S&P Global Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. S&P Global provides ratings, benchmarks, analytics and data through Ratings, Market Intelligence, Platts and Indices. The interim financial statements are unaudited; the auditor’s review found no material modifications needed for conformity with U.S. GAAP.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Revenue | $1.786 billion | $1.571 billion; up 14% |
| Operating profit | $912 million | $705 million; up 29% |
| Operating margin | 51% | 45% |
| Net income attributable to S&P Global | $639 million | $410 million; up 56% |
| Diluted EPS | $2.62 | $1.65; up 59% |
| Cash provided by operations | $680 million | $293 million |
| Free cash flow, company-defined non-GAAP | $618 million | $255 million |
| Cash and cash equivalents | $1.932 billion | $2.866 billion at Dec. 31, 2019 |
| Long-term debt | $3.949 billion | $3.948 billion at Dec. 31, 2019 |
Cash, cash equivalents and restricted cash totaled $1.952 billion at quarter-end, down $934 million during the quarter. Cash used for investing was $183 million, principally for acquisitions; cash used for financing was $1.401 billion, including $1.153 billion of share repurchases and $161 million of dividends. The $1.2 billion revolving credit facility and commercial paper program had no borrowings outstanding; the facility matures in June 2022. The company reported a 4-to-1 maximum indebtedness-to-cash-flow covenant and said it had never exceeded it.
All four segments grew revenue: Ratings $825 million (+19%), Market Intelligence $519 million (+8%), Platts $215 million (+4%), and Indices $259 million (+20%). Ratings’ increase reflected stronger debt issuance and related ratings activity; Indices benefited from higher derivatives trading volumes and average ETF and mutual fund assets. Subscription revenue rose 7% to $748 million, while transaction revenue rose 33% to $446 million.
Changes, outlook and risks
- Operating profit growth reflected higher revenue across segments and lower expenses, particularly at Ratings. Reported results included a $7 million gain on the Investor Relations webhosting disposition, $9 million of severance charges, and $5 million of Kensho retention expense. Management said operating profit rose 28% excluding certain items, versus reported growth of 29%.
- Q1 2019 included a $113 million noncash pension settlement charge. Other expense was $1 million in Q1 2020 versus $103 million in Q1 2019, making the comparison a significant contributor to higher pretax and net income.
- COVID-19 had no material adverse effect on reported Q1 results, according to management, but its ultimate effect was uncertain. Management said it modeled three-, six- and nine-month recovery scenarios and incorporated them into 2020 guidance expectations; the filing text does not provide a clear numerical guidance forecast. The company cited possible recession-driven reductions in issuance, subscriptions and renewals, weaker energy demand, operational and cybersecurity risks from extended remote work, and heightened regulatory and reputational scrutiny.
- The Board increased the quarterly dividend to $0.67 per share from $0.57. It said it would not initiate a new share repurchase plan at that time; the filing says there was no change to dividend guidance, while noting no assurance the dividend would remain unchanged. The company repurchased 3.4 million shares for approximately $1.15 billion in Q1 under its existing program.
- Legal and regulatory proceedings, investigations and inquiries arise in the normal course of business. The company said outcomes and potential financial effects generally could not be predicted or reasonably estimated. It also disclosed approximately $29,000 of Q1 revenue from Platts informational products sold to subscribers owned or apparently controlled by the Government of Iran; net profit was a fraction of revenue.
- Remaining performance obligations were $2.0 billion at March 31; the company expected to recognize about half within 12 months and three-quarters within 24 months. The company also completed small acquisitions of the RobecoSAM ESG Ratings Business and Greenwich Associates.
Important facts for investors to verify
- How COVID-19, a potential recession and market volatility affected subsequent issuance, subscription renewals, energy-related demand and the company’s 2020 outlook.
- Whether operating cash flow and liquidity remained sufficient after substantial buybacks, dividends and acquisition spending; monitor cash balances, debt and credit-facility covenant headroom.
- Whether the Board resumed share repurchases and maintained the $0.67 quarterly dividend as conditions evolved.
- How much reported earnings growth reflected recurring operating performance versus the prior-year pension settlement charge and current-year disposition gain.
- Developments in legal, regulatory and tax matters, and any material effects from remote-work, cybersecurity or other operational risks.