Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)
The following Management's Discussion and Analysis (“MD&A”) provides a narrative of the results of operations and financial condition of S&P Global Inc. (together with its consolidated subsidiaries, (“S&P Global,” the “Company,” “we,” “us” or “our”) for the three months ended March 31, 2023. The MD&A should be read in conjunction with the consolidated financial statements, accompanying notes and MD&A included in our Form 10-K for the year ended December 31, 2022 (our “Form 10-K”), which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The MD&A includes the following sections:
• Overview
• Results of Operations — Comparing the Three Months Ended March 31, 2023 and 2022
• Liquidity and Capital Resources
• Reconciliation of Non-GAAP Financial Information
• Critical Accounting Estimates
• Recently Issued or Adopted Accounting Standards
• Forward-Looking Statements
OVERVIEW
We are a provider of credit ratings, benchmarks, analytics and workflow solutions in the global capital, commodity, automotive and engineering markets. The capital markets include asset managers, investment banks, commercial banks, insurance companies, exchanges, trading firms and issuers; the commodity markets include producers, traders and intermediaries within energy, petrochemicals, metals & steel and agriculture; the automotive markets include manufacturers, suppliers, dealerships and service shops; and the engineering markets include engineers, builders, and architects.
Our operations consist of six reportable segments: S&P Global Market Intelligence (“Market Intelligence”), S&P Global Ratings (“Ratings”), S&P Global Commodity Insights (“Commodity Insights”), S&P Global Mobility (“Mobility”), S&P Dow Jones Indices (“Indices”) and S&P Global Engineering Solutions (“Engineering Solutions”).
• Market Intelligence is a global provider of multi-asset-class data and analytics integrated with purpose-built workflow solutions.
• Ratings is an independent provider of credit ratings, research, and analytics, offering investors and other market participants information, ratings and benchmarks.
• Commodity Insights is a leading independent provider of information and benchmark prices for the commodity and energy markets.
• Mobility is a leading provider of solutions serving the full automotive value chain including vehicle manufacturers (OEMs), automotive suppliers, mobility service providers, retailers, consumers, and finance and insurance companies.
• Indices is a global index provider maintaining a wide variety of valuation and index benchmarks for investment advisors, wealth managers and institutional investors.
• Engineering Solutions is a leading provider of engineering standards and related technical knowledge.
On January 14, 2023, we entered into a securities and asset purchase agreement with Allium Buyer LLC, a Delaware limited liability company controlled by funds affiliated with Kohlberg Kravis Roberts & Co. L.P. (“KKR”) to sell our Engineering Solutions business for $975 million in cash, subject to customary purchase price adjustments. We currently anticipate the divestiture to result in after-tax proceeds of approximately $750 million, which proceeds are expected to be used for share repurchases. Engineering Solutions became part of the Company following our merger with IHS Markit. The transaction, which is subject to receipt of required regulatory approvals and satisfying other customary closing conditions, is expected to close in the second quarter of 2023. See Note 2 - Acquisitions and Divestitures for additional information.
On February 28, 2022, we completed the merger with IHS Markit Ltd (“IHS Markit”), and as a result, IHS Markit and its subsidiaries became wholly owned consolidated subsidiaries of S&P Global, and the financial results include IHS Markit from the date of acquisition. See Note 2 - Acquisitions and Divestitures for additional information.
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Key results for the three months ended March 31 are as follows:
(in millions, except per share amounts) 2023 2022 % Change 1
Revenue $ 3,160 $ 2,389 32%
Operating profit 2
$ 1,144 $ 1,892 (40)%
Operating margin % 36 % 79 %
Diluted earnings per share from net income $ 2.47 $ 4.47 (45)%
1 % changes in the tables throughout the MD&A are calculated off of the actual number, not the rounded number presented.
2 2023 includes IHS Markit merger costs of $64 million, a gain on dispositions of $50 million, disposition-related costs of $13 million, employee severance charges of $12 million and acquisition-related costs of $2 million. 2022 includes a gain on dispositions of $1.3 billion, IHS Markit merger costs of $230 million, a S&P Foundation grant of $200 million, employee severance charges of $78 million, acquisition-related costs of $15 million and lease impairments of $5 million. 2023 and 2022 also includes amortization of intangibles from acquisitions of $275 million and $125 million, respectively.
Revenue increased 32% primarily due to the impact of the merger with IHS Markit; subscription revenue growth for certain Desktop products, RatingsXpress®, RatingsDirect®, and certain data feed products within Data & Advisory Solutions at Market Intelligence; continued demand for market data and market insights products and higher conference revenue at Commodity Insights; higher exchange-traded derivative revenue and higher data subscription revenue at Indices. These increases were partially offset by a decrease in revenue at Ratings primarily due to lower bank loan ratings revenue. Foreign exchange rates had an unfavorable impact of 2 percentage points.
Operating profit decreased 40%. Excluding the unfavorable impact of a higher gain on dispositions in 2022 of 79 percentage points, higher amortization of intangibles from acquisitions in 2023 of 9 percentage points and disposition-related costs in 2023 of 1 percentage point, partially offset by the impact of a S&P Foundation grant in 2022 of 12 percentage points, higher IHS Markit merger costs in 2022 of 10 percentage points, higher employee severance charges in 2022 of 4 percentage points and higher acquisition-related costs in 2022 of 1 percentage point, operating profit increased 22%. The increase was primarily due to revenue growth, partially offset by expenses associated with the merger with IHS Markit, an increase in compensation costs, higher technology costs and the resumption of business travel to more normalized levels in 2023. Foreign exchange rates had a favorable impact of less than 1 percentage point.
Our Strategy
We are a provider of credit ratings, benchmarks, analytics and workflow solutions in the global capital, commodity, automotive and engineering markets. Our purpose is to accelerate progress. We seek to deliver on this purpose in line with our core values of discovery, partnership and integrity.
In 2022, we announced the launch of Powering Global Markets to provide a framework for our forward-looking business strategy. Through this framework, we focus on our customer’s ever-changing needs, growing our core businesses, innovating in new markets and leveraging the power of our data and technology. In 2023, we are striving to deliver on our strategic priorities in the following key areas:
Finance
• Meeting or exceeding our organic revenue growth and EBITA margin targets;
• Realizing our merger/integration commitments - cost and revenue synergy targets; and
• Driving growth and superior shareholder returns through effective execution, active portfolio management and prudent capital allocation.
Customer at the Core
• Enhancing customer support and seamless user experience with a focus on ease of discoverability, distribution, and delivery of our products and services and integrated capabilities; and
• Continuing to invest in customer facing solutions and processes.
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Grow and Innovate
• Continuing to fund and accelerate key growth areas and transformational adjacencies;
• Exercising disciplined organic capital allocation, inorganic and partnership strategies; and
• Growing the value of S&P Global’s brand through an integrated marketing and communication strategy; driving awareness and consideration across the product offering.
Data and Technology
• Efficient integration, accessibility and governance of enterprise data assets, with initial focus on sustainability data, data science and enterprise-wide data management through the formation of a data council to drive enterprise value creation;
• Advancing transition to optimize tech spend practice i.e., shifting the balance towards funding higher growth innovation, establishing key spend benchmarks and 3-year transition plan; and
• Continuing momentum in transitioning all products and services to a cloud-based ecosystem while implementing technologies that align to our customer needs and unlock new opportunities.
Lead and Inspire
• Continuing to improve diverse representation through hiring, advancement and retention, while continuing to raise awareness through Diversity, Equity, and Inclusion education; and
• Ensuring our people are engaged with a particular focus on learning, development and career opportunities, and continue to embed our purpose and values throughout the Company.
Execute and Deliver
• Driving continuous commitment to risk management, compliance, and control across S&P Global; and
• Creating a more sustainable impact.
There can be no assurance that we will achieve success in implementing any one or more of these strategies as a variety of factors could unfavorably impact operating results, including prolonged difficulties in the global credit markets and a change in the regulatory environment affecting our businesses. See Item 1A, Risk Factors in this Form 10-Q and our most recently filed Annual Report on Form 10-K.
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RESULTS OF OPERATIONS — COMPARING THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
Consolidated Review
(in millions) 2023 2022 % Change
Revenue $ 3,160 $ 2,389 32%
Total Expenses:
Operating-related expenses 1,088 749 45%
Selling and general expenses 705 958 (26)%
Depreciation and amortization 287 137 N/M
Total expenses 2,080 1,844 13%
Gain on dispositions (50) (1,344) (96)%
Equity in Income on Unconsolidated Subsidiaries (14) (3) N/M
Operating profit 1,144 1,892 (40)%
Other expense (income), net 11 (49) N/M
Interest expense, net 85 57 51%
Loss on extinguishment of debt, net — 17 N/M
Provision for taxes on income 188 568 (67)%
Net income 860 1,299 (34)%
Less: net income attributable to noncontrolling interests (65) (64) (2)%
Net income attributable to S&P Global Inc. $ 795 $ 1,235 (36)%
N/M – Represents a change equal to or in excess of 100% or not meaningful
Revenue
The following table provides consolidated revenue information for the three months ended March 31:
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(in millions) 2023 2022 % Change
Revenue $ 3,160 $ 2,389 32%
Subscription revenue 1,740 1,125 55%
Non-subscription / transaction revenue 598 512 17%
Non-transaction revenue 403 425 (5)%
Asset-linked fees 210 218 (4)%
Sales usage-based royalties 84 69 22%
Recurring variable 125 40 N/M
% of total revenue:
Subscription revenue 55 % 47 %
Non-subscription / transaction revenue 19 % 21 %
Non-transaction revenue 13 % 18 %
Asset-linked fees 7 % 9 %
Sales usage-based royalties 2 % 3 %
Recurring variable 4 % 2 %
U.S. revenue $ 1,926 $ 1,426 35%
International revenue:
European region 711 567 25%
Asia 337 264 28%
Rest of the world 186 132 40%
Total international revenue $ 1,234 $ 963 28%
% of total revenue:
U.S. revenue 61 % 60 %
International revenue 39 % 40 %
N/M – Represents a change equal to or in excess of 100% or not meaningful
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Revenue increased 32% as compared to the three months ended March 31, 2022. Subscription revenue increased primarily due to the impact of the merger with IHS Markit. Subscription revenue growth in Desktop products, Credit & Risk Solutions and Data & Advisory Solutions at Market Intelligence, continued demand for Commodity Insights market data and market insights products and higher data subscription revenue at Indices also contributed to the increase. Non-subscription / transaction revenue increased due to the impact of the merger with IHS Markit and an increase in conference revenue at Commodity Insights, partially offset by a decrease in bank loan ratings revenue at Ratings. Non-transaction revenue decreased due to a decrease in new entity credit ratings revenue, lower Ratings Evaluation Service (“RES”) revenue driven by decreased M&A activity and the unfavorable impact of foreign exchange rates, partially offset by an increase in revenue at our CRISIL subsidiary. Asset linked fees decreased primarily due to lower average levels of assets under management for ETFs and mutual funds at Indices. The increase in sales-usage based royalties was primarily driven by higher exchange-traded derivative revenue at Indices. Recurring variable revenue at Market Intelligence increased due to the impact of the merger with IHS Markit and represents revenue from contracts for services that specify a fee based on, among other factors, the number of trades processed, assets under management, or the number of positions valued. See “Segment Review” below for further information.
The unfavorable impact of foreign exchange rates reduced revenue by 2 percentage points. This impact refers to constant currency comparisons estimated by recalculating current year results of foreign operations using the average exchange rate from the prior year.
Total Expenses
The following tables provide an analysis by segment of our operating-related expenses and selling and general expenses for the three months ended March 31:
(in millions) 2023 2022 % Change
Operating-
related expenses Selling and
general expenses Operating-
related expenses Selling and
general expenses Operating-
related expenses Selling and
general expenses
Market Intelligence 1
$ 488 $ 250 $ 322 $ 190 52% 31%
Ratings 2
233 105 237 110 (2)% (4)%
Commodity Insights 3
182 104 114 78 61% 33%
Mobility 4
99 117 30 41 N/M N/M
Indices 5
53 45 48 45 10% (1)%
Engineering Solutions 6
64 20 21 7 N/M N/M
Intersegment eliminations 7
(42) — (39) — (9)% N/M
Total segments 1,077 642 733 472 47% 36%
Corporate Unallocated expense 8
11 63 16 487 (79)% (87)%
Total $ 1,088 $ 705 $ 749 $ 958 45% (26)%
N/M – Represents a change equal to or in excess of 100% or not meaningful
1 2023 includes IHS Markit merger costs of $13 million and employee severance charges of $6 million. 2022 includes employee severance charges of $18 million and acquisition-related costs of $2 million.
2 2023 and 2022 include employee severance charges of $1 million and $5 million, respectively.
3 2023 includes IHS Markit merger costs of $13 million and employee severance charges of $2 million. 2022 includes employee severance charges of $7 million and acquisition-related costs of $2 million.
4 2023 includes IHS Markit merger costs of $1 million and acquisition-related costs of $1 million. 2022 includes acquisition-related costs of $1 million.
5 2023 includes employee severance charges of $1 million and IHS Markit merger costs of $1 million. 2022 includes employee severance charges of $2 million.
6 2022 includes employee severance charges of $1 million.
7 Intersegment eliminations primarily relate to a royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings.
8 2023 includes IHS Markit merger costs of $37 million, disposition-related costs of $13 million, employee severance charges of $1 million and acquisition-related costs of $1 million. 2022 includes IHS Markit merger costs of $230 million, a S&P Foundation grant of $200 million, employee severance charges of $46 million, acquisition-related costs of $11 million and lease impairments of $5 million.
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Operating-Related Expenses
Operating-related expenses increased 45% primarily driven by the impact of the merger with IHS Markit and higher compensation costs.
Intersegment eliminations primarily relate to a royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings.
Selling and General Expenses
Selling and general expenses decreased 26%. Excluding the favorable impact of a S&P Foundation grant in 2022 of 32 percentage points, higher IHS Markit merger costs in 2022 of 26 percentage points, higher employee severance charges in 2022 of 10 percentage points, higher acquisition-related costs in 2022 of 2 percentage points and lease impairments in 2022 of 1 percentage point, partially offset by disposition-related costs in 2023 of 2 percentage points, selling and general expenses increased 43%. The increase was primarily driven by the impact of the merger with IHS Markit and higher compensation costs.
Depreciation and Amortization
Depreciation and amortization was $287 million in 2023 compared to $137 million in 2022, primarily due to higher intangible asset amortization driven by the impact of the merger with IHS Markit.
Gain on Dispositions
During the three months ended March 31, 2023, we received a contingent payment that resulted a pre-tax gain of $50 million which was included in Gain on dispositions in the consolidated statements of income:
• In the first quarter of 2023, we received a contingent payment following the sale of Leveraged Commentary and Data (“LCD”) along with a related family of leveraged loan indices in June of 2022. The contingent payment was payable six months following the closing upon the achievement of certain conditions related to the transition of LCD customer relationships. During the three months ended March 31, 2023, the contingent payment resulted in a pre-tax gain of $46 million ($34 million after-tax) related to the sale of LCD in our Market Intelligence segment and $4 million ($3 million after-tax) related to the sale of a family of leveraged loan indices in our Indices segment.
During the three months ended March 31, 2022, we completed the following dispositions that were included in Gain on dispositions in the consolidated statement of income:
• In March of 2022, we completed the previously announced sale of CUSIP Global Services (“CGS”), a business within our Market Intelligence segment, to FactSet Research Systems Inc. for a purchase price of $1.925 billion in cash, subject to customary adjustments. During the three months ended March 31, 2022, we recorded a pre-tax gain of $1.344 billion ($999 million after tax) in Gain on dispositions in the consolidated statements of income related to the sale of CGS.
• In February of 2022, we completed the previously announced sale of Oil Price Information Services (“OPIS”) to News Corp for $1.150 billion in cash. We did not recognize a gain on the sale of OPIS.
Operating Profit
We consider operating profit to be an important measure for evaluating our operating performance and we evaluate operating profit for each of the reportable business segments in which we operate.
We internally manage our operations by reference to operating profit with economic resources allocated primarily based on each segment's contribution to operating profit. Segment operating profit is defined as operating profit before Corporate Unallocated expense and Equity in Income on Unconsolidated Subsidiaries. Segment operating profit is not, however, a measure of financial performance under U.S. GAAP, and may not be defined and calculated by other companies in the same manner.
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The tables below reconcile segment operating profit to total operating profit for the three months ended March 31:
(in millions) 2023 2022 % Change
Market Intelligence 1
$ 229 $ 1,489 (85)%
Ratings 2
477 511 (7)%
Commodity Insights 3
187 158 18%
Mobility 4
64 18 N/M
Indices 5
238 224 6%
Engineering Solutions 6
14 1 N/M
Total segment operating profit 1,209 2,401 (50)%
Corporate Unallocated expense 7
(79) (512) 85%
Equity in Income on Unconsolidated Subsidiaries 8
14 3 N/M
Total operating profit $ 1,144 $ 1,892 (40)%
N/M – Represents a change equal to or in excess of 100% or not meaningful
1 2023 includes a gain on disposition of $46 million, IHS Markit merger costs of $13 million and employee severance charges of $6 million. 2022 includes a gain on disposition of $1.3 billion, employee severance charges of $18 million and acquisition-related costs of $2 million. 2023 and 2022 include amortization of intangibles from acquisitions of $141 million and $64 million, respectively.
2 2023 and 2022 include employee severance charges of $1 million and $5 million, respectively. 2023 and 2022 both include amortization of intangibles from acquisitions of $2 million.
3 2023 includes IHS Markit merger costs of $13 million and employee severance charges of $2 million. 2022 includes employee severance charges of $7 million and acquisition-related costs of $2 million. 2023 and 2022 include amortization of intangibles from acquisitions of $33 million and $13 million, respectively.
4 2023 includes IHS Markit merger costs of $1 million and acquisition-related costs of $1 million. 2022 includes acquisition-related costs of $1 million. 2023 and 2022 include amortization of intangibles from acquisitions of $74 million a nd $24 million , respectively.
5 2023 includes a gain on disposition of $4 million, employee severance charges of $1 million and IHS Markit merger costs of $1 million. 2022 includes employee severance charges of $2 million. 2023 and 2022 include amortization of intangibles from acquisitions of $9 million and $4 million, respectively.
6 2022 includes employee severance charges of $1 million. 2023 and 2022 includes amortization of intangibles from acquisitions of $2 million and $4 million, respectively.
7 2023 includes IHS Markit merger costs of $37 million, disposition-related costs of $13 million, employee severance charges of $1 million and acquisition-related costs of $1 million. 2022 includes IHS Markit merger costs of $230 million, S&P Foundation grant of $200 million, employee severance charges of $46 million, acquisition-related costs of $11 million and lease impairments of $5 million. 2023 includes amortization of intangibles from acquisitions of $1 million.
8 2023 and 2022 both include amortization of intangibles from acquisitions of $14 million.
Segment Operating Profit — Segment operating profit decreased 50% as compared to 2022. Excluding the unfavorable impact of a higher gain on dispositions in 2022 of 63 percentage points, higher amortization of intangibles from acquisitions in 2023 of 7 percentage points and higher IHS Markit merger costs in 2023 of 1 percentage point, partially offset by higher employee severance charges in 2022 of 1 percentage point, segment operating profit increased 21%. The increase was primarily due to revenue growth, partially offset by expenses associated with the merger with IHS Markit, an increase in compensation costs, higher technology costs and the resumption of business travel to more normalized levels in 2023. See “Segment Review” below for further information.
Corporate Unallocated Expense— Corporate Unallocated expense includes costs for corporate functions, select initiatives, unoccupied office space and Kensho, included in selling and general expenses. Corporate Unallocated expense decreased 85% compared to 2022. Excluding the impact of a S&P Foundation grant in 2022 of 46 percentage points, higher IHS Markit merger costs in 2022 of 45 percentage points, higher employee severance charges in 2022 of 10 percentage points and higher acquisition-related costs in 2022 of 2 percentage points, partially offset by disposition-related costs in 2023 of 3 percentage points, Corporate Unallocated expense increased 17% primarily due to higher executive costs.
Equity in Income on Unconsolidated Subsidiaries— The Company holds an investment in a 50/50 joint venture arrangement with shared control with CME Group that combined each company’s post-trade services into a joint venture, OSTTRA. The joint venture provides trade processing and risk mitigation operations and incorporates CME’s optimization businesses
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(Traiana, TriOptima, and Reset) and the Company’s MarkitSERV business. The combination is intended to increase operating efficiencies of both businesses to more effectively service clients with enhanced platforms and services for OTC markets across interest rate, FX, equity, and credit asset classes. Equity in Income on Unconsolidated Subsidiaries includes the OSTTRA joint venture acquired in connection with the merger with IHS Markit. Equity in Income on Unconsolidated Subsidiaries was $14 million and $3 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
Foreign exchange rates had a favorable impact on operating profit of less than 1 percentage point. This impact refers to constant currency comparisons and the remeasurement of monetary assets and liabilities. Constant currency impacts are estimated by re-calculating current year results of foreign operations using the average exchange rate from the prior year. Remeasurement impacts are based on the variance between current-year and prior-year foreign exchange rate fluctuations on assets and liabilities denominated in currencies other than the individual business’s functional currency.
Other Expense (Income), net
Other expense (income), net includes gains and losses on our mark-to-market investments and the net periodic benefit cost for our retirement and post retirement plans. Other expense, net was $11 million for the three months ended March 31, 2023 compared to other income, net of $49 million for the three months ended March 31, 2022, primarily due to losses on our mark-to-market investments in 2023 compared to gains in 2022.
Interest Expense, net
Interest expense, net increased $28 million compared to the three months ended March 31, 2022, primarily due to higher debt balances in the first quarter of 2023 resulting from the Exchange Offer that took place in March of 2022 in connection with the merger of IHS Markit.
Loss on Extinguishment of Debt, net
During the three months ended March 31, 2022, we recognized a $17 million loss on extinguishment of debt which includes a $118 million tender premium paid to tendering note holders in accordance with the terms of the tender offer, offset by a $101 million non-cash write-off related to the fair market value step up premium on extinguished debt.
Provision for Income Taxes
The effective income tax rate was 17.9% for the three months ended March 31, 2023 and 30.4% for the three months ended March 31, 2022, respectively. The higher rate for the three months ended March 31, 2022 was primarily due to the tax charge on merger related divestitures and deal related non-deductible costs.
Segment Review
Market Intelligence
Market Intelligence is a global provider of multi-asset-class data and analytics integrated with purpose-built workflow solutions. Market Intelligence's portfolio of capabilities are designed to help trading and investment professionals, government agencies, corporations and universities track performance, generate alpha, identify investment ideas, understand competitive and industry dynamics, perform valuations and manage credit risk.
In January of 2023, we completed the acquisition of ChartIQ, a premier charting provider for the financial services industry. ChartIQ is a professional grade charting solution that allows users to visualize data with a fully interactive web-based library that works seamlessly across web, mobile and desktop. It provides advanced capabilities including trade visualization, options analytics, technical analysis and more. Additionally, ChartIQ allows clients to visualize vendor-supplied data combined with their own proprietary content, alternative datasets or analytics. The acquisition further enhances our S&P Capital IQ Pro platform, our digital investment solutions provider Markit Digital and other workflow solutions to provide the industry with leading visualization capabilities. The acquisition of ChartIQ is not material to our consolidated financial statements.
In January of 2023, we completed the acquisition of TruSight Solutions LLC (“TruSight”) a provider of third-party vendor risk assessments. The acquisition further expands the breadth and depth of S&P Global’s third party vendor risk management solutions by offering high-quality validated assessment data to clients designed to reduce further the vendor due diligence
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burden on service providers to the financial services industry. The acquisition of TruSight is not material to our consolidated financial statements.
In the first quarter of 2023, we received a contingent payment following the sale of Leveraged Commentary and Data (“LCD”) that resulted a pre-tax gain of $46 million ($34 million after-tax) which was included in Gain on dispositions in the consolidated statements of income.
In March of 2022, we completed the previously announced sale of CUSIP Global Services (“CGS”), a business within our Market Intelligence segment, to FactSet Research Systems Inc. for a purchase price of $1.925 billion in cash, subject to customary adjustments. During the three months ended March 31, 2022, we recorded a pre-tax gain of $1.344 billion ($999 million after tax) in Gain on dispositions in the consolidated statements of income related to the sale of CGS.
See Note 2 - Acquisitions and Divestitures to the consolidated financial statements of this Form 10-Q for information on the merger with IHS Markit.
Market Intelligence includes the following business lines:
• Desktop — a product suite that provides data, analytics and third-party research for global finance and corporate professionals, which includes the Capital IQ platforms (which are inclusive of S&P Capital IQ Pro, Capital IQ, Office and Mobile products);
• Data & Advisory Solutions — a broad range of research, reference data, market data, derived analytics and valuation services covering both the public and private capital markets, delivered through flexible feed-based or API delivery mechanisms. This also includes issuer solutions for public companies, a range of products for the maritime & trade market, data and insight into Financial Institutions, the telecoms, technology and media space as well as ESG and supply chain data analytics;
• Enterprise Solutions — software and workflow solutions that help our customers manage and analyze data; identify risk; reduce costs; and meet global regulatory requirements. The portfolio includes industry leading financial technology solutions like Wall Street Office, Enterprise Data Manager, Information Mosaic, and iLevel. Our Global Markets Group offering delivers bookbuilding platforms across multiple assets including municipal bonds, equities and fixed income; and
• Credit & Risk Solutions — commercial arm that sells Ratings' credit ratings and related data and research, advanced analytics, and financial risk solutions which includes subscription-based offerings, RatingsXpress®, RatingsDirect® and Credit Analytics.
Subscription revenue at Market Intelligence is primarily derived from distribution of data, valuation services, analytics, third party research, and credit ratings-related information through both feed and web-based channels. Subscription revenue also includes software and hosted product offerings which provide maintenance and continuous access to our platforms over the contract term. Recurring variable revenue at Market Intelligence represents revenue from contracts for services that specify a fee based on, among other factors, the number of trades processed, assets under management, or the number of positions valued. Non-subscription revenue at Market Intelligence is primarily related to certain advisory, pricing conferences and events, and analytical services.
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The following table provides revenue and segment operating profit information for the three months ended March 31:
(in millions) 2023 2022 % Change
Revenue $ 1,071 $ 727 47%
Subscription revenue $ 890 $ 659 35%
Recurring variable revenue $ 125 $ 40 N/M
Non-subscription revenue $ 56 $ 28 95%
% of total revenue:
Subscription revenue 83 % 90 %
Recurring variable revenue 12 % 6 %
Non-subscription revenue 5 % 4 %
U.S. revenue $ 628 $ 434 45%
International revenue $ 443 $ 293 51%
% of total revenue:
U.S. revenue 59 % 60 %
International revenue 41 % 40 %
Operating profit 1
$ 229 $ 1,489 (85)%
Operating margin % 21 % 205 %
N/M – Represents a change equal to or in excess of 100% or not meaningful
1 2023 includes a gain on disposition of $46 million, IHS Markit merger costs of $13 million and employee severance charges of $6 million. 2022 includes a gain on disposition of $1.3 billion, employee severance charges of $18 million and acquisition-related costs of $2 million. 2023 and 2022 includes amortization of intangibles from acquisitions of $141 million and $64 million, respectively.
Revenue increased 47% primarily due to the impact of the merger with IHS Markit. Subscription revenue growth for certain Market Intelligence Desktop products, RatingsXpress®, RatingsDirect®, and certain data feed products within Data and Advisory Solutions also contributed to revenue growth. Foreign exchange rates had an unfavorable impact of 2 percentage points.
Operating profit decreas ed 85%. Excludi ng the impact of a higher gain on dispositions in 2022 of 127 percentage points, higher amortization of intangibles in 2023 of 8 percentage points and higher IHS Markit merger costs in 2023 of 1 percentage point, partially offset by higher employee severance charges in 2022 of 1 percentage point and higher acquisition-related costs in 2022 of 1 percentage point, operating profit increased 49% primarily due to revenue growth, partially offset by expenses associated with the merger with IHS Markit, higher compensation costs, higher technology costs, higher outside services costs and the resumption of business travel to more normalized levels in 2023. Foreign exchange rates had an unfavorable impact of 1 percentage point.
For a further discussion of competitive and other risks inherent in our Market Intelligence business, see Item 1A, Risk Factors in this Form 10-Q and our most recently filed Annual Report on Form 10-K. For a further discussion of the legal and regulatory matters see Note 12 – Commitments and Contingencies to the consolidated financial statements of this Form 10-Q.
Ratings
Ratings is an independent provider of credit ratings, research, and analytics, offering investors and other market participants information, ratings and benchmarks. Credit ratings are one of several tools investors can use when making decisions about purchasing bonds and other fixed income investments. They are opinions about credit risk and our ratings express our opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time. Our credit ratings can also relate to the credit quality of an individual debt issue, such as a corporate or municipal bond, and the relative likelihood that the issue may default.
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Ratings disaggregates its revenue between transaction and non-transaction. Transaction revenue primarily includes fees associated with:
• ratings related to new issuance of corporate and government debt instruments, as well as structured finance debt instruments; and
• bank loan ratings.
Non-transaction revenue primarily includes fees for surveillance of a credit rating, annual fees for customer relationship-based pricing programs, fees for entity credit ratings and global research and analytics at CRISIL. Non-transaction revenue also includes an intersegment royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings. Royalty revenue was $36 million and $34 million for the three months ended March 31, 2023 and 2022, respectively.
The following table provides revenue and segment operating profit information for the three months ended March 31:
(in millions) 2023 2022 % Change
Revenue $ 824 $ 868 (5)%
Transaction revenue $ 379 $ 404 (6)%
Non-transaction revenue $ 445 $ 464 (4)%
% of total revenue:
Transaction revenue
46 % 47 %
Non-transaction revenue
54 % 53 %
U.S. revenue $ 460 $ 474 (3)%
International revenue $ 364 $ 394 (7)%
% of total revenue:
U.S. revenue 56 % 55 %
International revenue 44 % 45 %
Operating profit 1
$ 477 $ 511 (7)%
Operating margin % 58 % 59 %
1 2023 and 2022 includes employee severance charges of $1 million and $5 million, respectively. 2023 and 2022 both include amortization of intangibles from acquisitions of $2 million.
Revenue decreased 5%, with an unfavorable impact from foreign exchange rates of 2 percentage points. Transaction revenue decreased primarily due to lower bank loan ratings revenue driven by decreased issuance volumes. Non-transaction revenue decreased due to a decrease in new entity credit ratings revenue, lower Ratings Evaluation Service (“RES”) revenue driven by decreased M&A activity and the unfavorable impact of foreign exchange rates, partially offset by an increase in revenue at our CRISIL subsidiary. Transaction and non-transaction revenue also benefited from improved contract terms across product categories.
Operating profit decreased 7%, with a favorable impact from foreign exchange rates of less than 1 percentage point. Excluding the impact of higher employee severance charges in 2022 of less than 1 percentage point, operating profit decreased 7% primarily due to a decline in revenue partially offset by decrease in expenses. The decrease in expenses was driven by lower occupancy costs, lower outside services expenses and merger-related synergies, partially offset by higher compensation costs.
Market Issuance Volumes
We monitor market issuance volumes regularly within Ratings. Market issuance volumes noted within the discussion that follows are based on where an issuer is located or where the assets associated with an issue are located. Structured Finance issuance includes amounts when a transaction closes, not when initially priced, and excludes domestically rated Chinese issuance. The following tables depict changes in issuance levels as compared to the prior year based on data from SDC Platinum for Corporate bond issuance and based on a composite of external data feeds and Ratings' internal estimates for Structured Finance issuance.
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First Quarter
Compared to Prior Year
Corporate Bond Issuance * U.S. Europe Global
High-yield issuance 20% (2)% (2)%
Investment-grade issuance (14)% 3% (8)%
Total issuance **
(11)% (5)% (13)%
Note – Global issuance includes U.S., Europe, Asia and the rest of the world.
* Includes Industrials and Financial Services.
** Includes rated and non-rated issuance.
• Corporate issuance was down in the U.S. and Europe as a result of less favorable macroeconomic conditions in the first quarter of 2023 compared to the same period in 2022.
First Quarter Compared to Prior Year
Structured Finance Issuance U.S. Europe Global
Asset-backed securities (“ABS”) (12)% 105% (9)%
Structured credit (primarily CLOs) (42)% (39)% (42)%
Commercial mortgage-backed securities (“CMBS”) (87)% (35)% (87)%
Residential mortgage-backed securities (“RMBS”) (63)% (38)% (51)%
Covered bonds * 23% 2%
Total issuance (47)% 6% (28)%
Note – Global issuance includes U.S., Europe, Asia and the rest of the world.
* Represents no activity in 2023 or 2022.
• ABS issuance decreased in the U.S. driven by a decline in Credit Cards, Student Loans, and Non-Traditional / Esoterics and was up in Europe although from a low 2022 base.
• CLO issuance was down in the U.S. and European structured credit markets primarily due to a decline in refinancing.
• CMBS and RMBS issuance was down in the U.S. and Europe reflecting unfavorable market conditions.
• Covered bond (debt securities backed by mortgages or other high-quality assets that remain on the issuer's balance sheet) issuance in Europe increased as cheaper government funding programs slowed down.
For a further discussion of competitive and other risks inherent in our Ratings business, see Item 1A, Risk Factors in this Form 10-Q and our most recently filed Annual Report on Form 10-K. For a further discussion of the legal and regulatory matters see Note 12 – Commitments and Contingencies to the consolidated financial statements of this Form 10-Q.
Commodity Insights
Commodity Insights is a leading independent provider of information and benchmark prices for the commodity and energy markets. Commodity Insights provides essential price data, analytics, industry insights and software & services, enabling the commodity and energy markets to perform with greater transparency and efficiency.
Commodity Insights includes the following business lines:
• Energy & Resources Data & Insights — includes data, news, insights, and analytics for petroleum, gas, power & renewables, petrochemicals, metals & steel, agriculture, and other commodities;
• Price Assessments — includes price assessments and benchmarks, and forward curves;
• Upstream Data & Insights — includes exploration & production data and insights, software and analytics; and
• Advisory & Transactional Services — includes consulting services, conferences, events and global trading services.
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Commodity Insights' revenue is generated primarily through the following sources:
• Subscription revenue — primarily from subscriptions to our market data and market insights (price assessments, market reports and commentary and analytics) along with other information products and software term licenses;
• Sales usage-based royalties — primarily from licensing our proprietary market price data and price assessments to commodity exchanges; and
• Non-subscription revenue — conference sponsorship, consulting engagements, events, and perpetual software licenses.
See Note 2 - Acquisitions and Divestitures to the consolidated financial statements of this Form 10-Q for information on the merger with IHS Markit.
The following table provides revenue and segment operating profit information for the three months ended March 31:
(in millions) 2023 2022 % Change
Revenue $ 508 $ 363 40%
Subscription revenue $ 409 $ 296 38%
Sales usage-based royalties $ 19 $ 19 —%
Non-subscription revenue $ 80 $ 48 67%
% of total revenue:
Subscription revenue 81 % 82 %
Sales usage-based royalties 4 % 5 %
Non-subscription revenue 15 % 13 %
U.S. revenue $ 232 $ 157 47%
International revenue $ 276 $ 206 34%
% of total revenue:
U.S. revenue 46 % 43 %
International revenue 54 % 57 %
Operating profit 1
$ 187 $ 158 18%
Operating margin % 37 % 44 %
N/M - Represents a change equal to or in excess of 100% or not meaningful
1 2023 includes IHS Markit merger costs of $13 million and employee severance charges of $2 million. 2022 includes employee severance costs of $7 million and acquisition-related costs of $2 million. 2023 and 2022 includes amortization of intangibles from acquisitions of $33 million and $13 million, respectively.
Revenue increased 40% primarily due to the impact of the merger with IHS Markit, higher conference revenue and continued demand for market data and market insights products driven by expanded product offerings to our existing customers under enterprise use contracts. The Energy & Resources Data & Insights, Price Assessments and Upstream Data & Insights businesses continue to be the most significant revenue streams, followed by the Advisory & Transactional Services business. Foreign exchange rates had an unfavorable impact of less than 1 percentage point.
Operating profit increased 18%. Excluding the impact of higher amortization of intangibles from acquisitions in 2023 of 10 percentage points and higher IHS Markit merger costs in 2023 of 6 percentage points, partially offset by higher employee severance charges in 2022 of 2 percentage points and acquisition-related costs in 2022 of 1 percentage point, operating profit increased 31%. The increase was primarily due to revenue growth partially offset by expenses associated with the merger with IHS Markit and an increase in costs related to the Commodity Insights conferences in 2023. Foreign exchange rates had a favorable impact of 3 percentage points.
For a further discussion of competitive and other risks inherent in our Commodity Insights business, see Item 1A, Risk Factors in this Form 10-Q and our most recently filed Annual Report on Form 10-K. For a further discussion of the legal and regulatory
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matters see Note 12 – Commitments and Contingencies to the consolidated financial statements of this Form 10-Q.
Mobility
Mobility is a leading provider of solutions serving the full automotive value chain including vehicle manufacturers (OEMs), automotive suppliers, mobility service providers, retailers, consumers, and finance and insurance companies.
In February of 2023, we completed the acquisition of Market Scan Information Systems Inc. (“Market Scan”), a leading provider of automotive pricing and incentive intelligence, including Automotive Payments as a Service TM and its powerful payment calculation engine. The addition of Market Scan to Mobility will enable the integration of detailed transaction intelligence in areas that are complementary to existing services for dealers, OEMs, lenders, and other market participants. The acquisition of Market Scan is not material to our consolidated financial statements.
Mobility includes the following business lines:
• Dealer — includes analytics to predict future buyers, targeted marketing, and vehicle history data to allow people to shop, buy, service and sell used cars;
• Manufacturing — includes insights, forecasts and advisory services spanning the entire automotive value chain, from product planning to marketing, sales and the aftermarket; and
• Financial — includes reports and data feeds to support lenders and insurance companies .
Mobility's revenue is generated primarily through the following sources:
• Subscription revenue — Mobility's core information products provide critical information and insights to all global OEMs, most of the world’s leading suppliers, and the majority of North American dealerships. Mobility operates across both the new and used car markets. Mobility provides data and insight on future vehicles sales and production, including detailed forecasts on technology and vehicle components; supplies car makers and dealers with market reporting products, predictive analytics and marketing automation software; and supports dealers with vehicle history reports, used car listings and service retention services. Mobility also sells a range of services to financial institutions, to support their marketing, insurance underwriting and claims management activities; and
• Non-subscription revenue — One-time transactional sales of data that are non-cyclical in nature – and that are usually tied to underlying business metrics such as OEM marketing spend or safety recall activity – as well as consulting and advisory services.
See Note 2 - Acquisitions and Divestitures to the consolidated financial statements of this Form 10-Q for information on the merger with IHS Markit.
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The following table provides revenue and segment operating profit information for the three months ended March 31:
(in millions) 2023 2022 % Change
Revenue $ 358 $ 115 N/M
Subscription revenue $ 281 $ 86 N/M
Non-subscription revenue $ 77 $ 29 N/M
% of total revenue:
Subscription revenue 78 % 75 %
Non-subscription revenue 22 % 25 %
U.S. revenue $ 294 $ 92 N/M
International revenue $ 64 $ 23 N/M
% of total revenue:
U.S. revenue 82 % 80 %
International revenue 18 % 20 %
Operating profit 1
$ 64 $ 18 N/M
Operating margin % 18 % 16 %
N/M - Represents a change equal to or in excess of 100% or not meaningful
1 2023 includes IHS Markit merger costs of $1 million and acquisition-related costs of $1 million. 2022 includes acquisition-related costs of $1 million. 2023 and 2022 includes amortization of intangibles from acquisitions of $74 million and $24 million, respectively.
Revenue and operating profit increased primarily due to the impact of the merger with IHS Markit. The Mobility business was acquired in connection with the merger with IHS Markit on February 28, 2022 and financial results are included since the date of acquisition.
For a further discussion of competitive and other risks inherent in our Mobility business, see Item 1A, Risk Factors in this Form 10-Q and our most recently filed Annual Report on Form 10-K. For a further discussion of the legal and regulatory matters see Note 12 – Commitments and Contingencies to the consolidated financial statements of this Form 10-Q.
Indices
Indices is a global index provider maintaining a wide variety of valuation and index benchmarks for investment advisors, wealth managers and institutional investors. Indices’ mission is to provide transparent benchmarks to help with decision making, collaborate with the financial community to create innovative products, and provide investors with tools to monitor world markets.
Indices derives revenue from asset-linked fees when investors direct funds into its proprietary designed or owned indexes, sales usage-based royalties of its indices, as well as data subscription arrangements. Specifically, Indices generates revenue from the following sources:
• Investment vehicles — asset-linked fees such as ETFs and mutual funds, that are based on the S&P Dow Jones Indices' benchmarks that generate revenue through fees based on assets and underlying funds;
• Exchange traded derivatives — generate sales usage-based royalties based on trading volumes of derivatives contracts listed on various exchanges;
• Index-related licensing fees — fixed or variable annual and per-issue asset-linked fees for over-the-counter derivatives and retail-structured products; and
• Data and customized index subscription fees — fees from supporting index fund management, portfolio analytics and research.
See Note 2 - Acquisitions and Divestitures to the consolidated financial statements of this Form 10-Q for information on the merger with IHS Markit.
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The following table provides revenue and segment operating profit information for the three months ended March 31:
(in millions) 2023 2022 % Change
Revenue $ 341 $ 322 6%
Asset-linked fees $ 210 $ 218 (4)%
Subscription revenue $ 66 $ 54 21%
Sales usage-based royalties $ 65 $ 50 30%
% of total revenue:
Asset-linked fees 62 % 68 %
Subscription revenue 19 % 17 %
Sales usage-based royalties 19 % 16 %
U.S. revenue $ 281 $ 271 4%
International revenue $ 60 $ 51 17%
% of total revenue:
U.S. revenue 82 % 84 %
International revenue 18 % 16 %
Operating profit 1
$ 238 $ 224 6%
Less: net operating profit attributable to noncontrolling interests 61 59
Net operating profit $ 177 $ 165 8%
Operating margin % 70 % 69 %
Net operating margin % 52 % 51 %
1 2023 includes a gain on disposition of $4 million, employee severance charges of $1 million and IHS Markit merger costs of $1 million. 2022 includes employee severance charges of $2 million. 2023 and 2022 includes amortization of intangibles from acquisitions of $9 million and $4 million, respectively.
Revenue at Indices increased 6% primarily due to higher exchange-traded derivative revenue driven by continued strength in average trading volume from increased volatility, higher data subscription revenue and the impact of the merger with IHS Markit, partially offset by lower average levels of assets under management (“AUM”) for ETFs and mutual funds. Ending AUM for ETFs decreased 6% to $2.723 trillion compared to March 31, 2022. Excluding AUM related to the merger with IHS Markit, average levels of AUM for ETFs decreased 4% to $2.563 trillion compared to the three months ended March 31, 2022. Foreign exchange rates had an unfavorable impact of less than 1 percentage point.
Operating profit increased 6%. Excluding the impact of a higher amortization of intangibles from acquisitions in 2023 of 1 percentage point, operating profit increased 7%. The impact of revenue growth was partially offset by an increase in strategic investments, higher compensation costs driven by annual merit increases and the impact of the merger with IHS Markit. Foreign exchange rates had a favorable impact of less than 1 percentage point.
For a further discussion of competitive and other risks inherent in our Indices business, see Item 1A, Risk Factors in this Form 10-Q and our most recently filed Annual Report on Form 10-K. For a further discussion of the legal and regulatory matters see Note 12 – Commitments and Contingencies to the consolidated financial statements of this Form 10-Q.
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Engineering Solutions
Engineering Solutions is a leading provider of engineering standards and related technical knowledge. Engineering Solutions includes our Product Design offerings that provide technical professionals with the information and insight required to more effectively design products, optimize engineering projects and outcomes, solve technical problems and address complex supply chain issues. Our offerings utilize advanced knowledge discovery technologies, research tools, and software-based engineering decision engines to advance innovation, maximize productivity, improve quality and reduce risk.
Engineering Solutions' revenue is generated primarily through the following sources:
• Subscription revenue — primarily from subscriptions to our Product Design offerings providing standards, codes and specifications; applied technical reference; engineering journals, reports, best practices, and other vetted technical reference; and patents and patent applications, which includes Engineering Workbench; Goldfire's cognitive search and other advanced knowledge discovery capabilities that help pinpoint answers buried in enterprise systems and unstructured data enabling engineers and technical professionals to accelerate problem solving; and
• Non-subscription revenue — primarily from retail transaction and consulting services.
On January 14, 2023, we entered into a securities and asset purchase agreement with Allium Buyer LLC, a Delaware limited liability company controlled by funds affiliated with Kohlberg Kravis Roberts & Co. L.P. (“KKR”) to sell our Engineering Solutions business for $975 million in cash, subject to customary purchase price adjustments. We currently anticipate the divestiture to result in after-tax proceeds of approximately $750 million, which proceeds are expected to be used for share repurchases. The agreement follows our announced intent in November of 2022 to divest the business. Engineering Solutions became part of the Company following our merger with IHS Markit. The transaction, which is subject to receipt of required regulatory approvals and satisfying other customary closing conditions, is expected to close in the second quarter of 2023.
See Note 2 - Acquisitions and Divestitures to the consolidated financial statements of this Form 10-Q for information on the merger with IHS Markit.
The following table provides revenue and segment operating profit information for the three months ended March 31:
(in millions) 2023 2022 % Change
Revenue $ 100 $ 33 N/M
Subscription revenue $ 94 $ 30 N/M
Non-subscription revenue $ 6 $ 3 N/M
% of total revenue:
Subscription revenue 94 % 91 %
Non-subscription revenue 6 % 9 %
U.S. revenue $ 54 $ 18 N/M
International revenue $ 46 $ 15 N/M
% of total revenue:
U.S. revenue 54 % 55 %
International revenue 46 % 45 %
Operating profit 1
$ 14 $ 1 N/M
Operating margin % 15 % 4 %
N/M - Represents a change equal to or in excess of 100% or not meaningful
1 2022 includes e mployee severance charges of $1 million. 2023 and 2022 includes amortization of intangibles from acquisitions of $2 million and $4 million, respectively.
Revenue and operating profit increased primarily due to the impact of the merger with IHS Markit. The Engineering Solutions business was acquired in connection with the merger with IHS Markit on February 28, 2022 and financial results are included since the date of acquisition.
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For a further discussion of competitive and other risks inherent in our Engineering Solutions business, see Item 1A, Risk Factors in this Form 10-Q and our most recently filed Annual Report on Form 10-K. For a further discussion of the legal and regulatory matters see Note 12 – Commitments and Contingencies to the consolidated financial statements of this Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
We continue to maintain a strong financial position. Our primary source of funds for operations is cash from our businesses. Cash on hand, cash flows from operations and availability under our existing credit facility are expected to be sufficient to meet any additional operating and recurring cash needs into the foreseeable future. We use our cash for a variety of needs, including but not limited to: ongoing investments in our businesses, strategic acquisitions, share repurchases, dividends, repayment of debt, capital expenditures and investment in our infrastructure.
Cash Flow Overview
Cash, cash equivalents, and restricted cash were $1,405 million as of March 31, 2023, an increase of $118 million from December 31, 2022.
The following table provides cash flow information for the three months ended March 31:
(in millions) 2023 2022 % Change
Net cash provided by (used for):
Operating activities $ 594 $ 222 N/M
Investing activities $ (253) $ 2,901 N/M
Financing activities $ (230) $ (5,205) (96)%
In the first three months of 2023, free cash flow increased $337 million to $488 million compared to $151 million in the first three months of 2022. The increase is primarily due to an increase in cash provided by operating activities as discussed below. Free cash flow is a non-GAAP financial measure and reflects our cash flow provided by operating activities less capital expenditures and distributions to noncontrolling interest holders. Capital expenditures include purchases of property and equipment and additions to technology projects. See “Reconciliation of Non-GAAP Financial Information” below for a reconciliation of cash flow provided by operating activities, the most directly comparable U.S. GAAP financial measure, to free cash flow and free cash flow excluding certain items.
Operating activities
Cash provided by operating activities increased $372 million to $594 million for the first three months of 2023. The increase is mainly due to higher operating results in 2023, and higher IHS Markit merger costs and a grant payment to the S&P Global Foundation in 2022.
Investing activities
Our cash outflows from investing activities are primarily for acquisitions and capital expenditures, while cash inflows are primarily proceeds from dispositions.
Cash used for investing activities was $253 million for the first three months of 2023 compared to cash provided by investing activities of $2,901 million in the first three months of 2022, primarily due to cash received from the dispositions of CUSIP Global Services and Oil Price Information Services in 2022. See Note 2 — Acquisitions and Divestitures to the consolidated financial statements of this Form 10-Q for further discussion.
Financing activities
Our cash outflows from financing activities consist primarily of share repurchases, dividends to shareholders and repayments of short-term and long-term debt, while cash inflows are primarily attributable to the borrowing of short-term and long-term debt and proceeds from the exercise of stock options.
Cash used for financing activities decreased $4,975 million to $230 million for the first three months of 2023. The decrease is primarily attributable to a decrease in cash used for share repurchases in 2023. During the three months ended March 31, 2023,
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we purchased a total of 1.1 million shares for $500 million of cash. During the three months ended March 31, 2022, we purchased a total of 15.2 million shares for $7.0 billion of cash. See Note 8 — Equity to the consolidated financial statements of this Form 10-Q for further discussion.
Contractual Obligations
We typically have various contractual obligations, which are recorded as liabilities in our consolidated balance sheets, while other items, such as certain purchase commitments and other executory contracts, are not recognized. For example, we are contractually committed to contracts for information-technology outsourcing, certain enterprise-wide information-technology software licensing and maintenance. In the first quarter of 2023, S&P Global and Amazon Web Services (“AWS”) entered into a multi-year strategic collaboration agreement with a purchase obligation of $1.0 billion, before incremental credits, over a five-year period. With AWS as its preferred cloud provider, S&P Global will enhance its cloud infrastructure, accelerate business growth, engineer new innovations for key industry segments, and help their customers navigate rapidly changing market conditions .
Additional Financing
We have the ability to borrow a total of $2.0 billion through our commercial paper program, which is supported by our $2.0 billion five-year credit agreement (our “credit facility”) that will terminate on April 26, 2026. As of March 31, 2023 and December 31, 2022, respectively, there was $898 million and $188 million of commercial paper outstanding.
Commitment fees for the unutilized commitments under the credit facility and applicable margins for borrowings thereunder are linked to the Company achieving three environmental sustainability performance indicators related to emissions, tested annually. We currently pay a commitment fee of 8 basis points. The credit facility contains customary affirmative and negative covenants and customary events of default. The occurr ence of an event of default could result in an acceleration of the obligations under the credit facility.
T he only financial covenant required is that our indebtedness to cash flow ratio, as defined in our credit facility, was not greater than 4 to 1, and this covenant level has never been exceeded.
Dividends
On January 25, 2023, the Board of Directors approved a quarterly common stock dividend of $0.90 per share.
Supplemental Guarantor Financial Information
The senior notes described below were issued by S&P Global Inc. and are fully and unconditionally guaranteed by Standard & Poor's Financial Services LLC, a 100% owned subsidiary of the Company. All senior notes described below have been registered with the SEC.
• On August 13, 2020, we issued $600 million of 1.25% senior notes due in 2030 and $700 million of 2.3% senior notes due in 2060.
• On November 26, 2019, we issued $500 million of 2.5% senior notes due in 2029 and $600 million of 3.25% senior notes due in 2049.
• On May 17, 2018, we issued $500 million of 4.5% senior notes due in 2048.
• On September 22, 2016, we issued $500 million of 2.95% senior notes due in 2027.
• On May 26, 2015, we issued $700 million of 4.0% senior notes due in 2025.
• On November 2, 2007 we issued $400 million of 6.55% Senior Notes due 2037.
• On March 1, 2023, S&P Global Inc. issued new senior notes that have been registered with the SEC and guaranteed by Standard & Poor's Financial Services LLC in exchange for the following series of unregistered senior notes of like principal amount and terms:
• $700 million of 4.75% Senior Notes due 2028 that were originally issued on March 2, 2022;
• $921 million of 4.25% Senior Notes due 2029 that were originally issued on March 2, 2022;
• $1,237 million of 2.45% Senior Notes due 2027 that were originally issued on March 18, 2022;
• $1,227 million of 2.70% Sustainability-Linked Senior Notes due 2029 that were originally issued on March 18, 2022;
• $1,492 million of 2.90% Senior Notes due 2032 that were originally issued on March 18, 2022;
• $974 million of 3.70% Senior Notes due 2052 that were originally issued on March 18, 2022; and
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• $500 million of 3.90% Senior Notes due 2062 that were originally issued on March 18, 2022.
The notes above are unsecured and unsubordinated and rank equally and ratably with all of our existing and future unsecured and unsubordinated debt. The guarantees are the subsidiary guarantor’s unsecured and unsubordinated debt and rank equally and ratably with all of the subsidiary guarantor’s existing and future unsecured and unsubordinated debt.
The guarantees of the subsidiary guarantor may be released and discharged upon (i) a sale or other disposition (including by way of consolidation or merger) of the subsidiary guarantor or the sale or disposition of all or substantially all the assets of the subsidiary guarantor (in each case other than to the Company or a person who, prior to such sale or other disposition, is an affiliate of the Company); (ii) upon defeasance or discharge of any applicable series of the notes, as described above; or (iii) at such time as the subsidiary guarantor ceases to guarantee indebtedness for borrowed money, other than a discharge through payment thereon, under any Credit Facility of the Company, other than any such Credit Facility of the Company the guarantee of which by the subsidiary guarantor will be released concurrently with the release of the subsidiary guarantor’s guarantees of the notes.
Other subsidiaries of the Company do not guarantee the registered debt securities of either S&P Global Inc. or Standard & Poor's Financial Services LLC (the “Obligor Group”) which are referred to as the “Non-Obligor Group”.
The following tables set forth the summarized financial information of the Obligor Group on a combined basis. This summarized financial information excludes the Non-Obligor Group. Intercompany balances and transactions between members of the Obligor Group have been eliminated. This information is not intended to present the financial position or results of operations of the Obligor Group in accordance with U.S. GAAP.
Summarized results of operations for the three months ended March 31, 2023 are as follows:
(in millions) 2023
Revenue $ 754
Operating Profit 528
Net Income 485
Net income attributable to S&P Global Inc. 485
Summarized balance sheet information as of March 31, 2023 and December 31, 2022 is as follows:
(in millions) March 31, December 31,
2023 2022
Current assets (excluding intercompany from Non-Obligor Group) $ 836 $ 699
Non-current assets 1,356 1,410
Current liabilities (excluding intercompany to Non-Obligor Group) 1,638 1,046
Non-current liabilities 11,075 11,172
Intercompany payables to Non-Obligor Group 12,021 11,926
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
Free cash flow is a non-GAAP financial measure and reflects our cash flow provided by operating activities less capital expenditures and distributions to noncontrolling interest holders, net. Capital expenditures include purchases of property and equipment and additions to technology projects. Our cash flow provided by operating activities is the most directly comparable U.S. GAAP financial measure to free cash flow.
We believe the presentation of free cash flow allows our investors to evaluate the cash generated from our underlying operations in a manner similar to the method used by management. We use free cash flow to conduct and evaluate our business because we believe it typically presents a more conservative measure of cash flows since capital expenditures and distributions to noncontrolling interest holders are considered a necessary component of ongoing operations. Free cash flow is useful for management and investors because it allows management and investors to evaluate the cash available to us to prepay debt, make strategic acquisitions and investments and repurchase stock.
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The presentation of free cash flow is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. Free cash flow, as we calculate it, may not be comparable to similarly titled measures employed by other companies. The following table presents a reconciliation of our cash flow provided by operating activities to free cash flow for the three months ended March 31:
(in millions) 2023 2022 % Change
Cash provided by operating activities $ 594 $ 222 N/M
Capital expenditures (28) (16)
Distributions to noncontrolling interest holders, net
(78) (55)
Free cash flow $ 488 $ 151 N/M
(in millions) 2023 2022 % Change
Cash (used for) provided by investing activities (253) 2,901 N/M
Cash used for financing activities (230) (5,205) (96)%
CRITICAL ACCOUNTING ESTIMATES
Our accounting policies are described in Note 1 — Accounting Policies to the consolidated financial statements in our most recent Form 10-K. As discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in our most recent Form 10-K, we consider an accounting estimate to be critical if it required assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate or different estimates could have a material effect on our results of operations. These critical estimates include those related to revenue recognition, business combinations, allowance for doubtful accounts, valuation of long-lived assets, goodwill and other intangible assets, pension plans, incentive compensation and stock-based compensation, income taxes, contingencies and redeemable non-controlling interests. We base our estimates on historical experience, current developments and on various other assumptions that we believe to be reasonable under these circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that cannot readily be determined from other sources. There can be no assurance that actual results will not differ from those estimates. Since the date of our most recent Form 10-K, there have been no material changes to our critical accounting estimates.
RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS
See Note 13 – Recently Issued or Adopted Accounting Standards to the consolidated financial statements of this Form 10-Q for further information.
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FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995. These statements, including statements about the completed merger (the “Merger”) between a subsidiary of the Company and IHS Markit Ltd. (“IHS Markit”), which express management’s current views concerning future events, trends, contingencies or results, appear at various places in this report and use words like “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “potential,” “predict,” “project,” “strategy,” “target” and similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will” and “would.” For example, management may use forward-looking statements when addressing topics such as: the outcome of contingencies; future actions by regulators; changes in the Company’s business strategies and methods of generating revenue; the development and performance of the Company’s services and products; the expected impact of acquisitions and dispositions; the Company’s effective tax rates; and the Company’s cost structure, dividend policy, cash flows or liquidity.
Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include, among other things:
• worldwide economic, financial, political, and regulatory conditions (including slower GDP growth or recession, instability in the banking sector and inflation), and factors that contribute to uncertainty and volatility, natural and man-made disasters, civil unrest, pandemics (e.g., COVID-19), geopolitical uncertainty (including military conflict), and conditions that may result from legislative, regulatory, trade and policy changes;
• the volatility and health of debt, equity, commodities and energy markets, including credit quality and spreads, the level of liquidity and future debt issuances, demand for investment products that track indices and assessments and trading volumes of certain exchange traded derivatives;
• the demand and market for credit ratings in and across the sectors and geographies where the Company operates;
• the Company’s ability to maintain adequate physical, technical and administrative safeguards to protect the security of confidential information and data, and the potential for a system or network disruption that results in regulatory penalties and remedial costs or improper disclosure of confidential information or data;
• the outcome of litigation, government and regulatory proceedings, investigations and inquiries;
• concerns in the marketplace affecting the Company’s credibility or otherwise affecting market perceptions of the integrity or utility of independent credit ratings, benchmarks, indices and other services;
• our ability to attract, incentivize and retain key employees, especially in a competitive business environment;
• the Company’s exposure to potential criminal sanctions or civil penalties for noncompliance with foreign and U.S. laws and regulations that are applicable in the jurisdictions in which it operates, including sanctions laws relating to countries such as Iran, Russia, Sudan, Syria and Venezuela, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010, and local laws prohibiting corrupt payments to government officials, as well as import and export restrictions;
• the continuously evolving regulatory environment in Europe, the United States and elsewhere around the globe affecting each of our business divisions and the products our business divisions offer, and our compliance therewith;
• the ability of the Company to implement its plans, forecasts and other expectations with respect to IHS Markit’s business and realize expected synergies;
• business disruption following the Merger;
• the Company’s ability to meet expectations regarding the accounting and tax treatments of the Merger;
• the Company’s ability to make acquisitions and dispositions and successfully integrate the businesses we acquire;
• consolidation of the Company’s customers, suppliers or competitors;
• the introduction of competing products or technologies by other companies;
• the effect of competitive products and pricing, including the level of success of new product developments and global expansion;
• the impact of customer cost-cutting pressures;
• a decline in the demand for our products and services by our customers and other market participants;
• the ability of the Company, and its third-party service providers, to maintain adequate physical and technological infrastructure;
• the Company’s ability to successfully recover from a disaster or other business continuity problem, such as an earthquake, hurricane, flood, civil unrest, protests, military conflict, terrorist attack, outbreak of pandemic or contagious diseases, security breach, cyber attack, data breach, power loss, telecommunications failure or other natural or man-made event;
• the level of merger and acquisition activity in the United States and abroad;
• the level of the Company’s future cash flows and capital investments;
• the impact on the Company’s revenue and net income caused by fluctuations in foreign currency exchange rates; and
• the impact of changes in applicable tax or accounting requirements on the Company.
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The factors noted above are not exhaustive. The Company and its subsidiaries operate in a dynamic business environment in which new risks emerge frequently. Accordingly, the Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made, except as required by applicable law. Further information about the Company’s businesses, including information about factors that could materially affect its results of operations and financial condition, is contained in the Company’s filings with the SEC, including Item 1A, Risk Factors , in our most recently filed Annual Report on Form 10-K.
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