S&P Global Inc. — Q1 2021 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2021, compared with Q1 2020. S&P Global provides ratings, market intelligence, commodity-market information and indices through four segments: Ratings, Market Intelligence, Platts and Indices. Interim financial statements are unaudited; the independent accountant performed a review and reported no material modifications needed for conformity with U.S. GAAP.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $2.016 billion | $1.786 billion; up 13% |
| Operating profit | $1.081 billion | $912 million; up 19% |
| Operating margin | 54% | 51% |
| Net income attributable to S&P Global | $755 million | $639 million; up 18% |
| Diluted EPS | $3.12 | $2.62; up 19% |
| Cash provided by operating activities | $768 million | $680 million; up 13% |
| Free cash flow (non-GAAP) | $681 million | $618 million; up 10% |
| Cash, cash equivalents and restricted cash | $4.518 billion at March 31 | $4.122 billion at December 31, 2020 |
| Long-term debt | $4.111 billion | $4.110 billion at December 31, 2020 |
| Total current assets / current liabilities | $6.306 billion / $3.403 billion | At March 31, 2021 |
Revenue rose across all four segments. Ratings grew 23% to $1.017 billion, Market Intelligence 4% to $539 million, Platts 5% to $225 million and Indices 4% to $270 million. Segment operating profit increased 31% at Ratings, 13% at Market Intelligence, 15% at Platts and 5% at Indices. Revenue drivers included higher debt-rating activity, subscription growth, demand for Platts data and higher index-linked fees from increased ETF and mutual-fund assets under management. Lower exchange-traded derivatives revenue partly offset Indices growth.
Operating profit benefited from broad-based revenue growth and lower travel and event-related costs during COVID-19 restrictions. Corporate unallocated expense increased, chiefly due to $49 million of IHS Markit merger costs. The effective tax rate rose to 23.4% from 21.5%, primarily due to lower excess tax benefits from share-based payments and higher taxes on foreign operations. The company paid $186 million in dividends and made no cash share repurchases in Q1 2021; Q1 2020 included $1.153 billion of repurchases.
Material changes, outlook and risks
- Merger: Shareholders of S&P Global and IHS Markit approved the merger in March 2021. Closing was expected in the second half of 2021, subject to conditions, including regulatory approvals. The company reported $49 million of merger costs in the quarter.
- Financing and capital returns: On April 26, 2021, after quarter-end, S&P Global entered a new $1.5 billion, five-year revolving credit agreement, replacing a $1.2 billion facility. Fees and borrowing margins are linked to achievement of annual environmental-sustainability indicators. The quarterly dividend was raised from $0.67 to $0.77 per share.
- Management outlook: Management said cash on hand, operating cash flow and credit availability should meet operating and recurring cash needs for the foreseeable future. It provided no specific full-year financial guidance in the supplied filing text. Management cautioned that Q1 results are not necessarily indicative of full-year results and that COVID-19’s ultimate effects remain uncertain.
- Contingencies: S&P Dow Jones Indices received an SEC Wells Notice concerning alleged disclosure deficiencies related to a quality-assurance mechanism and certain volatility-index values published on one business day in 2018. The notice is preliminary, not a formal allegation or finding. Two Australian lawsuits relate to alleged losses on collateralized debt obligations rated before the financial crisis. The company cannot predict outcomes or, in most cases, reasonably estimate potential losses.
- Other risks and unusual items: The filing highlights merger completion and integration risks, regulatory and litigation exposure, market and issuance volatility, cybersecurity and business-continuity risks, competition, foreign exchange and interest-rate exposure. COVID-19 did not materially adversely affect reported Q1 results, according to management. Platts disclosed sales of information to subscribers subject to Iran-related disclosure requirements; the filing states revenue was approximately “$309” but does not clearly provide the unit, and says net profit was a fraction of revenue.
Important facts for investors to verify
- Merger closing conditions, regulatory approvals, transaction costs, integration execution and anticipated synergies.
- Whether Ratings’ strong Q1 issuance-driven growth persists if credit issuance and financing conditions change.
- Outcomes and potential financial consequences of the SEC matter and Australian litigation; the filing does not provide a clear estimate of exposure.
- Cash-flow sustainability and capital allocation, including the increased dividend, potential future repurchases and debt obligations.
- The unit and meaning of the Iran-related revenue figure shown as approximately “$309” in the filing text.