Good morning, and welcome to S&P Global's Conference Call to discuss its announcement to acquire Kensho. I'd like to inform you that this call is being recorded for broadcast. And instructions will follow at that time. To access the webcast and slides, go to investor. Spglobal.com.
That is investor. Spglobal.com, and click on the link for the quarterly earnings webcast. Now I would like to introduce Mr. Chip Merritt, Vice President of Investor Relations for S&P Global. Sir, you may
begin. Thank you. Good morning. Thanks for joining us for our conference call to discuss S&P Global's announcement to acquire Kensho. Presenting on this morning's call are Doug Peterson, President and CEO Ewout Steenbergen, Executive Vice President and Chief Financial Officer and Daniel Nadler, Founder and CEO of Kensho.
The news release announcing the acquisition was released yesterday. If you need a copy of the news release, it can be downloaded at investor. Sbglobal.com. In yesterday's news release and during today's 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's.
The news release contains an exhibit that reconciles the difference between the non GAAP measures and the comparable financial measures calculated in accordance with U. S. GAAP. Before we 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 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 Form 10ks, 10 Qs and other periodic reports filed with the U. S. Securities and Exchange Commission.
We're aware that we do
have some media representatives with us on the call. However, this call is intended for investors, and we would ask that questions from the media be directed to Dave Guarino at 212-438-1471. At this time, I would like to turn the call over to Doug.
Good morning. Thank you, Chip. Welcome to the call. Yesterday evening, we announced that we entered into an agreement to acquire Kensho. Recognized as one of the most innovative tech companies, Kensho is purpose built for what we do.
This acquisition will accelerate our use of artificial intelligence, natural language processing and data analytics and existing and future applications to transform the user experience for our clients. We've been working with Kensho in getting to know their employees since we entered into a commercial agreement in 2017. The high caliber engineers at Kensho were an important consideration in our decision to acquire this company. These highly differentiated and talented individuals will accelerate our R and D across S and P Global. Kensho's team is comprised of individuals from leading universities as well as innovators and skilled leaders from some of the world's most highly recognized technology companies, including Google, Facebook and Apple.
Kensho's Founder and CEO, Daniel Nadler is with us today and is anxious to describe Kensho's vision and tell us more. We have proven expertise in benchmarks, data and analytics And technology has become core to our company. However, we can't be complacent. As technologies evolve, we need to stay at the forefront. We made a number of small FinTech investments to stay close to the latest developments.
These include our initial stake in Kensho last year, along with Algamy, Ursa Space Systems, the acquisition of Panjiva and acquisition by CRISIL of Pragmatix. These relationships have reinforced our belief that artificial intelligence, natural language processing and data analytics are core capabilities required to succeed in information services for the capital and commodity markets. Today, we're taking a bold step to accelerate the use of these capabilities across S and P Global. Kensho uses real time cloud computing to find statistical connections among global events and asset price movements and provides metrics and tools for the investment community in a user friendly interface. Kensho has been widely recognized as a leading pioneer in artificial intelligence and market analytics.
The World Economic Forum named Kensho 1 of the most innovative private technology companies in the world and in 2017 invited them to anchor the artificial intelligence sessions in Davos. The Kensho stats box is frequently shown on CNBC to help surface research and analytic insights around market moving events. By applying Kensho's expertise across S&P Global, we can enhance our ability to deliver essential actionable insights to clients. Over time, we expect Kensho's experience will drive a dramatic evolution of our businesses in areas like new analytical capabilities embedded in our products, improved user experiences driven by natural language processing, visualization and advanced search automation of core workflows that will allow us to create new products faster, mitigate development risk and drive efficiencies, and new applications in how we ingest, link and synthesize data. We've identified numerous ways we can work with Kensho.
Platform wide natural language search will revolutionize the user experience. Our goal is to bring search capabilities that are similar to those we get in our day to day consumer experiences to the workplace. In ratings, surveillance capabilities can be streamlined and credit tools enhanced. Adding new analytical capabilities to market intelligence, such as the ability to explore the impact of events, the correlations between assets, new visualization tools and transforming the user interface. Kensho was named an Index Provider of the Year finalist in 2017 by etf.com and Inside ETFs.
Their indices include the Kensho Future Security Index, the Kensho Smart Mobility Index and the Kensho Drones Index, which track companies involved in the drone industry. Together Kensho and S and P Dow Jones Indices can be even more innovative. These are just a handful of the projects that we've identified so far that we'll prioritize and systematically execute. Unless you cover the technology industry, this is not a routine acquisition. We're buying a startup company with proven talent and technology.
We're not buying a business with meaningful revenue or profitability. We've identified scores of actionable cost reduction and product enhancing opportunities, which create a positive NPV. The most meaningful benefit, however, is positioning S and P Global at the forefront of AI and machine learning. The purchase price of approximately $550,000,000 net of cash acquired is subject to customary purchase price adjustments. It will be paid in a combination of stock and cash.
In addition, for the purpose of retention, existing unvested equity awards will be converted into S and P Global Equity Awards, generally vesting over 3 to 4 years. In our guidance, we'll be renaming corporate unallocated expense to corporate unallocated, as we will now include both the revenue and expenses of this acquisition. The 2018 adjusted incremental expenses are not expected to be materially greater than incremental revenue. Therefore, corporate adjusted unallocated guidance, while renamed, will be unchanged to $160,000,000 to $170,000,000 In addition, we do not expect the transition to have a material impact to adjusted EPS for the next few years. Therefore, we are not changing our 2018 adjusted diluted EPS guidance of $8.45 to 8.60 dollars In return for our investment, some of the best data scientists in the world will become part of S and P Global and will be at the forefront of AI and machine learning in the financial industry.
The acquisition of Kensho is an important step forward as we make strategic choices to invest for long term growth and create value in the face of a rapidly changing marketplace. Now, I'll turn the call back to Chip for your questions. Thank you.
Thanks, Doug. Just a couple instructions for our phone participants. In order to allow time for other callers during today's Q and A session. If you've been listening through a speakerphone but would like to now ask a question, Operator, we'll now take our first question.
Thank you. This question comes from the line of Manav Patnaik from Barclays. You may ask your question.
Yes, thank you. Good morning, guys. So my first question is, I was hoping you could help put some numbers around the Kensho deal. I mean, we have read obviously a lot about it and it sounds like a great asset. But just curious, not their financials, just how should we think about some of the financial impacts going forward to your business since it's running sort of standalone that helps you guys with all the other data that you have?
Good morning, Manav. This is Ewout. Let me give you some perspective with respect to the numbers. If you look at the annualized revenues of Kensho, it is somewhere just over $20,000,000 a year. If you look at the bottom line, it is modestly loss making at this moment.
But overall, we have in our plan some budgets with respect to investments. So we can easily cover that from our normal investment budgets that we have in our 2018 plan. Hence, that's where the EPS adjusted EPS guidance has remained unchanged. But what is most important here is not the result of Kensho stand alone going forward because that will probably remain somewhere around breakeven is the expectation. But the benefits of applying the capabilities of Kensho going forward will yield to our business segments.
And we have, as Doug mentioned in his prepared remarks, identified multiple projects and use cases today where we will see very large financial and economic benefits for the company going forward. Hence, therefore, we are confident that this is a positive NPV acquisition for the company. And those projects and initiatives that we have identified so far, we consider just the top the tip of the iceberg because we will imagine that next month, next quarter, next year based on those capabilities, there's many, many, many more activities that we can identify. We will identify opportunities where we can apply these new technologies within the company. So what we have today on our list in terms of projects is just the beginning of everything we believe we can do with Kensho and the cooperation going forward.
Got it. That's helpful. And then, EVAD, I guess maybe if you could just help with the buyback announcement that you had. Was that incremental to your original guidance? Was it done to help offset some of the economics of this deal?
Maybe some more color there, please?
That is just still in line with the commitment we have to return 75% of our free cash flow to our shareholders. You have seen the increase of the dividend we have announced at our Q4 earnings call the part of the buyback to achieve our 75% we have announced yesterday. We have not determined if we will top up the buyback activity later in the year to offset the additional shares we will issue for the acquisition. That is a decision we will make later this year. So this is still within the framework of the 75% return of free cash flow.
Got it. Thanks a
lot guys. Thank you.
Thank you. The next question comes from Toni Kaplan from Morgan Stanley. You may ask your question.
Hi, good morning. How should we think about your ability to continue to support innovation at Kensho? Like basically you've had a number of acquisitions in the past, maybe Cap IQ might even be a long ago one, but just continued innovation, it seems like that's something that's really critical to the Kensho business. And so just being able to foster that within S&P Global and what the key man risk at Kensho is like? I think you mentioned Daniel is there.
So your intention to sort of stay and run that business. I know you mentioned it was going to be operated independently. So anything around that? Thanks.
Tony, this is Doug. Thanks for the questions today. Well, let me start just to take a step up and talk philosophically about how we see the need for advanced technologies, in particular machine learning, advanced search, natural language processing for us to be successful in the future. Last year, we spent months going through a review of the markets of the future, where we think our requirement is going to be to remain competitive, especially as you see a new generation of analysts joining the market that have very different expectations about user experience as well as the competitive factors that are rising all around us. And we also see the application of consumer like tools more and more into the markets and the financial markets and commodity markets.
So we've been investing in these types of tools ourselves as well as through these startups that we've been investing into our FinTech investments. But at the same time, we realize that we need to accelerate our ability to incorporate those sorts of technologies and techniques into how we deliver, how we work, how we ingest data, etcetera. And we feel like the experience we've already had with Kensho has shown us that we can achieve a lot and we can achieve it fast. But in order to really accelerate what's possible, we felt that we could do it a lot better and a lot faster with Kensho as part of S&P Global. But we also recognize the need to maintain and preserve the uniqueness of what Kensho brings to the table.
And we don't want to turn it into a bureaucratic company or lose the opportunities by spreading them too thin. And we felt like it's critical to keep Daniel in place, who has a stellar track record and also keep the people motivated. But let me hand it over to Daniel, who can give you his viewpoint and we've been working with him for a while and he's very well aware of how we'd like to achieve this in the future. But Daniel, let me get some thoughts from you.
Sure. Thanks, Doug. And hi, Tony. This is Daniel here. So there's a 2 part question.
So the first part of your question, the simple answer is I'm not going anywhere. Starting a company from scratch is one of the hardest and most emotionally intensive experiences that I imagine anyone can go through. I imagine it's what it's like having a child. I don't know. I don't have a biological child, but Kensho is my child and I'm certainly not abandoning it.
To the second part of your question, this is low risk for us precisely because we've been working together for the last year. Risk for us would be what is the internal culture at S and P with respect to innovation? How open minded are they? How dogmatic are they. As you probably know from reading the background of the company, we've had the fortune of working with the 6 largest global banks in the world and I've had the fortune of meeting the CEOs and CFOs of all of them.
And I can therefore say with a real basis of comparison that perhaps alongside Marty Chavez at Goldman Sachs, Doug and Yves out are 2 of the most open minded forward looking executives on Wall Street with respect to technology. And that is everything in this game. The tone from the top, the open mindedness toward innovation, that's what makes the difference between a large incumbent firm making progress and innovating versus sort of muddling along. And over the last year where we've been working together, they've demonstrated from their end a complete willingness starting with a tone from the top to transform their business and incorporate artificial intelligence and the other technologies that Doug mentioned into their business without dogma, without ego, without all of the things that institution. That's why we're excited and that's why from our perspective as a nimble tech company, they were the lowest risk partner.
Okay, great. And then just secondly, you mentioned no material impact to adjusted EPS in the next few years. You're spending $550,000,000 on the acquisition. What milestones can we look at in over time or in the future to sort of evaluate whether the acquisition was successful or not? Should this result in sort of better margin expansion in the future?
I know there's just a number of applications probably on the revenue side as well as the cost side, but just trying to sort of figure out how investors should be able to parse out the benefits from this acquisition in the future? Thanks.
Good morning, Tony. This is Ewout. My answer to your question it's all of the above because where this ultimately will benefit is user experience of our customers. It will be new products, products innovation that will help with revenue growth going forward as well as opportunities with respect to efficiencies. Think about the data ingestion and intake and linking that we can do with new technologies in the future and how much of a benefit we can take out of that.
We will be coming back to you and your colleagues in the future with specific examples and projects and show how those benefits are going to be reflected in our numbers going forward. So I think it's better to do that on the basis of specific projects and use cases once they are implemented and give you those concrete examples at that time. But like I said before, we feel that what we have identified in terms of opportunities based on the cooperation and commercial agreement from the last year as well as all the things that we have identified now that economically this is going to be very attractive both for the top line and the bottom line and the expense line of the company.
Great.
Thanks a lot. Congrats on the deal.
Thank you.
Thank you. The next question comes from Alex Kramm. You may ask your question.
Yes. Hey, good morning, everyone. I think this might be for Daniel, but given that you have $20,000,000 in revenues, maybe you can break that down a little bit for us in terms of where you're making most of your money in terms of products or strategies, the industry serve. I read something about even government contracts, number of clients, client concentration, anything that helps us kind of evaluate the business today? And then maybe related to that, you obviously were owned by a bunch of different owners previous to this.
So are there any is there any significant revenues from those? Is there a risk that those revenues could go away or any commitments that those former investors have made?
Sure. So I'm very proud there are a couple of parts to your question. Let me address the last part first. I'm very proud to say that as part of this deal, the 2 large anchor customers that we had and still have on an ongoing basis going forward, Goldman Sachs and Bank of America Merrill Lynch have agreed to and committed to continuing their commercial relationship with us. And for us that was huge validation.
For various reasons we put together a consortium of bank owners. But while we were an independent company with those banks as owners, there was always potentially some gray area of maybe their customers because they're also shareholders and investors. So it was very validating for the company and for the team to see a world in which they're no longer shareholders and yet have committed to us commercially going forward. That's something that really excited the team. We made a very particular decision over the last 4 years to do something different than is typically done in Silicon Valley.
In Silicon Valley, many of you are probably aware from at least watching the show that revenue is a bad word. It's very different than the type of industry you cover. In Silicon Valley, revenue is a bad word. It means your dreams and ambitions are not big enough. It means you're not aggressive enough, and it means you're fixated and focused on the wrong things.
I sort of had a slightly different view, partly because I started elite technological talent in the world. That has to be the number one priority. But alongside that, it's not the end of the world if you make some money. And so we did over the last 4 years develop commercial relationships that we are very proud of, including with Goldman Sachs, including with Bank of America Merrill Lynch, including with other customers that are very prominent that you've probably read about. And we did that for 2 product, working with customers,
getting feedback. And I'm
not being product, working with customers, getting feedback. And I'm not being critical of the alternative Silicon Valley approach of sort of staying stealth, staying under the radar, developing product quietly and silently and then sort of popping your head up. And many, many prominent products that you know and love in the consumer space have been developed that way. But my belief is that on the commercial side and on the enterprise side, you really do need to meet the customer, talk to the customer and get feedback. And if nothing else, that revenue, that business provided us with that opportunity.
So virtually all of that revenue that you cited came from large global banking clients. And we over the last year, year and a half have been developing an emergent, but very quickly growing national security business. And we're very optimistic that the market
global banking business.
Great. That's helpful. Thank you. And then maybe just very quickly, did you actually talk about the mix of cash and stock or anything else that we should be thinking about as it comes to the financials that you hadn't met hadn't talked about so far?
The mix, Alex, of the $550,000,000 is approximately $360,000,000 in stock and approximately $190,000,000 in cash.
Great. Thanks. I'll jump back in the queue.
Thank you. Thanks, Alex.
Thank you. This next question comes from Joe Foresi from Cantor Fitzgerald. You may ask your question.
Hi. I was wondering if you could maybe walk us through how you came to valuing the business. I imagine it was fairly difficult.
Joe, good morning. Yes, definitely this is a different way you do evaluation than with a traditional company where you buy revenues, you buy earnings and you make projections how those will develop over time. So some specific metrics are a little bit less applicable in a situation like this. But what we have done ultimately is to look at the base case of revenues and earnings of Kensho itself, layered in transaction costs, we have layered in integration costs, the unfested equity awards that rollover and the expenses associated with that. And then looking at the use cases and the benefits of those use cases in multiple different scenarios and have discounted that all based on a discount rate which is the weighted average cost of capital plus an appropriate risk charge that is appropriate for a transaction like this.
And looking at all those different scenarios and the net present values of those, we've seen those all getting into a positive territory. Hence, we believe that economically this makes sense for the company. Again, that is just based on the use cases and projects we have identified today. We have a deep conviction that the benefit of this transaction is going to be much larger than what we have identified today. The initiatives that will be developed, the innovation that will be created with this going forward will really create even more benefits for the company in the future.
Got it. Okay. And then my second question is, I just wanted to get some general commentary about AI trends, particularly in Financial Services. What makes the current AI movement different from sort of the AI winter that was experienced obviously in the 80s 90s? Maybe you can just bring us up to speed on how this differs from some of the AI momentum or exuberance in the past?
Thanks.
Sure. Well, it would be hard for me
to comment on the 1st AI winter because I was alive in the early 80s. However, why are people excited about it today? I think the main reason people are excited about it today is that AI has evolved from being a very academic and scientific field focused on initially image recognition and problems like that. And it has moved toward a type of science and technological application that increasingly starts to mimic what ordinary people do in the course of their day to day work. And it makes it relatable and it makes it understandable.
So if I were to say to someone 5 years ago or 6 years ago that, you can give me millions of images and I can form a high dimensional space that sees relationship across those images. Besides being doubtful on the science of how exactly that works, your natural question would be, well, why do I care? Why does that matter to me? That sounds like a very academic problem. The reason Wall Street is so excited about AI now is because the most junior analyst at an investment bank who's just out of school, who's being thrown into this environment where they're being told, okay, you need to work 100 hours a week and you need to get up to speed very, very quickly on these emerging trends and need to read millions of pages and you need to understand all the ways in which a topic like for example digital payments is discussed and you need to learn and get up to speed on the notion that blockchain and Bitcoin and digital payments and distributed ledger all mean the same thing.
Someone like that, someone a millennial frankly, is so excited about AI because AI is a brain extender for them. It's not something that replaces them. It's not something that substitutes them. It's something that accelerates their intelligence by helping them read millions of pages of these documents in a matter of minutes as opposed to in a matter of days, weeks, months, years or in some cases over an impossible amount of time and exerting as a human intelligence would the relevant parts of those documents, calling to the human intelligence, to their attention where that human should look and understanding and synthesizing all the different ways that topic is discussed across things like transcripts, things like financial statements, all the source in the world that they already use in their day to day life. So that's why people are excited about it now.
The simple answer is it's gone from being a very academic field to a very relatable field that actually begins to mimic what they do in their everyday job. And especially in the area of text, I mean AI is a big field in images and other things, but especially in the area of text, I would say in the last 2 or 3 years, it's gotten good enough and I'd like to think our company has made a modest contribution to the advancement that field. It's gotten good enough where someone, let's say, a junior analyst at Goldman Sachs can actually use this technology to conclude that, wow, I really just read a 1000000 pages in a day. That's something incredible. I've never thought that was possible.
And if you actually go through page 750,436, it exerted exactly what I would have exerted from that page. That's incredible. And that's just the beginning. We're just beginning to get those types of reactions from people. And I think the combination of the awe of the technology and the fact that people are beginning to clue into the notion that it's not substituting them, it's a brain extender, it's augmenting what they already do, makes people very excited.
Thank
you. Thanks, Joe.
Thank you. This question comes from Jeffrey Silver from BMO Capital Markets. You may ask your question.
Thank you so much. I'm just wondering now with this transaction, what the future M and A strategy is for the company? Are we going to see a bit of a pause? If you could just give us a little bit more color, that will be great.
Yes, Jeff. Just to put this in perspective, I just provided the split of stock and the cash components. The $190,000,000 of cash that we use for this transaction, to put it in perspective, translates to about a month of free cash flow generation by the company. So I don't think in any way this transaction will limit our ability from a financial resource perspective in terms of future M and A.
Okay, great. Thanks so much.
Thank you. Thank you. This question comes from the line of Bill Warmington from Wells Fargo. You may ask your question.
Good morning, everyone.
Hi, Paul.
So first question for you is on retention. I just want to double check the total number of employees and how many are under contract going forward and for what length of time?
Number of employees around 120 approximately. In terms of retention and making sure that the interests are aligned, the employee shareholders have agreed on a lockup on the stock based component of will vest over
the
that will vest over the next 3 to 4 years. So that is more the financial component. But what is more important is the other component and that is that we would like to make sure that Kensho will remain an independent operating entity with its own identity, its own brand, its own culture, its own location in Cambridge, Massachusetts. So that there is a working environment for the data scientists, for the technology, unique technology people that Kensho has that they really are interested remaining with the company given the unique culture and working environment that the company will provide to them going forward as well.
Hey, Bill, Daniel. So if I could give some further color on that. Incentives as a concept is something slightly different in Silicon Valley and in tech companies than it is on Wall Street. I think obviously it's a very natural on point question on Wall Street, what are the incentives, how you're going to retain people and so on. But just to provide some color, some of the best engineers in the world that work for firms like Google or ours make 140,000 a year.
They make less than probably the janitor at Goldman Sachs. And they are motivated. How do they these are people that some of these people have backgrounds like myself, they went to Harvard, they have PhDs. Why would they ever do that in a 1000000 years? And the answer is very simple.
They're motivated by intellectually challenging problems and the opportunity to have ownership over attacking hard problems. They're really not motivated by money and I know people roll their eyes at that, but if you look at the data, it's otherwise inexplicable that they work for what they work for. And what's critical to keeping people like that motivated is giving them the freedom and the autonomy to really push research and development and advanced techniques in their field, in this case artificial intelligence, giving them the resources to do that, to do that scientific research. Those resources are not expensive, but you'd be surprised if you come out of an academic environment. So when I was doing my PhD at Harvard to buy a GPU rig to do some complex machine learning modeling, which would cost $5,000 was not something you could get at Harvard.
You'd have to and that's a university with a $36,000,000,000 endowment. You'd have to make a special application petition. It would take 3 months. You have to do a National Science Foundation grant. So for many of these people, their basis of comparison is not Wall Street.
Their basis of comparison is coming from a world, there's Harvard or other schools. It's a very academic research environment type of culture. And all of a sudden they're brought into Kensho and they really do feel that they have the resources to advance scientific research. And that's exciting to them, it's motivating to them, that's why they get up in the morning and this deal will only accelerate that reality for them. The resources of one of Wall Street's legendary institutions is something that for them, for my team is very, very exciting.
They know that unlike in an academic research environment, they know that they're going to be given the freedom to really push the field and advance the field scientifically and commercially.
For my second question, you made the point that this is a technology driven acquisition rather than a traditional financially driven one. What metrics are you going to use to measure the success? How will you know if it's going well or it's not going well in such a non traditional acquisition?
Yes. We have, Bill, a certain approach with respect to all our acquisitions that is a rigor with respect to evaluation of acquisitions in a period post closing. And that is over multiple quarters, multiple years where we do the evaluation and track if the integration is in line with the business plan that we all signed off on when we all agreed on making the step. So here it will be very much driven by specific projects, specific use cases, specific initiatives that have been identified and the economic benefits we expect to come out of those initiatives. Again, those will be in the business segments because that relates to some of the examples that we have provided alternative credit indicators and scoring mechanism in ratings, opportunities for efficiencies and other ways we can look at surveillance in ratings.
It is the user experience with respect to new interfaces and graphs in market intelligence, search and different search engines that is far more based on the technology that you don't get all the outcomes that are possibly coming out of a search, but only those sections that are really relevant from you and the artificial intelligence behind that to make that selection based on your normal experience and what through machine learning the computer knows about what is really relevant for your day to day work. So there's many of those that we can think of. Like I said in the previous question of Tony, we will need to come back to you with specific of those use cases once they are implemented so that you can really see tangible results coming out of that. So that's certainly a commitment we'll make to you today.
Thank you very much and congratulations on the acquisition.
Thanks, Bill.
Thank you. This question comes from Dan Dolev from Nomura Securities. You may ask your question.
Hi. Thank you. Can you hear me?
Yes, I am.
Okay. Yes, congrats on the acquisition. I like the forward thinking and the bone thinking and the courage. Can you maybe discuss you've been partnering with Kensho for quite some time now and you've been mentioning it on your conference calls. Can you discuss some very specific revenue enhancing projects that you where revenue has actually been positively impacted, not by Kensho, but by the mother ship, by S and P?
And then I have a follow-up. Thank you.
Dan, are you asking about things that we've already done with Kensho or things we've done in the field generally?
No. Specifically things that you've already done with Kensho, where you've seen tangible revenue enhancing projects that you couldn't have done without Kensho? Well, okay.
Well, first of all, there's the products that we're developing with Kensho, there's only a couple that have started being tested in the market or working on. The 2 that I would highlight, one of them relates to what Ewout just mentioned in search. And we're working on a project right now where we're going to use search boxes to be able to ask questions that you typically ask within our financial databases, things like Compustat, the traditional SNL and Cap IQ databases to extract financial data, but then take it way beyond that and add in other contextual information, which would come from other outside databases, weather, traffic patterns, trading patterns, being able to link this kind of information together and find completely new insights or completely new correlations that we would have never done before. In addition to start that, we've had to take a step back and actually fix how search is done in our own data anyway. Our search our own search engines and our search tools were pretty rudimentary.
They were not really looking beyond just the names in the fields. They were not looking into the entire data inside of our databases. And into the entire data inside of our databases. And so this ability to upgrade our own internal searches as well as add on other alternative data and external data is something that we've been piloting. We've been using it ourselves as a management team and we're getting ready to roll that out.
The other one I would mention relates to credit signals and using information again from a combination of our own internal credit data that we get from a combination of the ratings information, ratings issuance information that's gone out over the time, what have been the behavior of different types of bonds, adding that into credit market information and using this again as a signal to look at counterparty risk, credit risk, etcetera. These are the types of things that gave us when we saw the speed which we were able to develop these prototypes and we were able to begin to test their commercial applicability,
This is one
of the things that gave us the confidence that we should continue forward with Kensho. Daniel, do you want to add a couple of comments on Yes.
I'd love to give my perspective for what it's worth and it's the perspective of somebody that up until yesterday was from the outside. So it might be a useful perspective. In my view, S and P for the last year certainly was almost like the early YouTube of financial data.
There's so much
there, but in as with the early YouTube, it was very difficult to find anything. And Google invested so heavily in YouTube search, Everyone on this call probably familiar with it and now you know how easy it is to find things on YouTube, how smart it is, it's suggesting the next video you want to watch. And then why did it invest so much in YouTube search? It did so because it realized that gave them pricing leverage over advertising rates. I know this is a different space, but I think the analogy is really interesting.
The more time you get people to be glued to YouTube and on the screen, the more you can charge advertisers and you already have all this amazing content. YouTube's challenge in its early days was not how do we get more amazing content. Its challenge was we already have so much amazing content, but people can't find anything and the videos that would really keep them glued to the screen are often buried and we need to surface it. And so you're all probably familiar as consumers with YouTube's evolution, how it went from just sort of this wild west of data and content in which it was very difficult to find anything to what it is today, which is something that you really need a discipline to rip yourself away from. And the associated corollary of that is this incredible pricing leverage that Google has with customers.
I for what it's worth as an initially up until yesterday and outsider from my perspective, I really see S and P as being in this early YouTube moment for financial data where it has all this incredible content, arguably in my opinion, the best financial data, the best financial information in the world, very, very difficult to surface things. And to the extent that we can actually turn it into later stage mature YouTube, we get a tremendous amount of pricing leverage over the customers.
Thank you. That's very, very compelling. I appreciate it. And just my quick follow-up, can you talk about the bidding process that not who you were bidding against, but the type of firms that you were bidding against in the race to acquire Kensho? Thank you.
Can you repeat that? It's really garbled.
Sorry. Can you hear me now?
Yes.
Okay. I was talking about the bidding process. Can you perhaps talk about the types of firms, whether it's Wall Street or Silicon Valley that you were bidding against to acquire Kensho, not specific names, but just the types of firms and the nature of the bidding process for the acquisition? Thanks.
Dan, we cannot comment on that for obvious reasons. This was a distinct transaction that has been negotiated between SAP Global and the shareholders of Kensho and we cannot disclose for obvious reasons specifics around that. But this was obviously a process that we have gone through over a period of several months.
No, I understand that. Thank you very much and congrats again.
Thanks Dan.
Thank you. This question comes from Tim McHugh from William Blair. You may ask your question.
Thanks. Just a follow-up on something that was asked earlier. I guess, if Kensho is going to be operated independently, yet a lot of the value comes from taking their expertise and applying it to the rest of S and P. How do you strike that balance between, I guess, letting them focus on being what they are independently yet taking that expertise and flowing it into the rest of S and P?
Tim, thank you for the question. This is Doug. That's a really important question because we want to make sure that we retain the culture, retain the expertise, that we have employees at Kensho that are motivated. Daniel gave an excellent description of the kind of environment that you find at Kensho with the people that are intellectually curious, that are excited about new discoveries in the scientific fields and the data fields. And we bring a rich data set that is really hard to find anywhere else.
We have information that goes back 30, 40, 50 years. We have time series. And being able to marry that with future technologies and alternative data, as we've been saying, is something unique. At the same time, we have a company which we have a very specific approach to how we run the company, looking at our customer focus, our analytics, our operational excellence, our control, our risk compliance, and these are really important to us in running a tight ship and making sure that we're always improving how we operate. But we didn't want to smother or change the culture of Kensho.
On the other hand, we want to have a very tight link so that there's prioritization of the key projects. We also don't want to send over 100 different people to start coming up with 100 different ideas. And so, Ewout is going to be working very closely with Mike Chin and Nick Caffarello along with Daniel to act almost as traffic cops to make sure that we keep the environment within Kensho where we've got the excitement, we have the enthusiasm, we have the spirit of discovery and looking for new ideas. And then we're able to channel that energy and that excitement into finding ways to help us at S&P Global. So it's a good question because it's something that we've thought a lot about and we've put in place some formal thoughts around it.
But clearly over the next few weeks, we're going to come up with ways to formalize that and put it into action. But good question and we're thinking a lot about
it. Okay, thanks. And the follow-up just, I guess maybe two numbers type ones. One is the size of the equity in addition to the purchase price, you talked about retention awards. I guess how big is that pool?
And secondly, as long as we're talking about acquisitions, Panjiva recently, can you tell us anything about the size of that business as we update our models for these things?
Yes. The size of the unfested equity awards that are rolling is approximately $90,000,000 So that is with respect to the unfested parts. With respect to Panjiva, we have decided not to disclose specifics of the transaction and the financials, so I cannot provide it to you. But you should see that in the context of a relatively modest tuck in acquisition. So clearly not an acquisition that is at the size of what we have disclosed to you last evening.
We will now take our final question from Craig Huber from Huber Research. You may ask your question.
Yes, I have a couple of questions. I guess the first one more broad picture here. Where do you envision using this technology maybe 1st and foremost as you think out the 1st 6 to 12 months? Is it more in the S and L, Cap by Q area that you'd want to help deploy this first? Or I imagine, over time, you want to use it throughout much of the portfolio, but where do you want to focus that first?
I want to get general sense.
I'm going to start, this is Doug, and then I want Daniel to give a few more thoughts. As I just mentioned in the last comment I made, there is the possibility of using this almost across the entire company, all the way from how we ingest data, we link it, we cleanse it, we connect it, all the way to how we run and process some of our most complex products in areas like ratings or Platts. And so, Daniel is going to work closely with Nick and Mike and Ewout to come up with those priorities. But from my own point of view, I think what we've already started working on with search, as well as some of the credit analytics, and I think those are great areas to start getting some early wins and then to start seeing where we can apply this more broadly across the company. The thing to me that's the most attractive partnership possibility from our point of view or from the external point of view is the rich deep data that we have and that's something that's really unique and our ability to link it with other sort of outside data is one of the big themes that we have to start working on.
But let me hand it over to Daniel who can give us some more comments on that.
Yes. Thanks, Craig. So, one of the useful things that I provide to these guys is a fresh pair of eyeballs. So I don't come with the legacy impression of all these different silos and so on. I see one of the world's most intriguing data companies with a lot of data that historically happened to be organized in all these silos.
And as a technologist, I think about, okay, you have one of the world's most intriguing data companies and how do you make all of that data discoverable? You're going to hear me use phrases that you might not typically hear in Wall Street, but on any call of this kind in California, they talk about all the time. What platform wide search, how do we make our data more discoverable? We have some of the strongest and stickiest content that people can't find it. That's the type of way of thinking about the world that you might more naturally hear on a Facebook or a Google call.
And that's the type of perspective that I think I bring to NAA about. And all of the data, whether it's Platts, whether it's market intelligence. So for the last year, we've been working with market intelligence data. And it's amazing how even within market intelligence, you have all of these silos and sub silos and SNL you mentioned was one of them and there are others. And to my mind, something as best as I can ascertain 80% to 90% of the data that's in there never gets surfaced to a typical user over the course of their week, even though they need that data.
And that to me as a business person is phenomenally exciting. When you already have 80% of your assets unexposed and all you really need to do is solve that exposure problem. From a Silicon Valley perspective, you are in the golden zone of what where you need to be as a company because the content, if you've ever listened to a Netflix earnings call, the conflict the content is the most expensive piece of it. The content is the most expensive piece of it. And so many of these firms are really investing heavily and have increasingly high capital costs in order to create that content.
S and P already has the hardest and the most expensive thing to have, which is that content. And it's in if we're at a Silicon Valley company, it's in this wonderful spot where we can really extract the value of that content, increase the share for share of that content to users and properly monetize the content. So my apologies for using phrases like monetize the content on a financial industry call. But I think that's the perspective, the helpful fresh pair of eyes that I bring to this company, which is to think in terms of those ways and less so in terms of the historical legacy divisions of MI versus Platts versus S and L.
So to sort of sum it all up, it sounds like there's this is going to make S and P services more valuable to the customers over time, if all goes well here, be able to charge more for the products, but also to make S and P more efficient to help the margins in terms of just better utilization of the employees and the technology and all that to make the company's margins higher, it also help out the revenues over time. And then my final nitpick question is what is the amortization expense if I could ask that here that we should associate with this acquisition? Thank you.
Yes, Greg. Normally, you would see us on a non GAAP basis taking out the amortization of deal related intangibles. In this particular case, because we are also having the unfested equity awards and the expenses related to that. Anything of those unfested equity awards that are over and above what we would consider normal compensation, we think it's reasonable to take that out from a non GAAP perspective because that does not reflect the normal operating performance of the underlying entity. So that is what we are planning to do.
So that's why you see a slight shift in that definition of the difference between GAAP and non GAAP. That is the particular element there. You will see in Exhibit 1 of the press release more details around that. So there you see the numbers with respect of the movement from GAAP to non GAAP on the EPS basis.
Well, with that, I would like to thank everyone for attending the call this morning. As you can hear from us, we are very excited about the future of S&P Global. We've been looking for the last few years at how we can change and transform this company and make it much more relevant, much more sticky, how we can be much more customer oriented. And over the last couple of years, as we've been working towards having excellence in our data, our benchmarks, analytics, we realize that it's critical for us to have a component of moving into the future in artificial intelligence, machine learning, natural language processing, how we've talked about these things today. I love what Daniel said, it's about brain extender.
I'm going to start using that. Can I attribute that to you when I use it? AI is a brain extender. But as you've also heard, this is just the tip of the iceberg. We're just really getting started on what this is going to mean for S&P Global and being able to affiliate ourselves and link up with some of the best minds in finance, some of the best minds in science, who will allow us to not just do experimentation and R and D, but really as you can also see from Daniel, there's a practical approach.
Our idea is to apply these to the products and the services and the data opportunities that we have and make S and P Global a company that is really going to be driving the future in Financial Markets and Commodity Markets. So we're pleased that all of you could join the call. We'll be getting back to you throughout the year when we do our earnings calls and we meet at other conferences to give you update on how this is going. We take our obligations very seriously when we allocate our capital and we'll make sure that we continue to give you progress reports. But thank you again and as I said, you can hear how excited we are and we're looking forward to how this is going to make our company even better.
Thank you very
much. That concludes this morning's call. A PDF version of the presenter slide is available now for downloading from investor. Spglobal.com. The replay will be maintained on S&P Global's website for 12 months from today and for 1 month from today by telephone.
On behalf of S&P Global, we thank you for participating. Wish you a good day.