S&P Global Inc (SPGI) — Q4 2015 Earnings Call Transcript

Good morning. Thank you for joining us for McGraw Hill Financial's Earnings Call. Presenting on this morning's call are Doug Peterson, President and CEO; and Jack Callahan, Chief Financial Officer. This morning we issued a news release with our fourth quarter and full year results. If you need a copy of the releases and financial schedules, they can be downloaded at www.mhfi.com. 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. Before I begin, I need to provide certain cautionary remarks about forward-looking statements. Except for historical information, the matters discussed in the teleconference 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. In this regard, we direct listeners to the cautionary statements contained in our Forms 10-Ks, 10-Qs and other periodic reports filed with the U.S. Securities and Exchange Commission. I would also like to call your attention to a European regulation. Any investor who has or expects to obtain ownership of 5% of McGraw Hill Financial should give me a call to better understand the impact of this legislation on the investor and potentially the company. We're aware that we do have some media representatives with us on the call, however, this call is intended for investors, and we'd ask that questions from the media be directed to Jason Feuchtwanger in our New York office at 212-438-1247 subsequent to this call. At this time, I'd like to turn the call over to Doug Peterson. Doug?

Thank you, Chip. Good morning, everyone, and welcome to the call. In the next 20 minutes or so, I'm going to provide you with an update on how we've positioned McGraw Hill Financial for continued growth and performance, and let me begin with an overview of 2015. Revenue increased 5% year-on-year, with organic revenue increasing 3%. Adjusted total expenses increased 1%. Adjusted operating profit increased 13%. Adjusted operating margin increased 280 basis points, and diluted adjusted EPS increased 17%. Margin improvement was a big story for the year. Our cost reduction efforts and revenue growth combined for a 280 basis point improvement in adjusted operating margin for the second year in a row. Every business delivered at least 200 basis points of adjusted operating margin improvement. Year-over-year, our revenue increased $262 million. 90% of this was pulled through to adjusted operating profit. I'm proud of this accomplishment, as it is a testament to how well our employees controlled costs during the year. This cost efficiency was the main reason we were able to leverage our revenue growth into 17% adjusted diluted EPS growth. As we look at the company's financial performance over the last four years, the company has delivered consistent improvements in revenue, margin and EPS. Revenue from continuing operations has grown at a 9% compounded annual growth rate. Our adjusted margins have improved 960 basis points from 29.1% to 38.7%, and we've achieved a compounded annual growth rate in adjusted diluted earnings per share of 22%. In addition to delivering another year of strong financial performance, we continued to strengthen our franchises during 2015. The most important transaction of the year was the addition of SNL. We increasingly believe that the combination of SNL with S&P Capital IQ presents a compelling opportunity to create a powerful data and analytics business. In addition, we acquired Petromedia, strengthening Platts existing position in the bunker market; launched Platts Market Data Direct, a new service that delivers Platts price assessments, historical and other reference data in a matter of seconds; positioned Capital IQ as a core content provider to Symphony Communication Services so that its customers can seamlessly access S&P Capital IQ company data; launched a suite of new fixed-income indices anchored by our flagship S&P 500 Bond Index, the first-ever index that tracks the debt of the S&P 500 companies and the first priced in real-time throughout the day; and we entered into newer, expanded exchange agreements in New Zealand, Mexico and Brazil. Beyond strengthening our businesses, there were a number of other key accomplishments in 2015. We consolidated the company headquarters into downtown New York, a move that brought corporate employees much closer to our operations; generated $1.2 billion in free cash flow, excluding legal and regulatory settlements and insurance recoveries; returned $1.3 billion through share repurchases and dividends; successfully issued debt into the market after an eight-year absence; continued to make investments in compliance and risk management; and last week, increased the dividend by 9%, marking the 43rd consecutive yearly increase. Now let's take a closer look at the fourth quarter results where the company finished 2015 with solid earnings in a difficult debt issuance environment. Revenue grew 7%. Organic revenue, however, only grew 1% as a result of revenue declines in S&P Ratings Services. Adjusted operating profit increased 8%, and fourth quarter adjusted diluted EPS increased 9%. The strength of our portfolio is evident in the fourth quarter as weak issuance at Ratings was offset by solid revenue growth across the rest of the portfolio. This portfolio strength, coupled with progress on productivity initiatives, enabled the company to deliver 9% adjusted diluted EPS. Now let me turn to the individual businesses, and I'll start with S&P Capital IQ and SNL. In 2015, reported revenue increased 14%, with organic growth excluding revenue from SNL acquisition increasing 7%. Adjusted segment operating profit increased 25%, and adjusted margin increased 200 basis points. With integration teams in place and synergy opportunities identified, we expect to deliver considerable adjusted margin improvements in this segment over the next few years. Jack will provide more details in a few minutes. In the fourth quarter, reported revenue increased 27% primarily due to the addition of SNL. Excluding SNL revenue, organic growth was 7%. Adjusted operating profit increased 22% in the fourth quarter, and adjusted operating margin declined 80 basis points. This margin decline was due to deal-related amortization. Excluding net amortization, fourth quarter margin actually increased 200 basis points from 21.3% in the fourth quarter 2014 to 23.3% in 2015. Let me add a bit more color on fourth quarter revenue growth in the business lines. S&P Capital IQ Desktop and Enterprise Solutions revenue increased 9% principally through a low teens increase in desktop revenue. SNL revenue increased 10% compared to fourth quarter 2014. Prior to our acquisition of SNL, 2015 revenue was reduced by a deferred revenue adjustment required under purchase accounting. Excluding this adjustment, revenue growth was 14%. Global Risk Services revenue increased 5% led by Ratings Express which is increasingly used by customers to meet their regulatory reporting needs. In the smallest category, S&P Capital IQ Markets Intelligence revenue increased 4% overall with growth in Global Markets Intelligence and leveraged commentary data exceeding declines in equity research services. Let me turn to Standard & Poor's rating services. In 2015, revenue declined 1%. However, excluding ForEx, revenue for the year increased 3%. Adjusted operating profit grew 7% and the adjusted operating margin increased 340 basis points to 47.2%, a noteworthy achievement. During the quarter, revenue decreased 7%. However, excluding ForEx, revenue decreased to 4%. Adjusted operating profit decreased 3%, and the adjusted operating margin increased 150 basis points to 43.7%. While decreased expenses in the fourth quarter led to margin expansion, the big story during the quarter was weak global issuance. Non-transaction revenue in the quarter was flat. However, excluding ForEx, it increased 4% due to strength in CRISIL and in rating evaluation service revenue from elevated M&A activity. This was partially offset by lower revenue associated with fewer new customers that were added in the fourth quarter. Transaction weakness was caused by a 26% decline in global issuance, partially offset by growth in bank loan ratings. Excluding ForEx, transaction revenue decreased 13%. Let's take a look at issuance. The two largest markets, the U.S. and Europe, both declined, capping a weak second half of the year for issuance. Fourth quarter issuance in the U.S. was down across the board. Investment grade decreased 17%, high yield 41%, public finance was down 21%, and structured finance also declined 26%, with the only bright spot being RMBS. In Europe, investment grade decreased 15%, high yield down 10%, and structured finance increased 11% with declines in every asset class offset by growth in covered bonds. The rest of the world had even weaker issuance, with Asia declining 47% and the Americas outside the U.S. declining 46%. In total, global bond issuance declined 26%, outpacing the 20% decline in the third quarter. Turning to S&P Dow Jones Indices, in 2015 this business delivered an 8% increase in revenue, a 12% increase in adjusted operating profit and a 200-basis-point of adjusted margin improvement to 65.6%. Fourth quarter results were similar with a 7% increase in revenue, a 9% increase in adjusted operating profit and a 100 basis point of adjusted margin improvement. During the quarter there was a modest decline in revenue from ETFs, offset by revenue from exchange traded derivatives, mutual funds, OTC derivatives and data licenses. If we turn to the key business drivers, the ETF industry surpassed 2014 record inflows, setting a new record of $351 billion in 2015, a great trend. AUM based on our indices increased 9% sequentially from third quarter 2015 to $815 billion, but below peak levels of the end of 2014. During the quarter, we continued to innovate, launching 233 new indices and 26 new ETFs based on S&P Dow Jones Indices. Exchange traded derivative revenue growth was primarily driven by increased revenues from CME, partially offset by a decrease in exchange traded derivative volumes based on S&P Dow Jones Indices. As you know, S&P Dow Jones Indices is impacted by fluctuating markets but continued inflows into passive investing, innovative new indices and efforts to partner with exchanges around the world bode well for the long-term positioning of this business. On to commodities and commercial markets. The Eclipse, NADA Used Car Guide, and Petromedia acquisitions impacted revenue comparisons in both the fourth quarter and the full year. Adjusting for these items, organic revenue increased 6% in 2015. Adjusted operating profit increased 17%, and the adjusted operating margin improved 260 basis points to 36.9%. In the fourth quarter, organic revenue increased 8%, adjusted operating profit increased 20%, and the adjusted operating margin increased 240 basis points. Both Platts and J.D. Power delivered high single digit organic revenue growth. J.D. Power revenue was powered by its auto business with particular strength in its PIN product. The evaluation of strategic alternatives for J.D. Power continues with considerable interest from third parties. Many of our upstream petroleum, natural gas and mining customers are pressured by low commodity prices, and this has impacted the revenue growth of the Platts business. Nevertheless, Platts delivered high single digit revenue growth in this challenging environment. Organic revenue from the core subscription business grew with both petroleum and metals, ag and petrochemical revenue increasing high single digits. Global Trading Services revenue increased double digits primarily due to the timing of license fees and strong license revenue from the steel index derivative activity. In summary, the company delivered solid revenue growth in a difficult market environment. More importantly, progress on our productivity initiatives was apparent with outstanding margin expansion delivered by every business in 2015. For the second year in a row, the company delivered adjusted operating margin improvement of 280 basis points. This accomplishment was the primary driver of the 17% adjusted diluted EPS growth for the year. Now, let me discuss the outlook for 2016, and I'd like to start with some thoughts from our economists. Major central banks' moves in December may have disappointed or unnerved markets with the Fed Reserve raising rates and decisions by the European Central Bank and the Bank of Japan that appeared to disappoint or alarm the markets. However, monetary policy continues to provide a tailwind to economic expansion. Recent stock market volatility probably overstates the likelihood of a slump in global growth this year. These market moves appear to be more sentiment than data driven with the exception, obviously, of the fall in spot oil prices, which reflects changing supply fundamentals. In the 6.5 years or so since the global economy started to recover from the financial crisis, it has grown in real terms at an average of about 3.5% annually. S&P economists expect that trend to continue with a 3.6% global growth in 2016. Our economists expect real growth in China to continue to trend downward but to end up at 6.3% this year after growing by 6.9% in 2015. Growth in most of the developed world and even much of the developing world stands to be a bit higher this year than last, which adds up to a decent outcome for global growth. Excessive pessimism is probably not warranted. With this economic backdrop, we expect global debt issuance to decline 1% in 2016 and for spreads to widen. Within the U.S., we expect speculative-grade corporate issuers to see increasing borrowing costs in the coming quarters at the back of the Fed interest rate increase. While most higher-rated corporate entities should continue to have a favorable lending environment as investors could pursue moderate yields while remaining more risk-averse. More favorable lending conditions in Europe, supported by continued monetary accommodation by the ECB, should result in increased bond and loan issuance in 2016. The Central Bank's recent measures combined with a softening in the regulatory stance may also bode well for higher issuance of securitized products, with modest increases in borrowing from the public finance sector. Among the emerging markets, most regions are experiencing substantial stress from falling commodity prices, exchange rate pressures from the rising dollar, tighter lending conditions, and a rising share of non-performing loans. Two of the largest economies, Brazil and China, have been experiencing significant headwinds this year, and their market volatility is unlikely to subside in the near-term. Now turning from macro factors to those items inside the company that we control, there are several areas of focus in 2016. Our revenue guidance for 2016 is for mid- to high-single digit growth. While tepid issuance limits S&P Ratings Services growth, we'll benefit from eight additional months of SNL in 2016. Beginning in 2016, we will report our financial results using a newly-defined adjusted diluted EPS that excludes deal-related amortization that Jack will discuss in a moment. Incorporating this change, our 2016 adjusted diluted EPS guidance is a range of $5.00 to $5.15. In 2016, we expect to generate considerable free cash flow, and our guidance is for approximately $1.3 billion. Please note that this cash flow guidance doesn't include the proceeds from the potential sale of J.D. Power. We are actively pursuing the sale of this business and have received considerable interest from a number of parties. The top operational priority in the corporation will be the integration of S&P Capital IQ and SNL. Ten work streams are in place, and now that we have an inside look at SNL and the collective knowledge from both businesses, additional synergies have been identified. We have a goal to transform Global Risk Services into a market leader. We have risk capabilities within S&P Ratings Services, S&P Capital IQ, SNL, and CRISIL that we brought to bear to create new credit products and services. I've challenged the organization to continue to expand our international footprint through better customer focus as well as collaboration across the company, and I've also challenged the company to deliver additional process improvements. From automating elements of the ratings process to improving data collection, there is ample opportunity to drive performance with process improvements and re-engineering. We will also continue to invest in compliance and risk management as well as firm-wide technology and data roadmap. Technology is at the heart of each business, and we need to evolve our technology in a thoughtful and coordinated manner. And now I'd like to conclude with some big news. The board of directors has proposed renaming the company S&P Global. This name better leverages the company's rich heritage and our powerful financial data and analytics brands while signaling that we have a strong global footprint and broad portfolio. The change will be effective pending a shareholder vote on April 27. In addition to changing the name of the company, we will also be changing the names of some of our divisions. For example, S&P Capital IQ and SNL will be renamed S&P Global Market Intelligence. With that, I want to thank you all for joining the call this morning, and now I'm going to hand it over to Jack Callahan, our Chief Financial Officer.

Thank you, Doug, and good morning to everyone on the call. As you just heard, we made great progress in 2015 expanding our portfolio and product capabilities while simultaneously streamlining the cost base. Today I want to provide additional clarity around several items that impact our financial performance, and then we will open up the call for your questions. First, I will recap key financial results. As part of the review, I want to highlight the impact of deal-related amortization and discuss our new approach to key performance metrics. I will also review the impact from adjustments to earnings and update you on the balance sheet, free cash flow, and return of capital. After that, I will provide updates on our productivity initiatives and SNL integration, and finally, I will provide 2016 guidance. Let's start with the consolidated fourth quarter income statement. As Doug already commented on these items, there are just a couple of items I want to highlight. First, reported revenue grew 7% benefiting in part from the first full quarter of SNL contribution. On a constant currency basis, organic revenue grew 3%. Delivering overall top line growth was thanks to the strength and breadth of our portfolio, as revenue from our largest business, Standard & Poor's Ratings Services, was lower than last year due to the impact of weak global debt issuance. Second, expenses in margins were impacted by the step up in deal related amortization. I will discuss this item in more detail in just a moment. Third, the tax rate was considerably lower than a year ago largely due to improved profitability in several lower tax jurisdictions outside the United States and favorable tax benefits from the ongoing resolution of prior-year tax audits. Turning now to the full year, both reported revenue and organic revenue on a constant currency basis increased 5%. This was consistent with our guidance of mid-single digit growth. The most impressive result is that total adjusted expenses increased only 1%. This is a direct result of the tangible progress on our three-year cost reduction plan which I will discuss in a moment. As a result of cost productivity and solid revenue growth, adjusted operating margin increased 280 points to 38.7%. The tax rate for the full year on an adjusted basis was 30.5%. As I just mentioned, this was due to improved profitability in lower cost jurisdictions and the ongoing favorable outcomes from the resolution of certain prior-year tax audits. And finally, adjusted net income and adjusted diluted earnings per share increased 15% and 17% respectively. Adjusted earnings per share of $4.53 is a couple pennies ahead of our latest guidance. The average adjusted diluted shares outstanding decreased by over 1 million shares versus a year ago. The full impact of the 10 million shares that we repurchased during 2015 will be more evident in the 2016 share count. Now I want to highlight the impact of deal-related amortization. As a result of the SNL acquisition, the company's deal-related amortization expense has increased significantly. It will be approximately $98 million in 2016 just over half of which is related to the SNL acquisition. In the comp section of the slide, you can see that we reported a fourth quarter 2015 adjusted operating margin of 24.8% as deal-related amortization more than doubled. On the other hand, if deal-related amortization expense were excluded, we would've reported fourth quarter 2015 adjusted operating profit margins of 36.8%. The difference is not as pronounced on the full year results which includes only four months of SNL deal related amortization expense. Here the reported 2015 adjusted operating margin is 37.8%. However, if deal related amortization expense were excluded, we would have reported 2015 adjusted operating profit margin of 39.9%. On this slide, we lay out the earnings per share impact of deal-related amortization expense on the fourth quarter and the full year. For the fourth quarter there is an $0.08 per share difference between the reported adjusted diluted earnings per share of $1.04 and the adjusted diluted earnings per share excluding deal-related amortization of $1.12. For the full year of 2015, the difference is $0.16. Now going forward, beginning in 2016, we will be excluding this deal-related amortization from our non-GAAP results. We think that this will enable investors to view our results in the same manner as management. In today's earnings release, we have provided the impact of this change to 2015 adjusted earnings by quarter but you can adjust your models accordingly. Now, let me turn to adjustments to earnings to help you better assess the underlying performance of the business. In total, pre-tax adjustments to earnings from continuing operations totaled $54 million in the quarter. This consisted of $33 million of restructuring charges in S&P Capital IQ and SNL, corporate and Standard & Poor's ratings services. There was $15 million in accruals for potential legal settlements and $6 million for acquisition-related costs associated with the SNL transaction. As you have seen in the past, these restructuring actions are targeted to produce tangible cost reductions. The majority of the actions were taken in S&P Capital IQ and SNL as this division begins the realization of its cost synergy plans. I will provide an update on these synergies in just a moment. Now let's turn to the balance sheet. As of the end of 2015, we had $1.5 billion in cash and cash equivalents of which approximately 90% was held outside of the United States. We also had $3.5 billion of long-term debt and $143 million of short-term debt in commercial paper. Going forward, we intend to tap into the short-term debt markets periodically to fund our share repurchase program and meet other corporate needs. Our full year free cash flow was a negative $48 million. However, to get a better sense of our underlying cash generation from operations, it is important to exclude the after-tax impact of legal and regulatory settlement and related insurance recoveries. On that basis, year-to-date free cash flow was a positive $1.2 billion. This is consistent with our guidance of greater than $1.1 billion. Now I want to review our return of capital. During the quarter, the company stepped up its share repurchase program and bought approximately 5 million shares bringing the year-to-date total to approximately 10 million shares. These purchases combined with our dividend totaled to approximately $1.3 billion of cash returned to shareholders in 2015. This overall return of capital is in line with the past several years. Overall, we have returned approximately $6.4 billion over the last five years. The share repurchase program remains an important component of our overall capital allocation and we anticipate continuing to repurchase shares subject to market conditions. As most of you know, we initiated a three-year productivity program that will conclude by the end of 2016. The target was initially $100 million when introduced in early 2014 and was increased to $140 million last year. As of the end of 2015, approximately 80% of that productivity target has been realized. Our progress is clearly evident in the margin progress that we have delivered over the past few years. We currently expect to complete these initiatives and deliver on the full $140 million target by the end of this year. Now let me provide an update on the integration of SNL. This was the first full quarter of our ownership of SNL and given its importance, the integration has become a primary area of focus for the company. It is imperative that we combine S&P Capital IQ and SNL rapidly to capture synergies while minimizing disruption to the business and most importantly our customers. As Doug mentioned, 10 integration work streams are in place and efforts are well underway. We have a centralized integration management office that provides detailed tracking by initiative, identification of key issues and monitoring of these synergies. Both Doug and I work closely with Mike Chinn and his team to help ensure that these efforts receive the appropriate priority and support for us, the company. More importantly for investors, we are now on track to exceed the initial $70 million synergy target ahead of our original timeline. When we announced the acquisition of SNL, we cited a target of $70 million of run rate EBITDA synergies by 2019. This was an estimate we arrived at by looking at SNL from the outside in. We now have had the opportunity to work directly with the new leadership team to consider what can be accomplished as we build an integrated S&P Capital IQ and SNL organization. With this more informed inside look, we are now targeting $100 million of synergies by 2019. This increase is almost entirely cost related as we now expect about $70 million of cost synergies by 2018 and the balance revenue related. Furthermore, we expect that more than one-third of the synergies will be realized in 2016. Taken in total, these synergies, the sustained growth across both legacy businesses and the positive eight-month overlap on the acquisition could generate approximately 20% revenue growth in 2016 with process excluding the impact of deal related amortization growing twice as fast. Now let me provide some additional guidance going into 2016. Overall, the strength and breadth of our portfolio better positions us to weather the volatility that we have experienced over the last couple of quarters which has intensified a bit since the start of 2016. The promising outlook for S&P Capital IQ and SNL, and continued growth at Platts supports our current assumption of mid to high single digit revenue growth despite the weak start and debt issuance in the overall capital markets. We anticipate maintaining the approximately 31% effective tax rate, generally in line with 2015. As I mentioned earlier, our adjusted earnings per share guidance will exclude the impact of deal-related amortization. On this basis, we are introducing adjusted earnings per share guidance of $5 to $5.15, 7% to 10% growth off our 2015 adjusted earnings per share once the impact of deal-related amortization is excluded from both years. Despite the strong adjusted margin expansion expected at S&P Capital IQ and SNL, we are a bit cautious about further consolidated margin expansion in 2016. This caution is primarily based on the challenging market conditions which may impact revenue growth in our two highest margin business units, Standard & Poor's Ratings Services and S&P Dow Jones Indices. And as a reminder, we have already made great progress on margins with the realization thus far of the $140 million productivity target. As a result, we would currently point to an overall margin expansion of approximately 50 basis points above the 39.9% adjusted operating margin excluding deal-related amortization in 2015. Capital investment is expected to be largely flat, in line with 2015. On return of capital, last week the company announced a 9% increase in our annual dividend to $1.44 per share; our guidance considers continued share repurchases, although the timing can be impacted by market conditions. One clarification, this guidance assumes the inclusion of J.D. Power for the full year. As you can see in today's release, we have moved J.D. Power to an asset held for sale. As such, J.D. Power's results will be included until a sale is closed. Upon close, we currently anticipate using cash proceeds to repurchase shares and offset dilution. At that time, we will update you on any impact to our current outlook. Finally, we anticipate 2016 free cash flow of approximately $1.3 billion, which excludes any additional impact from asset sales. In summary, we look for another year of growth in 2016. The strength of our portfolio, now augmented with SNL, positions us well to manage through these volatile market conditions. Now, let me turn the call over to Chip Merritt to open it up for your questions.

Thanks, Jack. Operator, we're now ready for the first question.

Yeah, good morning, gentlemen. So, just first on the 2016 guidance, I was hoping you could just clarify two things on the revenue line: what is the organic growth expectation embedded in that total mid to high single digit that you've given? And then within that as well, like I think you said you expect global issuance to be down 1%. So, what is sort of the anticipated offset to the ratings business on the top line there?

The organic growth is more in the – if you go back to our guidance of mid-single to high single digit revenue growth. Organic growth is sort of in the mid-single digit range, lower end of that; so that's the organic growth assumption, then plus the benefit of the SNL acquisition. More specifically, for ratings, we do have, as Doug mentioned, the issuance outlook down a bit, down 1%. With that down volume but maybe a bit of pricing, we would like to see some revenue growth in that business. However, I do suspect that may be a bit more weighted to the back half of the year just kind of given the issuance trends that we've seen in the fourth quarter that now appear to be continuing as we go into the first.

Okay. And then, if I could just follow up on the rating side, just in terms of your visibility, can you remind us of how much visibility you guys really have based on your pipelines? And then just – I'm just trying to think – maybe I'm interpreting this wrong but correct me, like it sounds like your negative 1% issuance feels like you still potentially see downside to that and I was just wondering if that's correct, then how you would frame that maybe going into the next couple of years?

Thank you. This is Doug. Just a couple of points. In terms of issuance, let me just give a few of the statistics from what we saw in the fourth quarter and a couple of general trends. Clearly, as we reported, there was a large decrease in total corporate governance; it decreased 29.3% in the fourth quarter and there were some of the different categories. For instance, in Latin America it was down 60%, 68% overall. In January, we saw a continuation of that trend. The total corporate governance issue was down about 26%. Financial institutions were down about 56% but we put together our forecast which you saw on slide 26 which shows about a 1% decrease in 2016. We put that together with the combination of looking at the markets, what we expect to see from market issuance, scanning the market with investment banks and corporate banks, et cetera. We also look at the maturity profile of debt that's already on balance sheet that's coming due. So we looked through this forecast looking historically as well what we see are the trends. If you look at that chart, you can see that 2014 was a peak year at $6 trillion of total issuance and there's been a level almost every year 2012, 2013, 2015 a little bit over the $5 trillion level. The mix changes here and there but we still believe that there would be somewhere in that range. It's just as Jack mentioned, it might be more in the second half of the year. There's another part of the markets which you didn't ask the question but I just want to mention as well, which is very important and which has to do with spreads. Spreads have recently widened significantly especially in the lower end of the credit spread. CCC type credits are obviously more distressed credits and below, have increased by over 400 basis points. They're at a 1,225 spread range whereas the AAA, AA level is still around 100, 110 basis points. It barely budged over the year. In fact, as you've seen, U.S. Treasuries have tightened. So the spread issue, where we see spreads going, there's a lot of volatility right now. We think that also plays into it, people's appetite for going out. It's not really related to the base rate. It's related to the spread. Anyway, long answer to your question, we are prepared in the business as necessary to manage our costs tightly through things like delaying hiring, looking at our bonus accrual, as well as other investments that we might be making in things like technology and systems, et cetera. So we have certain flexibility we can build into our plan if we need to go through what could be a tough period. And one final comment, as you've heard me say many times in the past, we have a long-term optimism in this business, in fact, in all of our businesses. But we've always said that quarter-by-quarter we could see some shaky quarters as markets respond to certain conditions.

Thanks a lot, guys.

Yeah, sorry about that. I was on mute here. So I was – I know you talked a bit about margins for the year and hope that you would really control things with hiring and other things if things got tough. Based on your base case of what you just spoke to in the 50 basis points for the total corporation, how should we assume that the margin in the ratings business specifically move during the year relative to the rest of the company? And, I guess, as you look at things over time, do you still expect to increase the margin towards your closest competitor, Moody's as you execute some of the other initiatives that you've been talking about over the last couple of years?

Andre, we don't want to get too overly specific in guidance of margin by the business unit level. Let me make maybe a few comments about ratings and then one broader point just on the math of the margins for 2016. You know, I think our – maybe the caution view – the cautionary view we're taking on margin expansion is not really based on cost management. I think our track record over the last few years would demonstrate that we're on that one. It's really more on the revenue side and particularly kind of given the issuance trends that we're seeing right now on ratings. And we know how to manage cost in that business. Just to think about it, last year in 2015 we were actually able to expand margins with revenue down. That doesn't happen all too often. So from a longer-term point of view, we do think margin expansion is certainly possible with revenue growth and continued cost control within the ratings business. I just do – I just want to be clear that we are not targeting any magical upside goal here. We're just trying to manage our business in terms of what we think is right for the ratings business. Which is one overall point on the margins itself, we said 50 basis points but you also have to kind of remember the math in terms of the addition of SNL this year. SNL is going to add to the portfolio about $200 million. It's coming in sort of around the mid-20%s margin. You just do the math. That's dilutive to the overall company margins of about 50 basis points. So if you were just to kind of look at like-to-like and exclude the impact of the SNL acquisition, our full year – our margin guidance is really more in the range of a full point which frankly is not that different than what we did in 2014. I think we were 150 basis points last year. So I think it's not as different as it may look – kind of look when you really factor in the math of the acquisition.

I guess my follow up would be in terms of the indices business, I know we spend a lot of time talking about Capital IQ and ratings but you do have a couple of offsetting factors that you talked about in the prepared remarks. Any directional color on just based on the condition that we're seeing today? How you would expect that business to grow? Is it simply just AUM or are there other things that you could see benefiting that business going forward?

The one, I mean, beyond just assets under management, the one other thing that helps drive that businesses is volatility, and we have certainly seen a step up in volatility so to some degree that has been a bit an offset to assets under management. So we are – in total, there hasn't been a big change in terms of asset flows. Really what it is, it's been the overall market performance that really has kind of changed assets under management here. So we're looking at both what's going on with asset flows and we're also closely watching volatility. But so we'll have to see how the years play out. I think right now we certainly look at it with a bit of caution but at the same time we can – it's not just flows into ETF that drive the business. There's multiple ways in which we can drive revenue.

And, Andre, this is Chip. I'll add in. The flows is a great long-term trend and that continues. So earlier this year we saw some outflows and things like that. When the year was said and done, we had 4% or 5% inflows into AUM associated with our indices. So that continues in the trend that's been there for several years. So regardless of market volatility, which we love the volatility and when the market goes down that hurts our AUM, but we continue to benefit from inflows from active and passive.

Thank you.

Hi. Good morning. Another couple questions on the guidance. On the ratings slide, you talked about the 1% down and issuance. I think you actually did the calculation but I couldn't tell. What you're expecting for the corporate piece of issuance versus say the structured part? It seems like corporate maybe is a little weaker with the high-yield loans, and may be structured products little bit stronger with some of the RMBS, CMBS covered bond type stuff that you guys did. Maybe you could just comment on what you're thinking about those two pieces of the ratings rather than growth or issuance growth?

Yeah, there are – you basically described generally what our expectations are. In terms of broad themes, we expect that over time in Europe is going to be increased structured finance. This is something that the ECB is trying to implement. They want to have a more active capital markets. There's also the E.U. has what they call the Capital Markets Union and one of the things they want to do is have more credit flow to SMBs and small financial institutions. So they think that the structured finance market is one of those. We agree that that is going to be a slight growth area in 2016. In addition, there's another very important global trend about financial institutions. They're all looking at optimal capital structure in addition to the new rules related to capital and there's this TLAC which is total loss absorbing capacity which is basically senior bonds which have a certain level of subordination to other senior debt depositors that we expect that banks are going to be issuing. So in general, we think there will be increases in structured finance, increases in financial services and financial institutions, likely decrease in overall corporate issuance globally but probably a larger increase in noninvestment grade overall especially at the spread levels which I mentioned earlier. But net-net that comes out about a 1% decline.

Is there a larger decrease or larger increase in the noninvestment grade? Larger decrease, right?

Yeah, noninvestment grade would probably decrease.

Right. Okay. And then kind of moving in a different direction, on index the expenses went up quite a bit quarter-over-quarter and I know that's a business that the top-line is great and has very high incremental margins, and you kind of manage the expense base. Is that expense level the kind of quarterly amount that you'd expect through next year? And since it's a little bit elevated, what's driving that is that new products and fixed income indices and that sort of thing? Or any thoughts just on what you're expecting for that kind of index expense line to do over the next year?

I'll just view it as this would be some timing of expenses that largely was head count related. There's no – we're not in the midst of any significant step up in investment program in indices or anything like that. So I think in a normal growth year we wouldn't expect anything. We would expect maybe to maintain it or maybe even improve a bit the high margins we have in that business. But that's – the only other thing that may be because it's the fourth quarter sometimes depending on, as individual businesses, is projecting. Sometimes there is in the fourth quarter an impact on incentive compensation depending on how the individual businesses is doing up against targets and I suspect it could also have been – there also may have been a catch-up in incentive comp which would impact that quarter.

So kind of – so it's maybe a little bit higher on a run rate basis but you're kind of expecting flattish margins there for the next year?

We wouldn't signal any big change in margins at this point.

Okay. Thanks.

Yes. Good morning. My first question is on Platts. Roughly a year ago you guys thought Platts would grow high single digits revenues. It looks like that's what it came in at based on your press release. I'm curious what your outlook is here for 2016 just given the oil price issues out there right now?

I think it did come in at that level in the quarter. However, it did pick up a few points of growth from some of the acquisitions that we've done. I think we'd be more right now in sort of the mid-single digit sort of ranges of the two. We'd like to think maybe we can get back into high single. But I do think kind of given the pressure that's on a lot of the customer bases in Platts, it's going to cost us I think a couple points of growth. I think we were seeing that. Last year I think probably – but again, the business is pretty resilient. It is over 90% subscription-based and our renewals are – is doing fine and we have pretty good visibility into our renewals going into this year. So we feel pretty good about continued growth in Platts. The only other one thing that in a particular quarter can drive growth up or down a couple points is we do have – we are linked to some of the trading activity with the market on closed process and depending on what's going on with volatility in the oil space, there can be a little movement, a point or two up or down on that too.

And also my second question, please, in the ratings business just given your outlook here for debt issuance down 1% globally, can you comment upon what you're looking for from the non-transaction piece rating for your revenues there? I mean I guess including a price increase of roughly 3% to 4% in your outlook for issuance, do you think that number can actually be up a few percentage points non-transaction?

Yeah, I think just generally our assumption is in that mid-single digit range. The one thing – that number has been impacted a bit by ForEx. We'll have to see how that plays out in 2016.

Thank you.

Thanks, Craig.

Good morning. Only a couple, I guess, really numbers questions here. So first of all for Jack, can you just go back to the amortization impact? When you look at this quarter it was $0.08 EPS. It looks like a much lower tax rate on those. So, is the tax rate going forward going to be lower? So basically what I'm asking is what's the EPS impact of $98 million?

The $98 million – I'm sorry, $98 million amortization expense?

Yeah, in EPS terms because it seems like the tax rate is different than your general tax rate.

$0.24 roughly.

Okay. Perfect. Thank you. And then secondly, again another one in the weeds, there was an 8-K a couple of days ago that you put out in terms of some changes the board announced. Basically if I read this correctly, makes it a little bit easier for long-term shareholders or potentially may be even activists to nominate people to the board or independent board members. Can you comment on that at all like what was the Board thinking there? Anything we should read into. So, maybe just comment on that one? Thank you.

Yeah, this is Doug. There has been a movement in the United States in terms of governance of business practices related to boards to allow long-term shareholders to have access to the proxy for electing board members. There's a movement. There are certain shareholders, the activists have been trying to have board take a look at this. So we took a very careful look at it. We looked across. We did a scan of the industry. We did a scan of best practices and our board decided that we should adopt what we call the 3-3-20-20 rule, which is that 20 investors – up to 20 investors that own 3% of the shares or more for at least three years would be allowed to elect – or to, not elect, but propose, up to 2% or up to 20% of the board of directors in a proxy. We felt it was a good practice and something that is becoming consistent and good governance across the corporate in the United States, and we decided to adopt that.

All right. Very good. Thank you.

Thanks. Going back to Capital IQ, I guess, ex-SNL the growth in the group was 7%. In terms of the desktop business, was that a function of market conditions, sell-through or just picking up share? Wondering if you can just elaborate a little bit?

It was a combination of – in the end – a good combination of volume and a little bit better price realization. So it was the combination of both. So more seats and a little better price realization.

But it's been what we've been seeing. We are seeing desktop users and desktop revenue kind of grow in that low-teens for the last few years and again this year.

What I would say on maybe a broader level is that we increasingly see the demand for data and analytics growing because of the heightened need for regulatory reporting for – I don't want to use a cliché, but big data needs of corporations. So banks, insurance companies, asset managers, pension funds, other financial institutions, oil companies, large industrial companies that are managing huge credit books that they used to not have to manage, there is increasing demand for tools and solutions and data for them to manage their risk and make business decisions. And we find that what we are providing is really essential for those decisions. And we are seeing increasing demand. Now, that requires us to have data and high quality and being able to identify those pools of customers et cetera. That's really part of our future growth plans and how we're trying to position the entire company.

Great. Thank you.

Well, let me just end the call by thanking everyone for joining us this morning. We're pleased that we had a very solid finish to 2015, but more importantly, excited about the change of our name to S&P Global and how we're going to be continuing to provide great services in products and analytics to the market as they grow and as they transform. So, thank you again. We look forward to speaking to everybody next quarter and also in between. So, thank you very much.