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

Hi. I'm Sameer Kalucha, information service analyst here at Deutsche Bank. On behalf of DB, I'm extremely pleased to welcome Swamy Kocherlakota, CIO of S&P Global, to our conference. Welcome, Swamy. It's a pleasure to have you here.

Sameer, thanks a lot for having me. I'm looking forward for a great conversation.

So to start with, S&P doesn't need any introduction. I mean everybody who's here is S&P 500. They live that name and number forever. But maybe for the technology audience here, maybe we can start quickly with a short by about yourself and a little history about S&P. There's a lot more to S&P that people know from the index side, from the rating side, but there's so much happening on the technology front. So it will be great to get a little bit of an overview to set this context, please.

Absolutely. So Sameer, we are very happy with the brand and the brand recognition that the S&P Global brings. We have 4 divisions. One of them is the Ratings; and another one is SPDI, which is our Indices business; followed by Market Intelligence; and Platts. In about 4 or 5 years ago, we were on a transformation journey of which technology was the front and center of that transformation kind of like the foundation of the foundations. I'm really happy to talk about our journey.

So maybe to set the context of the journey as well, just to get an idea of the scale of the infrastructure. I mean the data and analytics side of things is roughly, say, $4 billion in revenue. And although we would not get into details of the info merger and whatnot, but we have a large organization that will potentially be a part of S&P as well. So with that scale, with that large organization, can you get a sense of the idea of the scale of the infrastructure you have prior to moving to cloud and then we'll get into how you're transitioning that over to the cloud.

Yes, fantastic. Look, we've been doing data along before data became the buzzword. As a result, we do have a lot of technology, petabytes worth of data, several infrastructure. Before this transformation journey began, we have multiple data centers and I also say that we have a lot of technology and a lot of the budget that we need to support the technology. So about 4, 5 years ago, we went through this transformation journey and we said what exactly is the role of the customer in our journey. And when we went on talking to a lot of our customers -- we call it project envision at that time. We said that our transformation journey for the company -- we also went to say brand change was that we should make everything around the customer. So customer is at the center of our journey. And then the second thing that we did is that one of the foundational components is that tech and data. What are the opportunities? What is the current state? And what are the opportunities? And then the third one is, how do we scale? How do we provide our services in a secure way? And all questions for all these 3 areas led to cloud and understanding the know-how of what's happening in the industry, and we went on a journey. And fast forward 4 years, Sameer, we're very happy with the compounded annual growth that we have on our results. I am also particularly pleased with the pace at which we are launching new products. If you look at our earnings releases over the last couple of years, we are launching larger products. We have a great M&A strategy. We are acquiring the right companies, Kensho being one of them which we did a couple of years ago. So we are very happy with the progress that we made. I'd love to talk about each layer of the journey.

Yes, that would be great. To start from -- moving from data centers to cloud, you obviously would start with the players, the offerings that are out there. If you can describe that phase of the transition, who are the players you looked at? What were their key attributes? Who did you decide to go with? And what was the key decision parameters that favored that particular provider?

Right. So the first question that we had to ask was fundamentally, are we going to transform and shift to the cloud or lift and then transform in the cloud? So we spent a lot of time analyzing that, and we figured that it is very right thing for us to lift and shift to the cloud and then begin to transform. So that has yielded significant results, specifically from an operational efficiency perspective. But when -- at the time when we're looking at the cloud, AWS was the only mature player at the time. So -- but we knew our architecture has to be sound and we also are in this bimodal IT where we still have to take care of the on-prem infrastructure in the cloud. So we built an architecture that is really helping us now on not only having AWS but also other cloud providers like Azure and Alibaba. All 3 of them we do business with today.

So you mentioned AWS was the only mature solution, but a lot of others have been showed over time as well. And you mentioned Azure and Alibaba. What are the key things that drove you to, say, Azure and Alibaba?

So basically, the #1 goal for having Alibaba was to have the regional presence in China. As you know, we like do business there. So that was an easy decision. But to plant Alibaba, we had to have the right multi-cloud architecture. That was number one. And number two, Azure, there's a lot of innovation and all the cloud players are catching up to Amazon. Now we have multiple choices. So we had to look at Azure. But Sameer, one of the things that a lot of people miss when they're talking about the cloud, you're only looking at the Tier 1 providers for the cloud, but there are a lot of other clouds as well, be it Workday [ or the financials cloud ] and Salesforce and ServiceNow. So we have an architecture, Sameer, on how to connect all these clouds in a way so that employees whatever way they are coming in, they get the seamless experience. So I'll give you an example. So we are using Azure today for VDI instance. An employee can come into the Azure cloud for VDI instance and reach out for the applications that are already in Amazon and on-prem and access them in a seamless way.

That makes sense. So you have a very kind of a seamless, hybrid, multi-cloud architecture, and that is pretty much the state of the art for a large company. So that makes perfect sense. To get a little bit more color on the infrastructure side of things. So you have the cloud and -- around the database side of things. But then you also have the peripherals like security and monitoring. Any color you can share on how they have changed in your journey? For example, you could have on-prem, certain firewalls? Now as you transition to cloud, how has that architecture changed? And those providers, have they changed? And what are the key decision factors there?

So the architecture for cybersecurity and periphery all used to be appliance-based. And then you have very niche firewall, load balancers. So the overall convergence of hardware-based niche is moved to software-based. And each appliance provider or each cybersecurity provider can do multiple things. So there is that transition. And the second thing is when we think about cybersecurity, Sameer, a lot of people think about only perimeter production. Yes, you have the perimeter production. But we're also moving towards like a 0 trust-based where the access is all determined around user and user identity. So that's a transition that we've seen. So we are partnering with a lot of these new-age cyber cloud providers such as Zscaler is one of them that we use extensively to provide that 0 trust environment for us.

Got it. And similar thing for monitoring and observability in terms of what infrastructure you put together for that?

Yes. So for instrumentation, we use -- and I don't want to come to put companies, but Getaround is a company that we have been using. And we're very happy with what we're able to do from an instrumentation perspective in the cloud.

Got it. And then you mentioned you took an approach of lift and shift and then transforming. Any color you can provide on how many applications you had when you lift and shift everything to cloud? And how many of those have been kind of transformed or rearchitected or refactored into MSA modern architectures? Any color you can provide in terms of your -- how far you are along that path?

Yes. So basically, we have about 1,000 applications. Again, what is an application varies from company to company. But again, giving you the broad numbers. But something about 84% of our applications and a lot of the applications that our customers are using, for example, all the Kensho solutions whether it's Kensho Link or Scribe are running in the cloud, and they are 100% cloud native. And all the new products that we have launched, they're built to be cloud native. And then our 84% -- let's say, 84% of our applications are in the cloud and about 20% of them are in the process area that are completely cloud native or in the path to becoming cloud native. So that refactoring is going in the company.

Oh, that makes sense. So you're quite far along in terms of -- on your journey. What are the key challenges or surprises you kind of like came across on the way in terms of things you didn't expect to be there or things that you found there, which kind of made the transition better than what you thought or made you a little bit -- do a little bit more work than you thought. Would love to get your thoughts in terms of what are the things you encountered along the way in terms of your journey in terms of challenges.

At S&P Global, we have ear to the ground pretty good and that we're also fast also. We had to keep an eye on every single thing, number one, which many people know around. Going to the cloud doesn't necessarily mean that it is savings. So you have to really pay attention to the cloud security. Did a lift and shift, but then you don't take the time to prioritize the transforming. And transforming your infrastructure and technology, it's going to show up in your bills. We knew that going in. So we did not have to learn that lesson the hard way. So we continue to do well from a price perspective. I think one of the things that people assume is with going to the cloud, the complexity will go away. But if you don't pay attention, complexity will just shift to somewhere else. So you continue to have to keep an eye and focus on not only the principles but the [ big and long ] data on the architecture is what I would say. And in terms of these surprises, look, you don't need -- you don't say that we're only doing cloud and layering. It also have to have the rest of the ecosystem. What we're able to do at S&P Global is bring the agile development methodology and the site reliability engineering and DevOps and ELSA ops culture, and that was also part of our journey as well. That has helped. Now what I'm very happy about is that we can, from a vision to value perspective, when the business is an idea, being able to convert it as a product and launch it to our customers as a minimum viable product has increased. So we can lead this a lot faster now than what I ever thought is possible.

Great. So it seems like things -- a lot of lessons learned along the way, things are moving a lot faster and then catalysts like COVID come along, where your existing posture probably does not work anymore and you have to rearchitect things really fast. And one of the things we are hearing is, is COVID accelerating these digital transformations. So how did COVID impact you in the IT side of things? And how do you see it evolving forward in terms of acceleration of the spend? Any dollars or time lines? What are the things that are in your mind when you think about impact from COVID going forward?

Yes. So coming into the COVID where we were able to support our employees overnight for a variety of reasons because we have been on the cloud journey for a while. So I was very surprised that we're able to accommodate 20,000 employees working remotely. Now fast forward, we had some VPN technologies that are globally spread. But with the software VPN and some of the things that we're doing, we are making our data center, our infrastructure, we are trying to push to the edge, to the cloud so that our employees that are located in Pakistan, Malaysia, India can have seamless access as opposed to dialing in to a VPN and using coordinates so on and so forth.

Got it. And it seems like there will be acceleration in those investments going forward as well. And it will be a positive trend for IT spend.

Right. From a future perspective on cloud on COVID, we are actually working on how do we really create that collaboration experience in a seamless way. Above and beyond, now everybody is familiar with the Teams and Zoom. But how can we collaborate better? How can we create a safe workplace? Those are the type of investment that we are making. A lot of people are familiar with the work technology, we have them. We also have different technologies to enable the extended conversations between employees. The biggest concern that we have is how do we really provide the mentorship and apprenticeship to the employees in this new hybrid environment. And we are trying everything that we can. But time will tell whether -- the benchmark to me is can an employee -- can somebody join as an intern at S&P Global and one day become a CIO by working in a hybrid environment. We have made sure that the tools and technologies are there and processes are there to enable that.

That's a very profound thought. That's a very profound thought in terms of how it's going to happen. But yes, that's a great way to think about it. So switching gears a little from the infrastructure -- or the IT infrastructure to more data and distribution because that's a key thing going forward as well. What is the data infrastructure right now in terms of databases and whatnot? And how are they being migrated to cloud? Are they already in cloud? Are you using structured or unstructured data providers that are already in cloud? How is the -- what are the considerations there? And how is the landscape there right now in terms of S&P?

Yes. So that's a good question, Sameer. So when I look at overall tech and data, just we talked about cyber and infrastructure, but there are 2 layers about that, which is application and how do we do the release of the applications and the data, which is the data management life cycle. From the ingestion to how do you distribute the data. Being an essential intelligence company, we take a lot of data and drive intelligence, we take a lot of pride in how do we provide the distribution of that intelligence. So going back to your question, yes, we are in the cloud. And unlike the thinking maybe 10 years where SQL is the only choice. We have a variety of choices. The new buzzword is the polyglot. We don't need to say that this is a programming language that you need to do or this is the data-based construct that we need to use. So we're able to migrate from those traditional big appliance, database technologies to completely cloud-based technologies. And it's no longer one database technology. We have, obviously, the AWS, Aurora, RDS and some of the MongoDB. But we generally lean towards open-source technologies that either we can do them on our own in the cloud; or if there's a managed hosting service for that particular service, we prefer to use that. So in our entire data management side, really from ingestion to distribution, we use a lot of open source technologies.

Got it. And that kind of like ties into the next point where you mentioned distribution is a key technology. And the -- on distribution side, a lot of things are happening. You have things like Snowflake and Databricks coming in, data lakes, warehouses, data warehouses, lake houses. A lot of words being thrown around. How is that driving a change in data consumption from a customer side of things versus APIs versus plain, old FTP versus the new? Any color on the mix you can provide? And how is that changing? And how is the new technology enabling that?

Right. See, first and foremost, the volume of the data has increased. Now we've probably created a lot more data in the last 2 years than 10 years before that. So how do we process the data and how do we distribute the data and how our customers consume data is very, very important to us. So yes, we have the traditional desktop and mobile access. We have recently launched Platts Dimensions Pro and CapIQ Pro, so we can have our traditional customers access that. We have the Excel plug-ins, API and fees. And those are -- those have been there, and we are trying to continue to modernize those aspects a bit. But what we're seeing is there are new ways our customers want to consume. In the past, in order for you to make an intelligence, you may only need 1 or 2 data sets on the customer side, they will consume. But now customers are hungry for taking multiple data sets and playing with them. And there are 2 types of use cases there where somebody wants to kind of experiment with it to see what is the value, typically a data scientist. And the whole thing that we are doing around Marketplace Workbench will allow our customers to play with our data, look at some sample data and drive some analytics with it and then consume the main product. So that is one of the partnerships that we have. And then customer knows what they want to do, they want to be able to get to that a lot faster. Traditionally, it would take a lot of dependence on the internal IT infrastructure, and they don't want to go through that. A partnership like Snowflake, we can make the data available, and our customers can get their infrastructure very, very quickly. That's not only helping our large clients, but we're able to partner and deliver our essential intelligence to a lot of the small clients who may not be able to afford that large internal IT infrastructure, they can come onboard on Snowflake and consume our intelligence pretty quickly.

And any mix you can provide on how is Snowflake versus APIs versus FTP right now? And how is it trending? And where do you see it evolving in the near future?

We are definitely seeing a lot of growth in this new age, modern-based consuming the data, the Snowflake and access to the data marketplace. We talked about in the recent earnings release the number of news we are having and the level of hunger that it's generating is increasing. APIs is another area that we're also seeing growth. So I would say those are the 3 fast-growing areas above and beyond the traditional channels and the feeds and the desktop. One thing, Sameer, that we need to also understand is in addition to increasing the way to consume the data, we're also providing a lot of alternative data. And that's also helping some of this new data. We're able to put them in the cloud lots faster than the feeds and the desktop. So our ability to deliver alternative data and make that as part of the workflow for our customers is also increasing. So these are all new use cases that we could not do in the past.

Got it. And then that's a nice segue into my next question. You mentioned your new technologies allow you to get the data to customers faster. What are the -- some new capabilities or new products or new things customers are able to do now with access to cloud that they were not able to do prior? Any examples you can share that really kind of exemplify the power of cloud.

Yes. So on our data marketplace, we see a lot of data science use cases where they are trying to figure out what does -- we have a lot of new products and new data in the ESG space. And if you are interested in climate risk, if you're interested in energy transition, you can actually get multiple amounts of data through these new platforms and make decisions around that. I would say data scientists and some of these analysts who are very comfortable with playing with the Jupiter notebooks are using our platform much more aggressively than before.

Got it. That's fantastic. And new customers are able to use your data, and there are more use cases that are enabled. So as you become more cloud-enabled, more tech-focused, how does that drive business growth going forward? How -- does it give you new geographies, new customers, new capabilities, upsell, cross-sell? What are the growth drivers that you factor into -- that you factor in when you are thinking about your cloud investments?

Right. So first and foremost, with the cloud, the amount of geographic reach is fantastic. Without doing a whole lot, we're able to put the infrastructure in Ireland, Singapore in many locations, in China, we talked about, very, very quickly. So our ability to be closer to the edge is that, that means we can serve many more regions, and then we can provide better performance. That's number one. And number two, like I mentioned earlier, our ability to respond to our customer needs is -- has increased. So our customers are asking, again, in the ESG area, what happens to -- if I want to understand the cyber aspects of a particular company, we're able to put our data around the big site and put that in the cloud. So we can reach more personas. We can be part of the many workflows. And from a global reach perspective, cloud is enabling us to be close in to the edge with the customers.

Makes sense. And any -- so what are going to be your focus investment areas going forward? As you I wouldn't say complete a journey because the journeys are never complete. They're always in progress. But what are your focus areas of investment going forward as you think about being a mature cloud company. And second thing is, how are the economics different going forward when you're serving everything from the cloud versus your original data center things? And that would be pretty much my last question, and then we'll wrap up there.

Look, there is a lot known about the cloud. There's also a lot unknown about the cloud, right? I think that's where we are looking for. So if I look at the data life cycle, we know a lot of problems around the DevOps and DevSecOps and a lot of solutions are there. But we are looking in the data life cycle. There are a lot of new age problems that are coming in, especially machine learning, AI and certain new technologies we attribute at scale. And corporations have not figured out how to do it at scale, and there's a lot of innovation. So we are looking at how can we scale data science. How can we have these many models that are embedded in the business processes? And how do we manage the model proliferation and the data that we can get from the model? So a lot of innovation there that we are tracking. And visualization, as the data is becoming complex, how do you interact with the data? How can we make it seamless for our customers to interact with the data and the essential intelligence is an area as well. And of course, cyber and cybersecurity and continuing to keep it protected and secure is an important area as well.

Great. I have one last question from a client. And tying into cloud and migration as well. With the IHS technology being ingrained into S&P, how does that -- what are the time lines of integrating that into S&P? And will you be keeping those around for redundancy for a long time? Or you'd be able to integrate those real quickly? How soon would you be able to do that? Any color you can provide that given the power of cloud?

Yes. So both companies have our technology journey, and I can tell you for sure that combining 2 companies that have embraced and adopted the cloud is much more easier to integrate than companies that have not embraced cloud. This integration, we'll spend more as it gets closer. But as part of the planning and the preparation that we are doing, the integration is going to be much more seamless than any other integration that I have ever done in the past from an employee's perspective and customers' perspective and enabling the cross-divisional access so that we can realize the synergies, the revenue synergies that we promised. I'm very confident that our journey in the cloud makes it seamless than ever.

Great. Thank you so much for your time today, Swamy. It was a pleasure having you here. Thanks for your time.

All right. Sameer, thank you very much for having me. Appreciate it.

Thank you. Bye.