S&P Global Inc. (SPGI) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. My name is Andrew Nicholas, and I'm the research analyst covering the information services, consulting and HR technology sectors here at William Blair. Before getting started, I'm required to inform you that for a complete list of disclosures or potential conflicts of interest, please visit our website at williamblair.com. With that out of the way, I'm very pleased to welcome S&P Global's CEO, Doug Peterson, to the 41st Annual William Blair Growth Stock Conference. Thank you very much for joining us.

Thank you, Andrew. Thank you for having us here today. I look forward to having this fireside chat.

My pleasure. My pleasure. Just getting right into it, I think one way to kind of set the stage here would be to just talk about how the business has performed over the course of the pandemic and then maybe within that, speak to some of the major learnings or takeaways over that time frame, whether it be in terms of new product opportunities, areas of increased customer demand or even on the cost side, whatever you think is most important for the go-forward story.

Great. Well, thank you. First of all, when it came to the pandemic, there were probably 3 broad areas that we learned a lot from. The first was putting our people first, that we had to be ready to support our people with programs so that they could work from home, they could be productive from home. They -- also that we had the right kind of security and information security approach when people are going to be working from home. We went from 60 offices to 22,000 offices almost overnight, if you want to think of it like that. The second was when it came to how we thought about our products and our services and when we thought that we were going to be supporting our customers. And when you think about it, when we're in the business of providing data and analytics and benchmarks and research to help people make decisions around the markets and with the chaos and the pandemonium and the uncertainty that came from COVID, there was an increase in demand for people that wanted to know what we thought. We put in place some special teams that were doing research on COVID. We put up a COVID microsite, so people could get access to our research for free. We put in place a team that was meeting every day to talk about what they were seeing in the markets. And these actually led us to some new products and new services that we're providing these research and news opportunities even faster. But it was really critical that we were engaging with our customers and ensuring that we were listening to what they needed. We were responding quickly. And that our people, as I said in the first part, were also able to provide that research. And then the third had to do with our expense management. We've always said that we could be flexible and move quick if there was any kind of a major stress in the market, and we did. We slowed down hiring. We stopped traveling like everybody did. We rethought our real estate footprint. But in addition to that, we also benefited from what our CFO, Ewout Steenbergen, calls that we were -- had been investing or you want to put it this way, where he says that we were repairing the roof before there was a storm. So we've been investing in the prior years in our technology infrastructure. We've moved our operating systems from data centers to the cloud. We've been upgrading people's laptops so that they can have a Windows 360 on their laptop, et cetera. So we had invested in the company, but we were able to move very quickly, but we're able to stop our expenses -- expense growth at the time. But that didn't mean we didn't stop investing. So we continued to invest in the business. A lot of lessons learned. People come first. You need to listen to your customers. And you also have to take on opportunity to continue to digitize your business to ensure that you're investing in the right way, but we also had flexibility to manage our cost base.

Absolutely. And in addition to all that juggling going on and uncertainty, you had time to work on a merger, due diligence on a merger, which I'm sure many of the people on the webcast know you announced in late November. So maybe using that as a transition and as a starting point, if you could kind of just dig into the IHS Markit merger in a bit more detail, walk us through the strategic rationale and why the companies fit so well together in your view.

Yes. Well before the pandemic into 2019, we were doing -- undertaking a very thorough strategic planning process to look and see what were the most important areas that our customers were going to be seeing an increase in demand for analytics and research and data and benchmarks. And as we built out the theory of the case, which would be in things like ESG, climate, energy transition, private markets, private credit, looking at ways that we could get more data through our desktop as well as other ways that we can have our data with new relationships, fixed income indices, these were big themes that we felt were going to be driving growth, and we wanted to enhance our position in these areas. And we said we could do it organically. We could do it through tuck-in acquisitions or we could look across the market to see if there's something more transformational. We had always admired IHS Markit and what Lance had put together with that company and the entrepreneurial spirit that they had, but also their strength in data and analytics, their fixed income business, their financial services business that has such great relationships as well as workflow tools, their energy business. And so we felt that there was a really good fit. And we did a lot of our, if you want to call it, due diligence before we ever picked up the phone and spoke with Lance because we wanted to understand all we could just based on public information. And we built a theory of the case, began the discussions with Lance and the company, did our due diligence and felt that the theory that we had developed was a very strong approach to the 2 businesses that we would fit together well. There was not very many areas with overlap, that the businesses were very complementary. And they would fill in all of those blanks that I mentioned, private markets, ESG, fixed income indices, energy transition, all of the areas that we feel are going to be -- have some of the fastest growth and help us fill out our portfolio. So that was the theory of the case. And so far, everything we've seen is actually helping us understand that that's going in the right direction.

So you touched on a bunch of different opportunities within that combined entity. If you could maybe speak to the ones that you're most excited about and if there's anything in the past 6 or so months since you announced the deal that's come to light that's particularly interesting, that would be great. And then just one more follow-up to that multipart question would just be whether or not the potential sale of OPIS impacts any of the numbers that you've outlined or some of the synergies that you've thought about [ prior to that ].

Yes. So first of all, as we've had 3 different work streams that we've put in place as we've been working to close the deal, the first we've already achieved, which was our shareholder approval. The second relates to regulatory approval, and that's where your OPIS question comes in. And then the third is our internal management teams that we call an Integration Management Office, where we have a very thorough, systematic approach to going through each function and each business to understand the opportunities to the extent we can. Obviously, today, there's firewalls between the 2 businesses. We haven't closed the deal. So we still can't get full data about clients and products and pricing and things like that. But we're able to work on the theory of the case. Related to your question on the regulatory approval, we had never built in any synergies from OPIS into the business case. And so that's something that won't really impact the -- impacts, obviously, a little bit the total revenues of the companies together, but it won't impact what we built, the synergies or growth cases. On the business aspect, you asked what's exciting to me. I see all of the areas that I've mentioned, but I'll tell you a few that are -- look like they can really move fast. And the first would be in the index business. We see an increase in indices, demand for ESG indices, for fixed income indices, for multi-class asset indices. And all of these are areas that by putting the 2 businesses together, we're going to be able to move even faster to fill some of those spaces and some of those gaps. Another area relates to ESG. And within ESG, if I want to talk about kind of a sister to ESG, which is energy transition, every day, we see more and more demand for information about climate, about climate analytics, about portfolio analytics that will incorporate climate and energy transition into them. So we think that the 2 businesses together between Platts, between the energy and natural resources business at IHS Markit, between what we've already developed in our ESG space through the different businesses that that's going to be another area that we'll be able to consolidate and move very, very quickly. So those are a couple. The third one I mentioned is the financial services and Market Intelligence businesses. As those come together, there's all kinds of possibility of putting those 2 businesses together with the data flow, with the services that we have in our own company today through the desktop, getting more data through there and then the workflow products that IHS Markit has to get our data into those workflow products. So I see a lot of excitement in those areas as well.

You touched on the ETF opportunity, multi-asset products, fixed income products. How should we think about the players that are already there in that space, the incumbents, if you will? I imagine or my understanding, it's a market that typically rewards first movers. So I'm curious what the strategy is to take share in that part of the market. And maybe what will encourage investors to allocate capital to an S&P Global fixed income product or a multi-asset product versus maybe some of the products that are already available and have potentially gathered assets in that area?

Well, this is a very competitive market, and we have some tough competitors out there. We have a lot of respect for all of them. Everybody is moving very quickly to fill the space and increase -- the increasing demand coming for fixed income, ETFs and fixed income index products. Fortunately, IHS Markit is one of the early movers, and they do have some of the best products. And adding that to our portfolio is going to enhance our business there. I mentioned the ESG indices. ESG is going to be applied to both equities and fixed income. And so that's something where we bring really strong data and analytics with Trucost, with the RobecoSAM CSA business that we bought, Corporate Sustainability Assessment business that we bought. We can incorporate these together with the data that's coming over from IHS Markit to move there. On the multi-asset class area, this is something that's a new field. It's starting to see demand increase in new areas and new directions. And again, by having the equity specialty that we have today, along with the fixed income specialty that's going to be coming across, we'll be able to meet the demand for these multi-asset class indices in a way that we wouldn't have been able to do that before. So this is -- these are areas where we will have the opportunity to be that first mover and have that first-mover advantage by the kind of capabilities that we'll have in the portfolio.

Yes. I would imagine the S&P brand doesn't hurt either. So that makes a lot of sense. Kind of sticking with synergy opportunities, I wanted to ask about how Kensho kind of fits into this plan. I don't believe it was included too specifically within the revenue synergy outline just because you don't have access to the full suite of data yet. But maybe if you could kind of talk about what that opportunity set might look like, maybe looking back to historical ways that Kensho has been accretive to growth as some sort of guide of what that opportunity could look like.

Well, if we go back 4 years ago when we first decided to -- actually, 5 years ago, we first decided to invest in Kensho. And then about 4 years ago, we decided to buy Kensho. After we've made an initial B round investment, we felt that the capabilities they brought were so important for us. We have a theory of the case that over time, more and more analysts in the financial sector will be using machine learning or artificial intelligence tools to make decisions. But that won't be substituting for people. People will still make the decisions about risk, about investments, about portfolio, construction, et cetera. But there'll be -- more and more tools will allow you to do it better to use your own time in a more productive way. And so that's been the theory of the case, and we've seen that playing out with Kensho. So we now take Kensho and apply it to the data sets of IHS Markit. We think there's a lot of power in there. If you think about what we did with the -- what we've done, as an example -- excuse me, as an example, when we've taken the Market-on-Close process, which is a way that we set price and news and analytics for the oil markets, we've applied the Kensho processes there to allow us to move much faster to be able to get new insights and new analytics, but also to be able to publish faster. Instead of hours, it's down to minutes, how fast we can publish and get data out to the markets. We believe that we can do the same sort of thing with so many of the IHS Markit data sets. In addition, IHS Markit already has almost all of their data cataloged and organized in what they call a Data Lake that allows all of the data across the entire company to become available for users in a way that's very revolutionary. And that's going to be a huge advantage for us to take the Kensho capabilities and apply them to that data set in a new way. So Kensho continues to be something that's a lot of potential upside. We've seen it with our own company, what we've been able to do with natural language processing, with data linking, with things like the Market-on-Close, with search. And we think we can apply all of those same capabilities as we bring IHS Markit together.