S&P Global Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Dollar figures are in millions unless otherwise stated. Interim financial statements were reviewed by Ernst & Young, not audited.
Business context and reporting period
S&P Global provides credit ratings, benchmarks, analytics and workflow solutions. Its six reported segments were Market Intelligence, Ratings, Commodity Insights, Mobility, Indices and Engineering Solutions. The company completed the sale of Engineering Solutions on May 2, 2023; its results are included through that date. Comparisons are affected by the February 2022 IHS Markit merger and substantial divestiture gains recorded in 2022.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $3,101 | $2,993 | $6,261 | $5,383 |
| Operating profit | $911 | $1,482 | $2,056 | $3,374 |
| Operating margin | 29% | 50% | 33% | 63% |
| Net income attributable to S&P Global | $511 | $972 | $1,305 | $2,207 |
| Diluted EPS | $1.60 | $2.86 | $4.07 | $7.17 |
- Revenue rose 4% in Q2 and 16% for the first half. The six-month increase primarily reflected the IHS Markit merger; quarterly growth came from several segments, including Ratings and Market Intelligence.
- Reported operating profit fell 39% in both comparisons, largely reflecting 2022 divestiture gains and, in 2023, the Engineering Solutions sale loss. Management said operating profit increased 1% for Q2 and 10% for the first half after excluding specified unusual items and other comparison effects; these are management’s adjusted comparisons, not GAAP growth rates.
- Q2 revenue by segment: Market Intelligence $1,079 (+5%); Ratings $851 (+7%); Commodity Insights $462 (+5%); Mobility $369 (+10%); Indices $348 (+2%); Engineering Solutions $33 (down 65%, reflecting its sale). For the first half, Mobility revenue increased 61% and Commodity Insights 21%, with merger timing affecting comparisons.
- Q2 operating profit improved at Ratings (+5%), Commodity Insights (+10%) and Mobility (+18%); Indices declined 16%. Market Intelligence’s reported profit fell sharply against a prior-year divestiture gain.
Cash flow, debt and liquidity
- For the first half, operating cash flow was $1,363, versus $676 in 2022. Capital expenditures were $59; free cash flow, a non-GAAP measure defined by the company, was $1,164 versus $510.
- Investing activities provided $656, including $1,002 of disposition proceeds. Financing activities used $1,747, including $1,501 for share repurchases and $578 for dividends.
- Cash and cash equivalents were $1,561 at June 30, versus $1,286 at year-end 2022. Total debt was $11,501, including $825 of short-term debt; commercial paper outstanding was $740. The $2.0 billion credit facility supports the commercial paper program and matures in 2026. The company reported compliance with its debt-to-cash-flow covenant.
- The board approved a quarterly dividend of $0.90 per share. The company repurchased 3.9 million shares for $1.5 billion in the first half; 22.9 million shares remained available under the 2022 repurchase authorization.
Material changes, outlook and notable items
- Engineering Solutions was sold for $975 million in cash, subject to purchase-price adjustments; the company expected approximately $750 million of after-tax proceeds. The sale generated a $120 million pretax loss and $16 million of first-half disposition-related costs. A separate first-quarter contingent payment from the 2022 LCD divestiture generated a $46 million pretax gain in Market Intelligence and a $4 million gain in Indices.
- The filing provides strategy priorities, but no specific full-year financial guidance. Management cited revenue growth alongside higher incentives, compensation and technology costs; it also described continuing investment in data, technology, cloud infrastructure and integration. An AWS agreement includes a $1.0 billion purchase obligation over five years, before incremental credits.
- Cash taxes were affected by U.S. tax rules requiring capitalization and amortization of research and development costs. The company said cash taxes may be higher than the prior year if the rules are not changed.
- Risks include volatile credit and capital markets, regulatory scrutiny of ratings and other activities, litigation, cybersecurity and data protection, and uncertainty around successfully commercializing and protecting data in the evolving AI landscape. The filing identifies Australian litigation relating to pre-financial-crisis CDO ratings and says outcomes of legal and regulatory matters cannot generally be predicted or reliably estimated.
- The company recorded a $62 million pretax charge for its 2023 restructuring plan, primarily severance. It also disclosed a new risk factor concerning potential adverse effects if its AI strategy fails. Management reported disclosure controls were effective as of June 30, 2023.
Important facts for investors to verify
- How recurring revenue and segment margins develop after the Engineering Solutions sale and as merger integration costs and synergies evolve.
- The extent to which reported earnings comparisons normalize after unusually large 2022 divestiture gains and the 2023 sale loss.
- Cash tax impacts from R&D capitalization rules, and cash generation after repurchases, dividends and the AWS commitment.
- Debt refinancing needs, commercial paper usage and continued compliance with credit-facility covenants.
- Developments in the Australian litigation, regulatory matters and the company’s ability to protect data and intellectual property while adopting AI.