10-QPeriod: Q3 FY2015

S&P Global Inc. Quarterly Report for Q3 Ended Sep 30, 2015

Filed November 4, 2015For Securities:SPGI

Summary

S&P Global Inc. (SPGI), formerly McGraw Hill Financial, Inc., reported solid financial results for the third quarter and the first nine months of 2015, demonstrating revenue growth and improved operating profit. The company's performance was largely driven by strategic acquisitions, notably the significant purchase of SNL Financial LC, which bolstered the S&P Capital IQ and SNL segment. This acquisition, along with smaller ones like Petromedia and Used Car Guide, contributed to revenue growth across most segments. Despite some headwinds from foreign exchange rates impacting international revenue, the overall financial health appears robust, supported by strong cash flow generation and a healthy balance sheet. Investors will find the continued revenue growth, particularly in subscription-based services, and the strategic expansion through acquisitions to be positive indicators. The company's focus on driving growth and performance, coupled with operational efficiency, suggests a commitment to long-term value creation. However, ongoing legal and regulatory matters, though managed, remain a point of attention.

Financial Highlights

50 data points
Beta

Revenue

$1.32B

68.4% Gross Margin

Net Income

$252.00M

19.0% Net Margin

EPS (Diluted)

$0.92

Total Assets

$8.16B

Cash & Equivalents

$1.44B

Free Cash Flow

$541.00M

Financial Statements
Beta
Revenue$1.32B
Cost of Revenue$419.00M
Gross Profit$905.00M
SG&A Expenses$458.00M
Operating Expenses$914.00M
Operating Income$410.00M
Interest Expense$30.00M
Net Income$252.00M
EPS (Basic)$0.93
EPS (Diluted)$0.92
Shares Outstanding (Basic)271.30M
Shares Outstanding (Diluted)274.40M

Key Highlights

  • 1Revenue increased by 5% to $1,324 million for the three months ended September 30, 2015, and by 5% to $3,938 million for the nine months ended September 30, 2015, compared to the prior year periods.
  • 2Operating profit saw a significant increase of 12% to $410 million for the three months and 18% to $1,493 million for the nine months, indicating improved operational efficiency and profitability.
  • 3The acquisition of SNL Financial LC for $2.225 billion in September 2015 was a major strategic move, significantly contributing to the S&P Capital IQ and SNL segment's revenue and future growth potential.
  • 4Diluted earnings per share from continuing operations rose by 35% to $0.92 for the three months and by 27% to $3.30 for the nine months, showing strong bottom-line performance.
  • 5Long-term debt significantly increased to $3,489 million from $799 million, largely due to the issuance of new senior notes to finance the SNL acquisition.
  • 6The company generated strong cash flow from financing activities ($1,927 million for nine months ended Sep 30, 2015), driven by new debt issuances, while cash flow from operations was negatively impacted by significant legal and regulatory settlement payments.
  • 7Effective income tax rate decreased to 25.9% for the three months and 30.7% for the nine months in 2015, primarily due to tax audit resolutions and income in lower tax rate jurisdictions.

Frequently Asked Questions

Revenue growth was primarily driven by increases in the S&P Capital IQ and SNL segment, partly due to the acquisition of SNL Financial. The Commodities & Commercial Markets (C&C) and S&P Dow Jones Indices segments also contributed positively. Growth in subscription/non-transaction revenue was notable, reflecting strong demand for proprietary content and increased average contract values.

The acquisition of SNL Financial for $2.225 billion significantly increased the company's long-term debt to $3,489 million, funded by new senior note issuances. It also led to a substantial increase in goodwill ($1,558 million preliminary allocation) and other intangible assets within the S&P Capital IQ and SNL segment, and is expected to contribute to future revenue and synergy realization.

The company continues to be involved in various legal and regulatory proceedings, particularly related to S&P Ratings' activities during the financial crisis and Italian litigation. While the company believes it has meritorious defenses and has settled some matters (like the Parmalat case), the ultimate outcome of these proceedings remains uncertain and could potentially have a material adverse effect on financial condition, cash flows, or business operations.

The company significantly increased its long-term debt, primarily through the issuance of $2.0 billion in senior notes to finance the SNL acquisition. This increased leverage needs to be monitored, though the company's credit facility has covenants (indebtedness to cash flow ratio not greater than 4 to 1) that have not been exceeded. Interest expense also rose as a result of the new debt.