3.729 billion | $3.275 billion |
| Operating profit | $1.105 billion | $813 million | $2.017 billion | $1.518 billion |
| Operating margin | 57% | 48% | 54% | 46% |
| Net income attributable to S&P Global | $792 million | $555 million | $1.431 billion | $965 million |
| Diluted EPS | $3.28 | $2.24 | $5.90 | $3.89 |
| Cash provided by operating activities | Not separately reported for the quarter | $1.617 billion | $1.010 billion |
- Q2 revenue, operating profit, and diluted EPS rose 14%, 36%, and 46%, respectively. Six-month increases were 14%, 33%, and 51%.
- Six-month free cash flow, a company-defined non-GAAP measure, was $1.507 billion versus $905 million. It subtracts capital expenditures and distributions to noncontrolling interest holders from operating cash flow.
- At June 30, cash and cash equivalents were $2.667 billion; current assets were $4.459 billion and current liabilities $3.040 billion. Long-term debt was $3.950 billion and total liabilities $8.434 billion. The company also reported $2.403 billion of redeemable noncontrolling interest.
- The $1.2 billion revolving credit facility and commercial-paper program were undrawn; the facility matures June 30, 2022. The company reported compliance with its debt-to-cash-flow covenant.
Changes versus prior year and segment performance
- Ratings led growth: Q2 revenue rose 26% to $1.006 billion and operating profit increased 51% to $693 million. Higher corporate bond issuance, especially investment-grade issuance, drove transaction revenue; bank-loan and structured-finance ratings revenue declined.
- Market Intelligence Q2 revenue rose 6% to $516 million and operating profit 16% to $159 million, supported by subscription contract-value growth.
- Platts Q2 revenue increased 2% to $217 million and operating profit 12% to $124 million. Continued demand for data and price assessments was partly offset by fewer conference and event revenues.
- Indices Q2 revenue rose 2% to $240 million and operating profit 5% to $171 million. Higher derivatives trading volumes and data subscriptions were partly offset by prior-year contract and retrospective-fee benefits. For the first six months, Indices revenue rose 10%.
- Operating margin expansion reflected revenue growth and lower expenses, including reduced travel, entertainment, professional-fee, and event costs. Higher compensation and additional headcount partially offset savings. Prior-year severance, lease-impairment, and pension-settlement charges also affect comparisons.
- Cash and cash equivalents declined from $2.866 billion at year-end 2019. Six-month financing outflows included $1.153 billion of share repurchases and $323 million of dividends; acquisitions used $185 million. The share count fell to 241.0 million from 246.3 million a year earlier.
Outlook, risks, contingencies, and unusual items
- Management said COVID-19 had not materially adversely affected reported results through June 30, but the ultimate effects on operations, financial position, and cash flows were uncertain. Management modeled three- and six-month recovery scenarios and incorporated pandemic assumptions into 2020 guidance; the filing text does not provide a clear numerical guidance value.
- The Board said it was prudent not to initiate a new share-repurchase plan at that time and made no changes to dividend guidance. The quarterly dividend had been increased to $0.67 per share from $0.57. The company cautioned that dividends and repurchases were not assured to remain unchanged.
- Market conditions boosted Ratings issuance, but management warned that these conditions—including low borrowing costs and central-bank support—might not persist. Structured-finance issuance declined sharply in multiple markets amid COVID-19-related disruption and uncertainty.
- Indices received an SEC Wells Notice concerning alleged nondisclosure of a quality-assurance mechanism and its effect on certain volatility-index values on one business day in 2018. The notice is preliminary, not a formal allegation or finding; potential remedies could include penalties or restrictions. The company said it was cooperating.
- Other material uncertainties include a prolonged recession, reduced subscription demand or renewal pricing, commodity-market weakness, remote-work and cybersecurity risks, and regulatory, litigation, and reputational exposure. Management said outcomes of legal and regulatory matters generally could not be predicted or reasonably estimated.
- Other items include a $113 million non-cash pension settlement charge in the first half of 2019 (versus $3 million in Q2 2020), an $8 million six-month gain from transitioning the IR webhosting business to Q4, and two non-material 2020 acquisitions. The company reported no revenue or net profit from the Iran-related transactions described in the filing.
Important facts for investors to verify
- Whether elevated Ratings transaction revenue and issuance volumes are sustainable as borrowing conditions and credit markets change.
- COVID-19 effects on renewals, new subscriptions, Platts customers, event revenue, and the company’s 2020 outlook; the filing provides no numerical guidance.
- The status and potential financial or operational impact of the SEC Wells Notice involving Indices.
- Capital allocation plans following the pause on initiating a new repurchase plan, and the ongoing affordability of dividends and buybacks relative to cash generation.
- How redeemable noncontrolling interests, particularly the S&P Dow Jones Indices joint venture interest, could affect future cash needs and reported equity.