S&P Global Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Interim financial statements were reviewed by the independent auditor, not audited. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context and reporting period
S&P Global provides credit ratings, benchmarks, analytics and workflow solutions. The company completed its all-stock merger with IHS Markit on February 28, 2022; reported 2022 results include IHS Markit only from that date. The merger expanded the company to six reportable segments: Market Intelligence, Ratings, Commodity Insights, Mobility, Indices and Engineering Solutions.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $2,993 | $2,106 | $5,383 | $4,122 |
| Operating profit | $1,482 | $1,154 | $3,374 | $2,234 |
| Operating margin | 50% | 55% | 63% | 54% |
| Net income attributable to S&P Global | $972 | $798 | $2,207 | $1,553 |
| Diluted EPS | $2.86 | $3.30 | $7.17 | $6.42 |
| Operating cash flow | Not provided by quarter | $676 | $1,691 | |
| Free cash flow, non-GAAP | Not provided by quarter | $510 | $1,548 |
- Q2 revenue rose 42% and six-month revenue rose 31%, primarily reflecting the IHS Markit merger. Q2 diluted EPS declined 13%; six-month diluted EPS increased 12%.
- Reported operating profit included disposition gains of $556 million in Q2 and $1.9 billion in the first half. Excluding specified unusual items, management said operating profit increased 15% in Q2 and 10% for the first half.
- Ratings was a notable offset: revenue declined 26% in Q2 and 20% for the first half, mainly as corporate, bank-loan and structured-finance issuance fell. Market Intelligence revenue increased 91% in Q2, Commodity Insights 74%, and Indices 22%; Mobility and Engineering Solutions contributed post-acquisition revenue.
- Q2 operating margin fell to 50% from 55%, while the first-half margin rose to 63% from 54%. These reported margins were materially affected by acquisition-related amortization, merger and restructuring costs, and disposition gains.
- Cash and cash equivalents were $3,571 at June 30, down from $6,497 at year-end 2021. Current assets were $6,235 and current liabilities $4,958. Total debt was $10,790, including $14 short-term and $10,776 long-term, compared with $4,114 at year-end.
- First-half operating cash flow fell to $676 from $1,691; management cited merger costs, higher taxes paid on divestitures and a $200 million S&P Global Foundation grant. Free cash flow decreased to $510 from $1,548.
- Investing activities provided $3,745, principally reflecting disposition proceeds. Financing activities used $7,268, including $8.5 billion of share repurchases; the company repurchased 19.0 million shares and paid $472 in shareholder dividends.
- The company reported $4.1 billion of remaining performance obligations, expecting to recognize approximately half within 12 months and three-quarters within 24 months.
Material changes, outlook, risks and unusual items
- Merger and divestitures: IHS Markit was acquired for estimated consideration of $43.5 billion. Purchase accounting remains preliminary and may be adjusted. Regulatory-related disposals generated substantial gains: CGS generated a $1.344 billion pre-tax gain; LCD and related indices generated $556 million combined. OPIS and Base Chemicals were also sold, with no gains recognized on those sales.
- Costs and restructuring: First-half results included $379 million of IHS Markit merger costs, $127 million of restructuring charges, a $200 million Foundation grant, and substantially higher acquired-intangible amortization. The company said first-year merger synergy targets were a strategic priority, but this filing provides no quantified financial guidance for full-year results.
- Management commentary: Management cited revenue growth, lower incentive and occupancy costs, and expected merger synergies, offset by integration expenses, higher compensation and technology costs, and resumed business travel. Ratings revenue was pressured by weaker issuance amid unfavorable macroeconomic conditions.
- Debt and interest: Debt increased after the merger and new note issuance. Net interest expense was $90 million in Q2 and $147 million for the first half, rising primarily due to higher debt balances. The company had a $2.0 billion credit facility, no commercial paper outstanding, and stated that its debt-to-cash-flow covenant limit of 4-to-1 had not been exceeded.
- Market and operating risks: The filing cites economic and market volatility, lower credit issuance, foreign-exchange movements, integration and synergy execution, cybersecurity and business continuity, competition, and regulatory change. The company reported suspending operations in Russia and Belarus; the impact had not been material to results to date, but remained uncertain.
- Contingencies: Ratings was in active discussions with the SEC regarding an investigation of a 2017 rating analysis; no definitive settlement had been reached. Australian lawsuits related to pre-financial-crisis collateralized debt obligations remain pending. The company said outcomes and potential losses in many legal and regulatory matters cannot be reliably predicted.
- Other unusual disclosure: The filing reports limited Iran-related information transactions and data sourcing; no revenue or net profit was attributed to the described Commodity Insights dealings, reflecting collection uncertainty.
Most important facts for investors to verify
- How much reported growth and earnings depend on IHS Markit consolidation, disposition gains and other nonrecurring items; compare with the filing’s pro forma combined results.
- Whether management achieves merger integration and synergy targets, and how preliminary acquisition accounting or acquired-intangible amortization changes.
- Ratings issuance trends, cash conversion and free cash flow recovery, alongside the effect of higher debt and interest expense.
- Execution of the remaining divestiture-related obligations and resolution of the SEC inquiry, Australian litigation and other regulatory matters.
- Whether cash, the credit facility and covenant headroom remain adequate after substantial repurchases, dividends and debt service.