Q1 2022 S&P Global Inc Earnings Call

May 3, 2022

Good morning, and welcome to S&P Global's first quarter 2022 earnings conference call I'd like to inform you that this call is being recorded for broadcast all participants are in a listen only mode. We will open the conference to question and answers after the presentation instructions will follow at that time.

The webcast and slides go to Investor <unk> S. P Global Dot Com, if you need any additional technical assistance. Please press star zero and that will assist you momentarily I would now like to introduce Mr. Mark Grant Senior Vice President of Investor Relations for S&P Global Sir you may begin.

Thank you for joining today's S&P global first quarter 2022 earnings call presenting on today's call are Doug Peterson, President and Chief Executive Officer, and <unk>, Steenbergen Executive Vice President and Chief Financial Officer.

We issued a press release with our results earlier today, if you need a copy of the release and financial schedules. They can be downloaded at investor Dot S. P Global Dot com the.

The matters discussed in today's conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including projections estimates and descriptions of future events any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual.

Results to differ materially from results anticipated in these forward looking statements.

Discussion of these risks and uncertainties can be found in our forms 10-K, 10-Q and other periodic reports filed with the U S Securities and Exchange Commission.

In today's earnings release and during the conference call, we're providing adjusted financial information.

This information is provided to enable investors to make meaningful comparisons of the corporation's operating performance between periods and to view the corporation's business from the same perspective as management. The earnings release contains exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with U S. GAAP.

I would also like to call your attention to a European regulation.

Any investor who has or expects to obtain ownership of 5% or more of S&P global should contact investor relations to better understand the potential impact of this legislation on the investor and the company. We're aware that we have some media representatives with us on the call. However, this call is intended for investors and we would ask that questions from them.

Media can be directed to our media relations team, whose contact information can be found in the press release.

At this time I would like to turn the call over to Doug Peterson Doug.

Thank you Mark welcome to today's first quarter earnings call I'd like to start by highlighting the historic event that occurred in the first quarter of 2022, we completed our merger with IHS Markit and I'm incredibly excited to be joining you for our first quarterly earnings call as a combined company. The promise of the merger has already begun to manifest itself.

Culture at our financial performance bigger.

Beginning with a few financial highlights we reported strong financial results with adjusted pro forma revenue, increasing 2% and adjusted pro forma diluted EPS, increasing once it year over year. Despite one of the most challenging issuance environments in recent history.

We saw positive revenue growth in five of our six divisions, including double digit growth in three of them adjusted pro forma expenses increased 8% as we continued to invest in events people in technology, though much of this expense growth is nonrecurring as we'll discuss later on.

We're updating our guidance to reflect the increased uncertainty caused by the macroeconomic and geopolitical landscape and Eva will walk through these details in a moment.

I'd also like to share a few highlights from the first quarter as I mentioned, we completed the merger with IHS Markit had a number of exciting achievements, we announced a $12 billion accelerated share repurchase or ASR and launch the first tranche of $7 billion in March with the remainder to be executed by the end of the year. We took advantage of this still.

Historically low interest rate environment to optimize our capital structure and lower average cost of debt and we had strong attendance at some of the industry's most important conferences, including Cerro week World Petrochemical Conference and T. P. M 22.

While I've only been together for two months, we're already starting to see validation of our investment thesis and the results of our comprehensive planning are paying off we've begun leveraging technology like Ken show across the broader organization to automate processes increase efficiencies, we begun development of several new products and features across the divisions were in.

Integrating our divisional commercial teams and we've already closed synergy deals in multiple divisions.

I want to take a moment to touch on culture and leadership, we brought our combined leadership team together in person for the first time in March we were thrilled to see so many of our colleagues brainstorming planning working and functioning as if they had already been together for years, we saw the free exchange of ideas strong proposals for new growth engines and clear alignment.

Our strategy purpose and values. We also heard a unified voice among our leadership in support of our people first initiatives and our commitment to diversity equity and inclusion.

We came away energized and full of confidence that we'll be able to take the absolute best not only from each company, but from each person in the organization and create something exceptional S&P global I have never been more inspired by our people and I'm more excited than ever to work with them to drive sustainable profitable growth.

When we announced the merger in November 2020, we noted that we needed regulatory approval in multiple jurisdictions. We received final regulatory approval on February 25, 2022, and officially closed the merger three days later on February 28.

We immediately went to work optimizing the capital structure issuing $5 $5 billion of new debt most of which was used to refinance existing debt at lower rates, we completed that refinancing in April 2022.

In order to secure regulatory approval for the merger we were required to divest a number of businesses. The table on this slide lays out the details of those divestitures.

As we have shared with you before the aggregate revenue from all of the businesses being divested is approximately $425 million.

And the margins for each of these businesses are higher than the margins for each of the divisions they were in.

We're confident that we negotiated well on behalf of our shareholders and these transactions evidenced by the approximately 9.5 times revenue multiple paid by the acquirers of these businesses in the aggregate net after tax proceeds will totaled $2.85 billion.

Now to recap the financial results for the first quarter revenue increased 2% to $3 1 billion. Our adjusted operating profit decreased 6% to $1 $4 billion. Our adjusted pro forma operating profit margin decreased approximately 340 basis points to 45% as both profits and <unk>.

Margin were negatively impacted by the decrease in ratings transaction revenue and the expense growth I mentioned earlier.

As you know, we measure and track adjusted segment operating profit margin on a trailing 12 month basis, which decreased 60 basis points to 47%.

In addition to our strong overall revenue performance and continued expense management, we launched a $7 billion a S. R and began optimizing our capital structure combined with tax effects of merger related synergies and prudent investment we increased adjusted pro forma diluted EPS year over year.

Looking across the six divisions I'm encouraged by the fact that even in a challenging macroeconomic environment, we were able to deliver strong revenue across five of our six divisions, including double digit growth in commodity insights mobility and indices in.

In line with the expectations, we laid out on our call in March we did see a year over year decrease in ratings driven by an exceptionally soft issuance environment.

During the first quarter global bond issuance decreased 12%. This understates the impact to our business. However, as high yield issuance declined far more dramatically in the U S issuance in aggregate decreased 25% as investment grade decreased 19% high yield decreased 75% public finance decreased.

15% structured finance increased 9% due to large increases in mortgage backed securities offset by declines in structured credit bank loan ratings declined 35% year over year.

European issuance decreased 14% as investment grade decreased 11% high yield decreased 54% and structured finance increased 27% due to increases in our M. P. S and covered bonds, partially offset by declines in a b S. C. M. P S and structured credit in Asia issuance was flat.

The next two slides look at the difference we saw in the quarter between investment grade issuance and the issuance of high yield and leverage loans.

This slide shows that investment grade issuance was resilient relative to other categories decreasing only 5% year over year.

This slide depicts the combination of high yield issuance in leveraged loan volume. This quarter, we saw a decrease of over 50% from the incredible levels in the year ago period high yield was particularly impacted by the uncertainty in the market with issuance decreasing 68% year over year, while difficult to pinpoint exact causes issuance in the first.

Quarter was impacted both by the pull forward, we witnessed and discussed last year as well as the intentional delay we're hearing from customers as many issuers wait for clearer signs of stability before re entering the market.

Now turning to some of the factors that made this quarter successful for S&P Global we saw significant increases in engagement and usage of our products and our content. This quarter. The metrics on this slide are clear evidence that in periods of increased uncertainty whether that's in the macroeconomic picture market volatility or geopolitical tensions are.

<unk> turned to us.

They turned to us for the insights data and tools that they need to make well informed business and investment decisions.

It's also important to remember that S&P global stronger more diverse product portfolio allows areas of the business to thrive in times of elevated volatility and uncertainty.

Within the S&P Dow Jones indices business, we saw more than 20% growth in revenue from our exchange traded derivatives, whose volumes are directly correlated with market volatility in the commodities markets are global trading services business within commodity insights grew 17% year over year.

During the first quarter, we held a number of premier conferences, attracting thousands of leaders from multiple industries. Several of these conferences returns being in person events for the first time in three years.

One of these was Cerro week for some S&P global investors, Sarah we may be unfamiliar cera week as the world's leading event for the energy industry, taking place in the first quarter each year and hosted in Houston, Texas.

We were thrilled to welcome attendees back in person and it's clear that all of the factors impacting the energy industry right now industry and government leaders wanted to be there we had record attendance with over 5200 delegates 900 speakers and 50 senior government officials with the combined resources of S&P Global Platts and I.

S market, we're confident that Cerro week will continue to grow and set itself apart as the must attend event for energy industry leaders.

We also hosted the annual World Petrochemical conference and the T. P. M conference in the first quarter, both conferences aimed to help industry leaders navigate some of the most pressing challenges facing our global economy W. P. C convenience year to discuss how the chemical industry can help facilitate and thrive in a world progressing towards more sustainable operations.

Including net zero emissions targets.

Our conference is bring people together to drive innovation and growth in different industries, but they also demonstrate the strength of S&P global as a source and a destination for global leadership.

We're thrilled with the progress we've made as we celebrate the first anniversary of sustainable one E.

S. G revenue growth accelerated on both a reported and organic basis in the first quarter growing 57% year over year to reach nearly $50 million.

We continue to introduce new ESG related products and product enhancements at a rapid pace in the first quarter. We saw the launch of 17 ESG Etfs based on our indices and we ended the first quarter with a U M in ESG etf's growing 28% to surpass $33 billion.

Our indices and commodity insights teams collaborated to launch the S&P G. S. C. I electric vehicle metals index, and we continued to enhance ESG scores made available through our capital IQ Pro platform.

What are the greatest advantages we have in ESG is the robust set of data that comes to us through the active participation of covered companies. Our 2021 corporate sustainability assessment saw 64% increase in the number of companies working with us directly to ensure the datasets behind our ESG scores are robust accurate and comprehensive.

Ziv.

Our coverage of more than 11000 companies includes approximately 2300, which provide datasets and disclosure directly to C. S. A.

Our commitment to active partnership with covered companies ensures our ESG scores are informed by the best data available.

Now turning to our outlook.

We have updated our bond issuance forecast for the year to reflect the decrease in the first quarter as well as to better reflect the ongoing impact of macroeconomic uncertainty and the ongoing conflict in Ukraine. We now expect global issuance to decline approximately 5% year over year within a range of down 14% to flat in 2022.

We expect corporates to see a 12% decrease in issuance, partially offset by a 2% increase in financial services issuance, we expect U S public finance and structured finance to each softened by 7% and international public finance to shrink by about one 5%.

As we evaluate the remainder of the year, we wanted to discuss some of the assumptions that underpin our guidance, let me start with our response to the tragic events, taking place in Ukraine, and the impact on our business as we've shared with you previously combined revenue from Russia, and Belarus is less than 1% of our total revenue.

We have suspended commercial operations in Russia, and Belarus, including all customer contracts, we've suspended ratings of Russian entities and remove stocks and bonds listed or dominance held in Russia from our indices.

While the direct financial impact on our business is not material, we acknowledged the indirect impact on the issuance environment and market volatility.

We also wanted to illustrate some of the changes in macroeconomic environment and inform our financial outlook for the company. In addition to lower debt issuance. We now expect slightly lower global GDP growth inflation is also likely to have a greater impact on our business and the economy as a whole relative to our expectations earlier. This year, we're seeing some upward pressure on.

Compensation expense that we expect to continue throughout the rest of the year commodities prices remain elevated relative to our early expectations as well to be clear. This is not meant to be a comprehensive list of all metrics that inform our outlook, but we wanted to help investors understand the changes in some of the assumptions, we make about the global economy when formulating.

Letting guidance.

Before handing it over to Eva I'd like to reiterate how pleased we are with the execution and success, we've seen in a challenging quarter, our ability to drive positive growth in both revenue and adjusted pro forma earnings per share in a quarter like this would have been much more challenging before our merger with IHS markit, the strength stability and scale of our <unk>.

Businesses gives us great confidence to invest for future growth and be optimistic about the years ahead.

We remain committed to our strategic organic investments as illustrated on this slide and we remain confident these investments will power significant future growth and profitability for the company.

With that I'll turn it over to Eva to walk through our results and guidance a vote.

Thank you Doug I want to start by emphasizing the successful execution. We saw this quarter with five of our six deficient posting pro forma revenue growth. It's already clear that we are more resilient, both operationally and financially as a combined company with our larger scale and more diversified revenue streams where more.

Insulated to volatility in the debt issuance market as such we were able to grow pro forma revenue and adjusted EPS year over year, even during a period of sharp decreases in issuance.

Doug highlighted the headline financial results I will take a moment to cover a few other items, but that's a reminder, when we discuss financial results from operations and cash flows were discussing dose results on an adjusted pro forma basis, as if S&P global and IHS Markit were combined for the entirety of all periods per se.

It does.

S explicitly called out as GAAP adjusted results also exclude the contribution from divested businesses in all periods. We have also made minor refinements to the recast pro forma financials for all four quarters of 2021, which can be found in the amended 8-K filed today.

Adjusted corporate unallocated expenses declined from a year ago caused by a combination of reduced incentive and fringe costs as well as the release of short term benefits accruals. Our net interest expense increased 5% as we increased gross debt, partially offset the lower average rates due to refinancings.

The decrease in the adjusted effective tax rate was primarily due to tax deductions related to stock based compensation and merger related optimization of capital and liquidity structure.

As we introduced last year, we'll continue to disclose these three categories of non-GAAP adjustments to provide insights into the type of expenses that we are incurring related to the merger and the synergies. We have discussed transaction cost in the quarter were $281 million. These are costs were later.

Two completing the merger they include legal fees investment banking fees and filing fees integration cost in the quarter were $58 million. These are cost to operationalize. The integration. They include consulting infrastructure and retention costs cost to achieve synergies amounted to 88 mill.

Dollars in the quarter. These are cost needed to enable expense and revenue synergies. They include lease termination severance contract exit fees and investments related to product development marketing and distribution enhancements during the first quarter the non-GAAP operating adjustments collected.

<unk> totaled two $504 million, including a 1.3 billion dollar gain on the sale of businesses and a 200 million dollar contribution to the S&P Global Foundation. In addition to the merger related items I mentioned.

Given the growth in expenses this quarter, we wanted to provide some insight into the drivers many of which are transitional importantly, we expect expense growth to moderate as we progress through the year, even excluding the impact of cost synergies in the first quarter, we recognized $8 million in additional T E.

Expenses as we saw a limited or assumption of travel relative to the last two years. We also saw a 10 million dollar increase in advertising expense associated with our mobility deficient.

Investments in growth initiatives contributed $28 million of the increase were specifically disclosing the increase from what we're calling a step up impact in the quarter. This relates to increases in expenses that we view as a re establishment of baseline costs. The return of in person events included several.

All major conferences in the first quarter as Doug mentioned together. These life events added more than $20 million of incremental expense relative to last year with dish events, we're still virtual <unk>.

Step up costs also incorporate a comprehensive process to align compensation practices across our employee base. One of these changes is to harmonize the timing of annual merit increases to March from April the pull forward of that merit increase cost one month of impact in the first quarter that did not occur in.

A year ago periods will also recognized $15 million in additional expense related to the ongoing cloud transition.

Free cash flow, excluding certain items was $701 million in the first three months of 2020 to note that this is meant to reflect the estimated free cash flow of the combined company as if the merger were closed on January 1st 2022, we will provide some additional color on the drivers of our.

Our cash balance and our gross debt in the next few slides.

Now turning to the balance sheet, our balance sheet continues to be very strong with ample liquidity as of the end of the first quarter, we had cash and cash equivalents of $4 $4 billion and debt of $11 $4 billion, our adjusted gross debt to adjusted EBITDA at the end of the first quarter.

<unk> was 2.57 times.

As you can see our cash balance declined sequentially to $4 $4 billion. The single largest driver in the reduction was a $7 billion in cash paid to fund the first tranche of our 2000 $20 billion to $12 billion accelerated share repurchase program. We're also received net proceeds from divestitures of two.

$6 billion of net proceeds of $2 $3 billion from the issuance of debt.

Now to gross debt, we issued $5 $5 billion of new debt in the first quarter $3 $5 billion of which has been allocated to refinancing existing debt. After the quarter closed. We also made our final debt redemption payment of $600 million, which brought our adjusted gross debt leverage.

One to 2.47 times.

Now I'd like to provide an update on our synergy progress in the first quarter, we have achieved a $23 million in cost synergies and our current annualized run rate is $135 million, while we are already seeing significant progress and pipeline and customer conversations with Oh.

Only one month as a combined company revenue synergies are negligible, the cumulative integration and cost to achieve synergies through the end of the first quarter is $365 million.

Now, let's turn to the deficient Brussels and begin with market intelligence market intelligence delivered revenue growth of 7% with growth across all product lines expenses increased 8%, primarily due to factors I mentioned earlier investments in technology, especially cloud transition cost and continue to invest.

<unk> and strategic initiatives like ESG segment operating profit increased 5% and the segment operating profit margin decreased 60 basis points to 29%, although trailing 12 month basis adjusted segment operating profit margin decreased 60 basis points to 30% you can see.

See on the slide our operating profit from the joint venture that complements the operations of our market intelligence deficient. The JV contributed $26 million in adjusted operating profit to the company because the JV is a 50% owned joint venture operating independent of the company.

We do not include the financial results of Australia in the market intelligence deficient.

Looking across market intelligence, there was solid growth in each category and on a pro forma basis desktop revenue grew 7% data and advisory solutions revenue grew 12% enterprise solutions revenue grew 2% in credit and risk solutions revenue grew 8%.

As Doug discussed at length ratings faced a challenging issuance environment in the first quarter with revenue declining 15% year over year expenses increased 7%, primarily due to compensation expense and information surface cost, partially offset by lower occupancy costs. This were sold.

In a 25% decrease in segment operating profit and 820 basis points decrease in segment operating profit margin on a trailing 12 month basis adjusted segment operating profit margin decreased approximately 105 basis points to 62%.

Non transaction revenue increased 7%, primarily due to growth in fees associated with surveillance and growth in crystal revenue transaction revenue decreased 31% on the soft issuance already discussed.

This slide depicts ratings revenue bites end markets the largest contributor to the decrease in ratings revenue, where the 21% decrease in corporates and the 12% decrease in structured finance driven predominantly by structured credits. In addition financial services decreased 9% governments decrease.

11% and the Crystal and other category increased 12%.

And now turning to commodity insights revenue increased 14% return of in person conferences, most notably Cera week and World Petrochemical conference drove 70% year over year growth in advisory and transactional surfaces revenue, excluding the impact of Sarah weak revenue.

Growth would have been 8% year over year.

Global trading services had a great quarter, increasing 17%, mainly due to strong fuel oil in iron ore volumes as Doug noted earlier G. T. S revenue often picks up when commodity prices become more volatile, which we certainly witnessed in the first quarter expenses.

<unk> increased 18%, primarily due to costs associated with the return of in person conferences and head count and compensation expense, excluding the impact of Cerro week expenses would have increased 10% year over year segment operating profit increased 8% and the segment operating profit margin.

Greased 210 basis points to 43% the trailing 12 months adjusted segment operating profit margin decreased approximately 200 basis points to 43%.

In addition to the exceptional quarter in advisory and transactional surfaces, we saw strong demand driving growth in price assessments and energy and resources data and insights growth was partially offset by a modest decrease in upstream data and insights, though we note positive signs of inflection in the upstream business.

But for the suspension of commercial operations in Russia upstream would have had its second consecutive quarter of positive AC fee growth, which is a leading indicator for revenue. We also saw a dramatic improvement in retention in the upstream business as retention rates improved by more than 10, 4%.

<unk> points over the last 12 months.

In our mobility division revenue increased 10% year over year, driven primarily by strength in planning solutions and used car offerings expenses grew 11% on increased advertising expense in the quarter and head count growth in 2021 is the business where storage capacity to better.

Aligned with strong growth over the past 18 months. This resulted in an 8% growth in adjusted operating profit and 80 basis points of margin contraction year over year on a trailing 12 month basis. The adjusted segment operating profit margin increased approximately 400 basis points to <unk>.

39%.

Dealer revenue increased 12% year over year benefiting from successful prior year periods promotions and from retention rates that remain above pre COVID-19 levels growth and manufacturing was 3% year over year related to the well publicized supply chain challenges faced by automotive Oems.

<unk> financials, and other increased 12% driven primarily by strength in our insurance underwriting products.

S&P Dow Jones indices delivered strong revenue growth of 14% year over year, primarily due to gains in AUM linked to our indices during the quarter expenses increased 9% largely due to strategic investments increased compensation and it costs segment operating profit increased 60.

<unk> percent and the segment operating profit margin increased 130 basis points to 69, 3% on a trailing 12 month basis. The adjusted segment operating profit margin increased approximately 10 basis points to 68%.

Every category increased revenue this quarter asset linked fees increased 15% primarily from a U N driven gains in Etfs mutual funds and insurance exchange traded derivative revenue increased 22% on the increased trading volumes data and custom subscriptions increased for.

Percent.

Over the past year ETF net inflows were $286 billion of market appreciation totaled $244 billion. This resulted in quarter ending ETF AUM of $2 nine trillion dollars, which is 22% higher compared to one year ago, Our ETF revenue is bay.

Based on average AUM, which increased 24% year over year.

Sequentially versus the end of the fourth quarter ETF net inflows associated with our indices totaled $68 billion in market depreciation totaled $123 billion.

Within our engineering solutions deficient, we sold 7% revenue growth driven primarily by growth in non subscription offerings, most notably the boiler pressure vessel code or beat P. C, which was lost released in August of 2021 investment in growth initiatives and an increase in royalty expense led to.

A 5% increase in adjusted expenses. This resulted in segment operating profit growth of 17% and 160 basis points year over year margin expansion on a trailing 12 month basis. The adjusted segment operating profit margin contracted approximately 115 basis.

Orange to 20%.

Subscription revenue in engineering solutions increased 3% year over year, while non subscription revenue increased 60% over the same period.

Now moving to our guidance. This slide depicts our new GAAP guidance.

And disliked depicts our updated 2022 adjusted pro forma guidance for revenue, we now expect a low single digit increase year over year, reflecting the issuance environment, partially offset by the strength. We are seeing in our non ratings businesses. We now expect corporate unallocated expense between 85 and 90.

$5 million, approximately $30 million lower than our previous guidance on lower forecast incentive compensation and professional fees.

Interest expense is expected in the range of $360 million to $370 million down $10 million from prior guidance. This is due to a slightly lower efforts cost of debt that we initially expected we expect capital expenditures of approximately $165 million of free cash flow.

Excluding certain items in a range of 4.8 to $4 $9 billion, there's no change to our expectations for deal related amortization operating profit margin expansion or tax rate.

This slide illustrates our guidance by division or ratings, we now expect revenue to decline low to mid single digits and for margins to be in the low to mid sixties. This compares to previous guidance, calling for low single digit revenue growth and margins in the mid sixties, our outlook for other segments is unchanged from previous.

Guidance.

Overall, we are incredibly encouraged by the team's ability to execute so well even in the current macro environment. We're focused on the enormous long term opportunity ahead of us as a combined company and we are more confident than ever in our ability to execute against that opportunity our differentiated data insights.

Analytics and services help our customers to thrive and accelerate progress and with that let me turn the call back over to Mark for your questions.

For those on the line if you would like to ask a question. Please press star one and record your name to cancel or withdraw your question simply press star to please limit yourself to one question and one follow up in order to allow time for other callers during today's Q&A session. Operator, we'll now take our first question.

Thank you. Our first question comes from George Tong with Goldman Sachs. Your line is open.

Hi, Thanks, good morning.

You've updated your full year outlook for debt issuance can you discuss what your expectations are for issuance on a quarterly basis, Directionally and how much of your guidance increase or guidance update.

Reflects performance in the quarter compared to performance over the rest of the year.

Thanks for that question. This is Doug let me start with that well knowing that the issuance is going to be one of the key questions that we're gonna be talking about let me just review a little bit what we saw during the quarter and then some of the expectations for the rest of the year as you know it was a very weak quarter for issuance, we saw that the total global issuance.

<unk> was down 9%, excluding bank loan ratings and 12%, including bank loan ratings. We saw as an example, our U S bonds were down 22% U S. Corporates were down almost 50% and high yield globally was down 68% in the U S was down 75% so with that backdrop.

As you see we've look towards the rest of the year, we expected issuance during the second quarter will be recovering, but not necessarily to the full extent that it would've been a compared to last year in the second half of the year, the comparable or not quite as difficult as they were earlier in the year and we do believe that there'll be a rebound in issuance given the.

The situation occurred the positioning in the market, but let me hand, it over to <unk>, who will provide some more color.

Morning, George Indeed, as Doug said, we are expecting still the second quarter to see some impact with respect to our quarterly expectations, but then to see some improvement in the second half of this year and particularly also because the comps will get easier during the second half of this year I also would like to point out of course.

The benefits we have of the broader company. We are at this point in time, because five of our six divisions are performing in line or better than expectations. We will see during the course of this year coming into benefits from our cost synergy benefits from our buyback program and so on so that should help drive.

Earnings per share growth in a very strong way during the rest of the year, hence that we're still guiding to double digit EPS growth for the full year. So definitely those elements will help to strengthen the performance of the company during the course of 2022.

Got it that's helpful and just a follow up on that point you mentioned that you know five of the six divisions are performing in line or better than expectations can you elaborate on which of the segments.

We outperformed.

Your initial expectations heading into the quarter and what were the key factors driving the upside performance.

Yeah, Let me give you a quick overview for each of the divisions and happy to go deeper in some of the next questions.

Example of market intelligence, we're incredibly excited about the opportunity. The first conversations we're having with customers are really showing the benefits of the combined company and we saw actually the subscription revenue going up in a very strong way actually growing more into double digits space commodity insights very strong commercial momentum.

The main issue with respect to the Russian revenue impact will be in commodity insights, but we expect to be able to offset the significant part of that based on the very strong commercial momentum. We're seeing and also very excited about what we can offer our customers on a combined basis mobility clearly some positive trends first.

Well as we have pointed out, particularly because we see higher retention of our customers. The index business a strong AUM growth keep in mind. We are looking at this year over here and of course, we started at much lower levels at the beginning of 2021, and then also the derivative activity and volumes are.

Higher and then you also saw engineering solutions growing in a healthy way during the quarter. So overall, we think that our businesses are very well positioned fivefold to six and that the issues with respect to the debt issuance or bi environments are very isolated within the ratings deficient itself and also keep in mind that we have.

Significant components and ratings with respect to non transaction revenue. So that is clearly also <unk> and.

Ellen mental stability offsets what are your overall transactional revenue.

Thanks Joey helpful. Thank you.

Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is open.

Thank you. So you know the negative 5% issuance forecast, obviously is much different than what the Moody's reported yesterday and I was just hoping for is there. Some sensitivity perhaps you can provide us in terms of if things get worse, how that would impact your guidance or you know there's the E P.

S range account for you know that flat to down 14% that he talked about earlier.

Yeah, well first of all let me share with you a little bit more about what our outlook is for the full year and what some of the sensitivities are in that in that forecast as you know we were expecting that the overall issuance of bonds will be down 5% for 2022, but if you look at what the components are in the corporates, we already saw very weak.

Our issuance in the first quarter and so we are forecasted to be at 12% decline for the full year with a downside of up to 25% and it could recover and have a 5% down 5% full year, we do see strength in financial services. They continue to outpace.

Outpaced the issuance last year, we expected for the full year will be up 2%, but again with the current environment that could drop to up to 5% down.

Structured finance and U S public finance could be down at 7%. This year. That's what our current forecast is that they could also see downside up to 12%.

Then there's other factors such as international public finance that as well would be down 2%, but as you know we're very close to the markets. We watch what's happening our forecast is based on many many different factors. We look at what is the current situation of maturing bonds in the market, whether it's on People's balance sheets. As you know there was very little.

Hardly any.

Issuance at all either loans high yield loans or high yield bonds. During the first quarter Theres a pipeline out there that still wants to go to the markets.

We also know that there's a set of M&A transactions, which have not been completed there's a trillion dollars of private equity capital on the sideline that still has not been deployed so we look at all of these factors and weigh them together to come up with our estimate for the year of 5% down. So this isn't just one single factor that goes into it we're looking across many many different factors.

And as Ive just said, we also expect that through the year there'll be recovery in issuance as we keep going deeper into the year.

Got it and then you know maybe somewhat similarly, just on the industry side of the business you know what's embedded in the assumption in terms of at least the asset linked fees portion of the business.

Yeah. We are also always looking manav and the actual asset levels and then we are assuming with respect to growth and market appreciation of very modest development for the remainder of the E. R. But keep in mind that this is a business where we have the natural offsets the partial.

Hedge because if the asset levels will come down well she did the derivative trading activity going up and the other way around and as you have seen this quarter actually the index business has performed very well based on those kind of dynamics. So if you look at it historically the index business actually has been growing revenues for many many years.

In a in a row in very volatile market circumstances, very different circumstances over over the years and that is exactly due to the dynamics of that business and the business model that we have the different revenue streams in the index business.

Got it thank you thanks Manav.

Thank you. Our next question comes from Toni Kaplan with Morgan Stanley . Your line is open.

Thanks, So much I wanted to ask about the margins.

Adjusted pro forma operating margin flat.

Obviously there'll be some ratings weakness I'm imagining that's may be offset by some of the other segments, but just talk about anything.

Anything sort of on the cost side.

Labor inflation, how that's trending and just what are what are the risks to the margin guide and what gives you the confidence to stay at that level.

Spite their ratings weakness thanks.

Good morning, Tony.

You're right there are many different elements that go in the mix with respect to our margin expectation, but let me first reemphasize our margin expectation. So what we're guiding to is still 130 basis points of margin expansion. During 2022 and the reason is we will see some natural growth in our base.

Yes, we of course at our business as usual expense growth at based on the activities of the business.

We of course have some impact off the overall compensation environment. We have done some targeted increases in short term job groups. You have raised marriage in short term jurisdictions a bit higher than we have done in previous years, but then at the same time. We also have several management actions that were taken at definitely in.

The current environment, we're of course very careful.

Hence perspective, so we will see benefits from some of those management actions. We also have the benefit of some of our variable expenses that will come down during the course of this year and then if you layer on top of that the cost synergies that will be very meaningful and significant we're actually very pleased that in an environment of Mac.

Pro environment, where we are today that we as a company you still can improve our margins increase our margins in a very significant way.

Yeah.

That's great and then just on the revenue side I'm sure you mentioned that I just happened to Miss it the organic growth expectation for the year are you still sort of expecting the same you know six and a half to eight.

For that for the next two years, you know just any update on overall organic growth and maybe just how the different libraries is pricing easier this year because of the rising cost environment et cetera.

Yeah, Tony with respect to our own efforts, 6.5% to 8% revenue growth for 'twenty. Two 'twenty three combined we have no reason to back away from that at this point in time, but obviously, we will continue to monitor that very closely and the reason is that as we.

Five of our six divisions are performing in line or better than expected. So the main question is when is the issuance requirements coming back and we have been in that movie many times before I. If you look back for the last decade, there's maybe three situations where are the issuance environment was negative and there were impaired.

On the ratings revenue, but what we usually have seen Dan is after one or a few quarters that came back in a very strong away. So it is really the metro <unk> and shortened about finding where that is coming back. So whatever reason we have no reason at this moment to back away from our revenue expectations for 'twenty two.

And 23 combined.

Yeah.

Thanks very much.

Thanks, Tony.

Our next question comes from Ashish.

Hydro with RBC capital markets. Your line is open.

Thanks for taking my question. So first on the cost synergies I'm pretty good progress in the quarter itself. So I was wondering if you could drill down Florida on how the what kind of traction you're seeing on that front, how should we think about the quarterly cadence this year and any initial feedback from the cost takeout.

<unk>.

Yeah. Thank you Ashish.

I think it's important first to point out that we are indeed results only one month eating as a combined company. So in that context, that'd be already being able to report $123 million of cost synergies on an annualized basis, we think actually that's already a very strong indicator.

And with respect to the absolute number and the phasing of our cost synergies nothing has changed compared to our information that we provided on March 1st during the merger coal and that's what is important to point out that we made good progress, we're very comfortable and confident that we can hit those numbers.

You recall that we said is that we will be able to achieve about 600 million of cost synergies in total and that we expect something like 35% to 40% in 2022 she'll realized in this year and as I said, we are very confident that we're on track to hit those numbers.

That's great color and then maybe a follow up question on the revenue synergies again, there was a reference to gain shall being used across the broader organization to automate processes and then also the strength in subscription on the M. I friend. So a question there was any initial feedback from our customers as you've started indeed.

Are you getting some of the IHS market data into the global market places.

And traction our ability to cross sell upsell those are in full products are into SMB customer base and the other way around.

<unk>.

Let me start with that we've been thrilled with the response, we've been getting from our customers. Since we started being both the merger and working together, we've been able to get all of our teams merge between the divisions. Our commercial teams. So they are out listening to customers eat out and I have been out listening to customers and hearing what they talk about they're talking a lot about ESG.

About energy transition about some of the key thesis of this deal where we began with in addition, they're interested in data and AI and machine learning how they can link their data with ours and we've seen that our commercial organizations have already been out in the market. We have strong pipelines of cross sell within all of the divisions. We also have a set of products.

We'll be looking at over time as you know that the merger will be very powerful for us, but the main synergies coming from the revenue side or built towards the back end, but we're already seeing very very strong relationships with customers very good dialogue and with all of the different areas of where the core thesis of the deal itself.

That's great color, Doug Congrats on solid results. Thank you.

Thanks Ashish.

Thank you. Our next question comes from Alex Kramm with UBS. Your line is open.

Hey, good morning, everyone, maybe just as a follow up to what you just talked about them on the market intelligence commercial opportunities can you maybe give a little bit more detail how exactly you have integrated the sales force I think historically speaking.

S&P oil over the last few years has moved to the enterprise license approach I think I just market was very product specialist focus so just wondering what.

Exactly commercially you've made changes on already and if there's opportunities to maybe as you align things too to pick up a little incremental revenue.

Revenue synergies quickly.

Yeah. So thank you for that is as you pointed out we had really in two different approaches that market intelligence at S&P Global we generally had more of an approach that was an enterprise model. It gave us an opportunity for customers to have all of the users have an access to the products and services, where financial services comes in with a N a.

Approach, where some of their products are priced more on a per user basis or volume basis. There are some of the products within the new market intelligence, which came from IHS market that are going to be priced differently because their installed software, which for US is an exciting new area also some of the enterprise services that are provided as well. So some of those are not going to.

Necessarily fit within the within the other product a merger, but there are a lot of opportunities that we've seen of moving data, which is within the IHS market things like bond pricing reference pricing moving that into the desktop. In addition, there's data that we have for even something that we've had as long as the us comp stat, where.

Some of that data can be moved into the into the products and services that are software solutions. So the commercial teams have been brought together theres been immediate cross training. So that every single person from both of the two companies understand the products of each other we've also seen opportunities for the traditional cross sell customers that don't have products.

On one side or the other that we started servicing and as I mentioned some of the biggest themes in ESG, we have the new scores, which we have 11000 scores, which we've taken them put them into the desktop we can put those into many other areas. So we see ESG as a theme data as the team. There's a lot of interest in credit risk private markets is another area.

So it's only been one month for this quarter since we closed it's been two months two months since we close but the enthusiasm the momentum is excellent.

Thanks for the color. Thank you there and maybe a direct follow up standing are keeping it on market intelligence.

It's still a very large portion of the combined business seems to be true subscription base, but just wondering if you could talk about the cyclicality in this business a little bit more and when I look at your press release recurring variable fees were down 17% year over year and I guess it hit the enterprise solutions revenue only up 2%. So maybe maybe just flush.

What exactly those variable components are that were.

Impacting you on a year over year basis, and as you think about the remainder of the year was capital markets a little bit choppy what are what the impacts could be here on the market intelligence side that we should be thinking about as this business seems a little bit more cyclical than maybe the core market intelligence previously.

Alex Yeah, let me give you a bit of a breakdown an explanation what is happening exactly in recurring favorable you're right. If you look at M. I as a whole approximately 83% is subscription based 5% is non subscription and then you'll have that category in between that.

Subscription variable at approximately 12%. They are you see a bit more impact from market fluctuations capital market fluctuations because that's the business that has some of those capital markets platforms. Some of the origination platforms. Some of your equity platforms and that is being.

Impacted by some of the general M&A and capital markets activity and issuance environment that we're seeing both in fixed income and equity in the markets and yeah. Nothing that is a market and the business, where you see a bit of that impact, but overall you see that the market intelligence. Nevertheless, what's growing.

In a very strong way and when do we see more stability in the markets over time, when we see the M&A environment coming back. We would also expect to see their subscription variable components growing faster again. So that's the underlying dynamics that is happening in the India business.

Alright very helpful. Thanks again thanks.

Thanks, Alex.

Thank you. Our next question comes from Andrew Nicholas with William Blair. Your line is open.

Hi, Good morning, Thanks for taking my question I wanted to start with.

Issuance or drill drilling through the issuance expectations a bit further I realized that it was a really tough first quarter on that front, but I'm curious you know when you. When you gave your guidance on March one with with the merger call. I think you had had some sense of at least February weakness in high.

Yield could you spend some time talking about maybe what specifically changed in the outlook over the past two months has it been a weaker than expected April or are there certain.

Some segments are asset classes that that have deteriorated more quickly than you expected that would be helpful.

Well first of all thank you for the question and drilling down a little bit more there's really two key factors first of all if you looked at the high yield issuance in February and then into March and April It has been quite weak there is times when we've gone an entire week and even longer without even one issue coming to market.

Given the external environment. That's also had a change if you go back to the beginning of March the last time, we spoke there had the invasion of Ukraine had just started we haven't seen yet the major impact on the markets the volatility of the energy markets the commodity markets and we also at the time didn't have any clear guidance yet from the fed.

What they were going to be doing on interest rates. So if I take a step back and look at very specific dynamics in the high yield market itself when will that be coming back and what are your expectations and then second the overall macroeconomic geopolitical environment and then more specifically in the U S. We're just starting to get a window into what will be the programs that the fed is.

The institute to try to combat inflation and the timing of some of their interest rate increases.

Okay.

Makes sense. Thank you for the color and then sticking with ratings for my follow up.

Obviously the transaction revenue has had headwinds we've talked about can you talk a little bit about your expectations for non transaction revenue growth if I didn't miss that obviously, a really strong year last year on that front I think there were some onetime items in 2021, but if you could talk about your expectations for non transaction revenue in that segment that'd be.

Thanks again.

If you look at non transaction there is a bit of a mix of elements that go into that bucket, but what we see is particularly strength in annual fees. So for example that is surveillance and of course with more bonds and loans outstanding after the very strong issuance from farm with over the last two years.

Some benefits from from debt also frequent issuer fees are growing in that category. So that is also very stable and at the same time. We see also the Cristal performance did go to a known transaction being very strong. So crystal is growing very rapidly both on the domestic Indian ratings business as Walt mentioned to glow.

<unk> research risk and benchmarking business, where do we see in the normal transaction a bucket at the revenue and not moving up and it's mostly rating evaluation surfaces less M&A activity. So that is impacting rating evaluation sharp ish and also new issue our credit ratings.

Given the current environment. We also see less activity. They are nevertheless, or 7% is a nice growth for non transaction, we would probably see that slowing down a little bit for the remainder of the E. R. But I would expect it still to be in the positive territory.

Yeah.

Thank you. Our next question comes from Andrew Steinman with J P. Morgan. Your line is open Hi, I also wanted to ask about issuance when looking at slide 18 that the minus 5% forecast I just wanted to know if that issuance forecast is for all credit.

Issuance or just weighted issuance I know usually that they're similar but in this case. My question is is there a large difference between the minus 5% and if I ask you just for kind of weighted issuance is in and I don't quite get that footnote like is China included in credit from the minus 5%.

Or not.

Yeah I'll take this is our estimate for global issuance. This is what our team looks at it includes all markets in all types of issuance. It's it's the exact same days that we usually talk about what the overall issuance has been quarter by quarter.

Uh-huh it would rated issuance be much different than five rated issuance would be if if you look at if you you could adjust a little bit for Asia, where where the fees are not quite the same in theirs issuance in China is still a different kind of a market, but but that's the forecast that we use it's it's the basis.

We use for the guidance that we provided okay. Thank you.

Thank you. Our next question comes from Hamzah, Missouri with Jefferies. Your line is open.

Hi, This is Hans Hoffman filling in for Hamzah could you just comment a bit on what you're seeing across your European revenue base and how that region did relative to your expectations, you know either by segment or overall.

Yeah, when we look at Europe , There's a couple of different factors are first of all on the ratings side. It. It was similar to the rest of the world the issuance levels, where we're down we saw that in Europe itself that are for the quarter. The corporate issuance was down about 25% financial services was down 13% that.

Compares to in the U S. Corporates are down almost 50% financial services were down less in the U S. A 5% versus the 13% in Europe , but in addition, our Europe did have some strong structured finance issuance, but overall Europe continues to be a market that we're quite interested in because we see the transformation.

From a banking market to a capital market. There was also very strong growth in ESG. Europe is is one of the sectors and one of the regions of the world that's really setting the fastest pace on ESG, we see a lot of interest there for the different ESG funds. We've launched we've seen fastest growth for S&P 500 ESG.

And Dow Jones sustainable indices that have been launched Europe is the pace that are there and we also know that in Europe , there's been a slower uptake of the oven inflation right now inflation is not quite as high as it is in the U S. A the ECB has not moved as fast when it when they are looking at increasing the core rates.

So right now the negative side of Europe is clearly that you've got the Ukraine invasion and and the horrific war, that's going on there and we'll have to see what kind of impact that has on Europe . Europe has also impacted potentially by the by the energy markets, but net net our European businesses had been on the same pace as the rest that we've seen in the U S.

But there are a few downsides, but we also see a lot of upsides as the market isn't doesn't have the same inflation impacts as well as the opportunities for the capital markets to play a much larger role.

Okay. Thank you that was helpful. And then just for my follow up could you just in terms of the portfolio post the deal can you just comment on whether there are any further noncore assets that you're looking to prune or sort of most of that behind you now and any update on your view on how you're thinking about you know where what are your long term leverage should be.

Given the combined portfolio. Thank you.

So first on the portfolio, we are very committed on driving growth and success of each of our businesses at this point in time, we see multiple opportunities as we mentioned during the prepared remarks, you'll value creation across the enterprise. There was a lot of cross links were seeing with respect to revenue synergies and I think it's really.

Exciting to see what we can do all altogether, having said that you know us and our management style and philosophy, we will always be very disciplined portfolio managers and we will always determine ultimately overtime. If we are the best owners all sorts of message, but at this moment really a focus on driving economic value.

Al your generation off the portfolio of businesses, we have at a at S&P global.

Okay. Thanks, so much.

Thanks, Tom.

Thank you. Our next question comes from Owen Lau with Oppenheimer. Your line is open.

Good morning, and thank you for taking my questions. So energy companies have been doing very well. This year could you. Please remind us the competitive advantage of the commodity insight. There says I mean, the demand up your offerings. During this volatile period and how investors can can understand that all state, especially given that revenue.

It's up 14% year over year. Thank you.

Oh, thanks, so on well first of all in this environment that the combination of Platts and IHS are the energy natural resources businesses, providing the knowledge and the resources that the markets look to in a in a volatile environment like this clearly there's a combination of volatility in the energy markets both with gas.

And and oil you see that commodities related to agricultural also going undergoing a lot of volatility and we have a combination of the benchmarks, which are embedded in peoples' contracts in the research and the analytics. We have advisory services. We also have the energy transition that people are looking to we have a combination of new products and service.

Is that we're coming together with IHS markit and carbon markets in battery metals in things that are the transition energy economy. So we think that the two together really bring a powerful voice that people are looking to and let me. Let me just add was something we talked about on the earnings call on the prepared transcript, which was related to several weeks.

Cerro week is the Premier conference for the energy industry and this year. There are over 5000 participants in it was a very very lively dialogue, including government officials talking about what's the future of commodities and we're really at the center of that dialogue and think that it's a one of the best times for us and one of the most exciting things about the combination.

Got it and I have two quick follow ups. One it's cloud you mentioned some of the cloud initiatives and investments could you. Please talk about some of your near term and long term go off all States initiative and then a quick one on buyback should we expect from modeling perspective should we expect that you would see.

The second tranche of the $5 billion remaining in the third quarter or not the right way to think about that thanks, Let me start with the question about cloud and one of the another one of the exciting things about the transformation with the merger is that we have an opportunity to have scale in all of our.

<unk> is in discussions with our providers when it comes to cloud and our digital transformation, both S&P global and IHS Markit, we're far advanced on cloud transformation, we're able to bring those two programs together and get scale. In addition, we have really interesting opportunities in data and data sciences that you'll be hearing much more about in the future, but I'll, let <unk> answer the.

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