S&P Global Inc (SPGI) — Q2 2018 Earnings Call Transcript

Good morning and thank you for joining us for the IHS Markit Q2 2018 Earnings Conference Call. Earlier this morning, we issued our Q2 earnings press release and posted supplemental materials to the IHS Markit Investor Relations website. Our discussion on the quarter is based on non-GAAP measures or adjusted numbers, which exclude stock-based compensation, amortization of acquired intangibles and other items. IHS Markit believes non-GAAP results are useful in order to enhance understanding of our ongoing operating performance, but they are a supplement to and should not be considered in isolation from or as a substitute for GAAP financial information. As a reminder, this conference call is being recorded and webcast and is the copyrighted property of IHS Markit. Any rebroadcast of this information, in whole or in part, without the prior written consent of IHS Markit is prohibited. This conference call, especially the discussion of our outlook, may contain statements about expected future events that are forward-looking and subject to risks and uncertainties. Factors that could cause actual results to differ materially from expectations can be found in IHS Markit’s filings with the SEC and on the IHS Markit website. After our prepared remarks, Lance Uggla, Chairman and CEO; and Todd Hyatt, EVP and Chief Financial Officer, will be available to take your questions. With that, it is my pleasure to turn the call over to Lance.

Thank you, Eric. Thank you for joining us for the IHS Markit Q2 earnings call. We outperformed our expectations for the quarter and were able to continue to invest in our people, products, technology and customers for long-term profitable growth. Some key financial highlights of the quarter are, revenue of $1.008 billion, up 11% year-over-year and 8% on an organic basis, and well above the upper end of our longer term range. We experienced broad-based growth across the firm and all business performed well. Adjusted EBITDA of $398 million, up 13% over the prior year and margin of 39.5%. Normalized margin expansion was 110 basis points, excluding the impact of FX and adjusted EPS of $0.61, up 17% over the prior year. Let me now provide some highlights. I’ll start with Transportation, which delivered record organic revenue growth of 14% in the quarter. Growth was driven broadly with continued strength across autos, aerospace and defense, and maritime and trade businesses. Financial Services reported 7% organic growth with strength across our information and solutions businesses. Within these businesses, top performers were pricing, indices, valuation services, managed loan services, regulatory and compliance products, and enterprise data management offerings. CMS organic revenue growth was 4% as we continue to benefit from improving end markets and operational changes made within our product design, ECR and TMT businesses. Resources organic revenue growth was 5% as our upstream energy business continues to improve and our mid and downstream businesses remain strong. As we discussed on our Q1 call, we held our annual CERAWeek conference in the beginning of March with record attendance and revenue which contributed to strong Q2 results. We are confident in our low single digit organic revenue growth outlook for 2018. We expect sustained global GDP growth and market dynamics to support our oil price forecast in the $65 to $75 range for the remainder of the year. However, we expect CapEx spend for IOCs to remain relatively tight as companies will remain budget focused, on shoring up their balance sheets and rewarding shareholders. 2019 should see a bigger increase in CapEx. M&A update. In Q2, we also announced the acquisition of Ipreo and the planned divestiture of our MarkitSERV business. We are excited about the acquisition of Ipreo, which is compelling from both the strategic and financial perspective as it will help us shift our longer-term growth curve higher and expand our addressable markets with limited incremental risk. Strategically, we know the Ipreo business well and it is highly complementary to our existing financial service business, which we believe limits the risk. Ipreo will increase the size of our addressable markets including our presence in the primary and secondary capital markets as well as the alternative sector, a large and underpenetrated market with long-term double-digit growth prospects. Financially, Ipreo has been a strong double-digit revenue grower and is expected to be accretive to our organic growth, allowing us to increase our long-term company goal from 4% to 6% up to 5% to 7%. The acquisition is also expected to be modestly accretive to our earnings in 2019 and will ramp from there. As we said on our Ipreo acquisition call, we are confident in our ability to deliver to Ipreo financial commitments and have multiple levers to ensure this happens including revenue growth from known market expansions, growth initiatives and revenue and cost synergies. Finally, the sale process for our MarkitSERV business has kicked off in earnest. And we expect a robust process, given the early indications of interest. We expect to announce the sale in Q4. And with that, I’ll turn the call over to Todd.

Thank you, Lance. We were pleased with Q2 revenue and the continuation of positive trends from the back half of last year. Organic revenue growth of 8% was above the upper end of our long-term range due to organic recurring revenue growth of 6% and outsized growth of 15% in our non-recurring businesses due in large part to strong growth in our events and automotive recall offerings. Looking at segment performance. Transportation revenue growth was 22%, including 14% organic, 7% acquisitive and 2% FX. Organic revenue growth was comprised of 12% recurring and 19% non-recurring. Non-recurring growth was driven primarily by our automotive recall offerings, and our annual maritime event. For the remainder of the year, we continue to expect high single-digit organic growth in our recurring revenue offerings but expect lower non-recurring growth. Resources revenue growth was 6%, including 5% organic and 1% FX. Organic revenue growth was comprised of 3% recurring and 14% non-recurring. Recurring organic growth was driven by our chemicals PGCR and downstream pricing businesses. Upstream revenue was flat on a year-over-year basis. Our Q2 ACV across the entire Resources segment including OPIS was $714 million, which was up $5 million versus beginning of year sub-base. We continue to expect low to mid single-digit sub-base growth for the year. Non-recurring organic growth was driven primarily by record revenue from our annual CERAWeek event. CMS revenue growth was 6%, including 4% organic, 1% acquisitive and 2% FX. Organic revenue growth was comprised of 3% recurring and 10% non-recurring. All of our CMS business lines, product design, TMT and ECR, posted organic revenue growth in line with overall segment organic growth. We expect CMS to deliver to its low single-digit growth target in 2018, but will see negative growth in Q3 due to it being an off-cycle BPVC year. Financial Services revenue growth was 9%, including 7% organic and 2% FX. Information organic growth was 11% with strong performance across indices, pricing and valuation services. Processing organic revenue declined 3%. While the loan processing market continues to be strong, revenue was down due to difficult year-over-year comparisons. Derivative processing was flat. Solutions organic revenue growth was 7%, led by our regulatory and compliance solutions, and continued growth in our WSO loan management and enterprise data management offerings. We expect to perform at the high end of our longer-term 4% to 6% organic growth range for the year. Turning now to profits and margins. Adjusted EBITDA was $398 million, up 13% versus prior year. Our adjusted EBITDA margin was 39.5%, up 60 basis points on a reported basis and up 110 basis points normalized for FX. Regarding segment profitability. Transportation’s adjusted EBITDA was $125 million with margin of 42.1%, an increase of 160 basis points. Financial Services adjusted EBITDA was $156 million with margin of 46.4%, an increase of 150 basis points. Both Transportation and Financial Services margin expansion benefited from strong revenue growth. Resources adjusted EBITDA was $101 million, which was up slightly versus prior year. Resources margins 42.4%, which was down versus prior year due in part to lower margin CERAWeek revenue and a modest increase in year-over-year Resources spend. For the remainder of the year, we continue to target some investment spend in our Resources segment. CMS adjusted EBITDA was $30 million, down $2 million versus prior year with the margin of 21.5%. Adjusted EPS was $0.61 per diluted share, a $0.09 or 17% improvement over the prior year. Our adjusted EPS includes an adjusted tax rate of 19%, in line with our full-year adjusted tax rate guidance of 18% to 20%. Our GAAP tax rate was 10%. On a full-year basis, we expect a negative GAAP tax rate due primarily to the estimated $136 million net benefit from one-time items associated with U.S. tax reform, which were recorded in Q1. Q2 free cash flow was $323 million. Our trailing 12-month free cash flow improved to $851 million and represented a conversion rate of 58%. Excluding acquisition-related costs, conversion was 64%. We expect continued improvement in cash conversion throughout the remainder of the year and to be at our mid-60s target for the year. Our quarter-end debt balance was $4.5 billion, which represented a gross leverage ratio of approximately 2.7 times on a bank covenant basis and we closed the quarter with a $159 million of cash. Our fixed debt as a percent of total debt is 55%. We continue to target a minimum level of two-thirds fixed rate debt by year-end. As discussed on the Ipreo acquisition call, we expect bank leverage to increase to 3.6 times at the time of Ipreo close. On a business-as-usual basis, we expect to delever below 3 times by Q3 2019. The divestment of MarkitSERV will further accelerate deleveraging. We have suspended our share buyback until we return to our target leverage of 2 to 3 times. During Q2, S&P upgraded our corporate debt rating to BBB minus from BB plus. After Q2 quarter-end, we closed our investment grade bank credit facility with improved terms and conditions compared to our prior bank credit facility. We remain committed to managing the Company within our capital policy. Our Q2 weighted average diluted share count was 404 million shares. Year-to-date, we have executed $752 million of share repurchases and have repurchased 15.9 million shares at an average price of $47.30. In terms of guidance, we are reaffirming our 2018 guidance from our March 27 earnings call but are increasing revenue by $25 million to reflect the strong Q2 organic revenue performance. For the year, we continue to expect a $35 million revenue benefit from FX. The guidance provides for revenue of $3.85 to $3.9 billion with an increase in organic growth guidance to 5 to 6%. We expect solid revenue delivery in the second half of the year but also expect revenue growth to moderate due to more challenging year-over-year comparisons and lower non-recurring revenue growth. We also expect adjusted EBITDA to be at the upper end of our current range of $1.5 to $1.525 billion. Margin will be negatively impacted by approximately 35 basis points from FX but we expect to deliver our 100 basis-point margin expansion target normalized for FX. Relative to items below adjusted EBITDA, we expect interest expense to be slightly above the top-end of the range but expect all other items to be within the current guidance range. We expect adjusted EPS of $2.23 to $2.27. The current guidance does not include Ipreo. We expect to remain within the current adjusted EPS guidance range, post Ipreo close. We had a good first half of the year and are focused on delivering the shareholders commitments we made at the beginning of the year while continuing to invest in the business to drive long-term growth. We look forward to providing further updates as the year progresses. And with that, I will turn the call back over to Lance.

Okay. Thanks, Todd. I’d like to acknowledge all of our teams around the world who collectively accomplished a lot in the quarter. We delivered strong results. We also announced the acquisition of Ipreo and the intent to sell our MarkitSERV business. We exited the first half of the year with good momentum and are set up well to meet our full-year commitments. Operator, we’re ready to open the lines for Q&A.

Thank you. Good morning. The Transportation performance has been particularly impressive here over the last bunch of quarters. So, I was hoping Todd or Lance, if you could just maybe unpack a little bit the drivers of the revenue growth, your confidence and the sustainability of it. And in particular, the margin performance relative to the guidance you’d given earlier about potential dilution from the autoMastermind transaction. How are you driving the margin improvement?

Okay. So, I think, in the case of transportation, margin improvements are coming from strong revenue growth. We are across the firm, very focused on the cost side as well, but we’re starting to invest and make sure that we can maintain the higher end of our growth ranges. I think with Transportation, we feel we’re very well set up now for long-term high single-digit growth with a very broad, diversified set of revenue drivers coming from VPaC, recall, digital marketing, CARFAX, CARPROOF, extensions into the new markets that we’ve been focused on. And Masterminds is a piece of that puzzle. And together, we think our automotive and transportation assets can continue in a diversified way to give us high single-digit growth longer term. So, I guess if you looked at this quarter, we’d say it’s a quarter that outperformed. I don’t know if Todd, you want to add to that.

Yes. I would like to add a couple of points. This marks the five-year anniversary of the Polk acquisition, and the performance we have achieved has been consistent for these five years. We have a robust business model, strong teams, and a solid market position. We are seeing ongoing opportunities for new products and analytics, which we expect will fuel our growth moving forward. Regarding margins, we have made investments in this area and will continue to invest at some level. We are achieving strong margins, and we anticipate margin expansion as we progress. Many factors are working positively in Transport. However, I want to highlight that this is a particularly heavy quarter for non-recurring revenue. We expect to see non-recurring revenue decline somewhat in the second half of the year, while recurring revenue will remain high, in the high single-digit range. It's important to keep this in mind, as we expect non-recurring revenue to decrease from the levels experienced in the first half of the year.

Thank you. Overall, it was a good quarter. Regarding the Resources margin, you performed exceptionally well given the challenging revenue environment. How do you see the required investment level changing as the environment begins to recover? Should we expect Resources margins to continue facing pressure? Additionally, concerning the consolidated margin, are you planning to reinvest the upside to achieve the 100 basis points? Or, with the increased margin expansion at Ipreo, automotiveMastermind, and other factors, might you allow more of the margin expansion to contribute to the 100 basis points? Thank you.

Let me begin and then Todd will provide additional insights. In our view, IHS Markit should be able to steadily increase its margin. Our initial goal is to reach the mid-40s, which we interpret as between 44 to 46 percent. We are currently 4 percentage points away from the lower end of this range. We believe we have several strategies that can help us achieve 100 basis points of margin expansion, with the mid-40s being our target as a company. We are committed to delivering this to our shareholders, a commitment we made clear during our last Investor Day around 18 months ago, and we have built our strategy around that target. Additionally, we have indicated that we aim for 4% to 6% revenue growth. Achieving 100 basis points is feasible at 4%, but it becomes easier as we approach 6%. For Ipreo, we've raised our long-term revenue growth projection to 5 to 7%, up from the previous 4 to 6%. Similarly, the goal of achieving 100 basis points of margin expansion will be more challenging at 5% but more attainable at 7%. We are dedicated to the mid-40s target and will focus on achieving that over the next few years. We feel confident that we have sufficient strategies to reach this goal. Currently, we are experiencing strong global economies across our markets, and it is our responsibility to capitalize on this global growth and expand our market share. This improvement in performance at the upper end of our revenue range will naturally facilitate the margin delivery. Todd, would you like to add anything?

Yes. The thing I would add specific to Resources, I would be careful when you look at an individual quarter margin about getting too fixated on a number, because you can have certainly a little bit of noise inside of any given quarter. What we see in Resources is this 42% margin level, a little bit more spend in Resources. You have business where we were really managing cost very tightly during the downturn, and as we’ve seen a stabilization in the market, we’ve had a bit of forward spend. But, we see that as really an opportunity to ensure that we continue to drive good forward revenue growth and take advantage of an improving market. So, we’re very comfortable with the way the Resources business is currently being managed.

So, question for you on the Resources business. The recurring revenue growth remained stable at 3% despite a more difficult comp and the ACV continues to grow. Looking into the third quarter, fourth quarter, the comps continue to get progressively tougher. Do you think you can maintain that 3% type growth or better on the Resources recurring heading into the second half?

Yes. I think that we’re confident with the low single-digit growth across Resources and see ourselves delivering into that for the year? Todd, do you want to add anything?

Yes, just about how the business is performing. We do expect the sub base to prove a bit in the second half of the year, but low single digit is the place to be for 2018 in terms of reported revenue.

We do see the large IOCs want to look after their balance sheets, looks after their shareholders; we see that as a key piece of the strategy around Resources for this year and leading into more CapEx spending into 2019, which will bode well for the division.

Good morning, everyone. I have a question regarding your M&A strategy. At the Investor Day about 18 months ago, you mentioned focusing on smaller deals compared to the size of Ipreo. I'm wondering if this approach is opportunistic or if there’s a pipeline involved. How do you view this?

No. I think we mentioned during the Ipreo deal that it was somewhat outside of our typical business operations. Our expectation for such a deal would not have been a $500 million or less acquisition; it was larger and beyond that guideline. However, when we considered the divestiture of MarkitSERV together with the Ipreo acquisition, we believed this combination would enable us to raise our financial markets growth trajectory from 4 to 6 percent to 6 to 8 percent. This would expand our addressable markets into the significant alternative space, which we view as a long-term growth driver. We believed that the combination of these two actions could be executed with limited risk to our financial plans while positively altering our long-term outcomes. Therefore, we are now refocusing on that strategy, starting with deleveraging and then moving back to smaller tuck-in acquisitions of $500 million or less. That’s our current position.

Hey, guys. Good morning. Thank you for taking the questions. Lance, can you discuss a little bit what you think happens in the transport business, especially in auto, in more of a restricted global trade environment? Are higher tariffs potentially a demand driver for you? And to the extent that for example there are tariffs implemented on European vehicles, in particular, does that mean that your used business gets a boost? Just kind of trying to think through the potential outcomes.

I have learned that our automotive business is highly diversified, encompassing both used and new car sales, which provides us with various revenue drivers. The markets we operate in are large and hold potential for further growth. For instance, we assist OEMs with their forecasting through a subscription-based service. They continuously use our data, and we support them globally, which remains consistent despite market fluctuations. Additionally, we are seeing growth in automotive sectors in China, India, and emerging markets where vehicle ownership is significantly lower than in developed regions. This growth, too, is subscription-based and not affected by general trade dynamics. Furthermore, we are involved in digital marketing, which includes targeted marketing through various platforms and channels. This sector is a multi-billion dollar market shifting towards targeted approaches, and we have seen significant progress here, even amidst challenges around customer privacy. Our Polk data aids OEMs in reporting emissions and fleet outputs, ensuring that this subscription-based service remains relevant regardless of vehicle sales volumes. We have also rebranded CARPROOF to CARFAX Canada, positioning ourselves as the leader in this space and expanding into Europe, where we aim to leverage our vehicle history reports in used car sales, insurance, and finance. With several strategic acquisitions, particularly Masterminds, we have established a comprehensive automotive presence. Overall, I am confident in our potential for long-term high single-digit growth, supported by our diverse array of services. We believe we will continue to achieve these figures, irrespective of global trade uncertainties or potential tariff implications.

Hi, Todd. I know Resources ACV includes OPIS in the second quarter as it did in the first. And so, when you look at ACV of $714 million, how does that look year-over-year? And could you describe how the second half has to come together to get to the low to mid single digits of sub-base growth for the year?

Yes, Andrew, we do anticipate some acceleration in ACV growth in the second half of the year. We also observed solid ACV performance last year during that same period. Currently, if we adjust for foreign exchange, our ACV growth rate is around 2%. However, we do not expect significant revenue increases from recurring subscriptions in the latter half of the year. We are aware of the deferred revenue model and foresee some improvement as we enter 2019. We expect recurring subscriptions to remain in the low single digits, with a better sub-base in the second half of the year. Our projection is for a low to possibly mid single-digit sub-base growth by year-end.

Can you talk about how market revenue synergies are progressing versus your $100 million target to the end of 2019 and in which areas you’re seeing the most benefits?

Thank you, George. I'll start, and then Todd can add if I miss anything. First, I want to highlight that we’re operating efficiently in terms of focusing on synergies. Our account management in financial markets has established a robust working relationship with all segments of the legacy IHS product groups, including TMT, aerospace & defense, maritime, upstream, chemicals, and automotive. They are effectively building a pipeline and converting that into revenue synergies. We finished last year with a run rate of around 12 to 13 million, and we projected to end this year at 35 million, which I’ve reaffirmed multiple times. I remain confident that 35 million is the right target for this year. That’s a positive development for revenue synergies. We are executing hundreds of opportunities, not just 10 or 20. We have numerous smaller opportunities ranging from 10 to 100 million where we’re leveraging insights and research from legacy IHS to meet the demands of financial markets looking for information to inform their decisions. Additionally, we see promising developments with our financial market data management software. We dedicated a team for the initial six months to develop data management solutions for an energy company, leading to ten sales and a strong pipeline. These opportunities are larger, ranging from 300 to 750,000 dollars. We utilized the data management software designed for financial markets in the energy sector. This year’s CERAWeek was a record event, distinguishing itself with the convergence of financial market participants, technology, and mobility, particularly at the intersection of automotive and energy. We are leveraging the full strength of the organization around this conference, which is generating interesting revenue synergies. We anticipate this trend continuing as we look ahead. Overall, I can confirm that we have successfully delivered our first year of revenue synergies and expect to deliver our second year as well. By the end of this year, I aim to provide an outlook of growth from 35 million to 100 million, which marks a significant increase. As we move into the fourth quarter, we will evaluate our performance. If we achieve a run rate of 15 million for that quarter, I will feel confident about reaching the 100 million target. We still have two quarters to assess that. For now, I commend our teams for their exceptional work; the revenue synergies have been encouraging and show continued potential for upside.

Good morning. Thank you. Lance, I was hoping you could speak to how you think about sustainability of Ipreo’s growth profile. Specifically, I guess, what we’re looking for is how cyclical is that business. I know you’ve highlighted sort of 68% fixed recurring revenue but just curious how to think about cyclicality of that revenue base? Thank you.

They have a capital markets business that performs well when issuance levels are high. It's important to analyze it across different categories such as munis, corporates, and loans. The muni market tends to be stable and predictable. On the fixed income or corporate side, market volatility can occur. However, I believe that as interest rates begin to rise, this can lead to increased issuances as people seek to enter the market at favorable debt levels. The management of interest rates in our economy appears to be facilitating gradual and cautious increases, which should provide a level of consistency, though some volatility is expected, and we will account for this in our forward plans. We believe that the overall Ipreo business will be positioned to meet its revenue targets. What I find particularly encouraging about Ipreo's forward growth plans is how well they align with varying market conditions, especially considering the Ipreo and iLEVEL assets related to the alternative market, which is approximately a $10 trillion sector with around $1.7 trillion available for investment and is anticipated to more than double in size in the coming years. This market, like others, will benefit from the transparency, reporting, and valuation tools that HIS Markit has developed. Our experience in the loan market shows consistent double-digit growth over the past 5 to 10 years through the development of tools for the leveraged loan market, and I see a similar potential in the alternative space. Additionally, Ipreo's investor relations platform is top-tier and essential for corporates, regardless of market conditions. We can leverage our 50,000 corporate relationships with this product, integrating vital information that CFOs and CEOs need, such as insights into their shareholding base, credit default swap spreads, and short interest in their stocks. We have a wealth of unique datasets that can enhance our products and drive revenue growth while ensuring they remain competitive. Therefore, we have several strategic opportunities to fulfill the plans we have laid out. Todd?

Lance, the other thing I would add is that with the exception of the municipal bonds, these are not fully penetrated asset classes in capital markets. So, there is opportunity from a market perspective to drive a greater level of penetration. There are regional markets that we’re stronger in and regional markets that we have opportunity to continue to grow share. There are certainly a universe of banks that we can sale more products and services to. We can add add-on products to the existing solutions, and really the trend to automated workflow solutions, and these utility services, this positions us extremely well to capitalize on those. And then, also the opportunity from the broader financial services perspective to drive revenue synergies. So, I don’t think you should look at this solely through the lens of capital markets activity and draw conclusion on ability to sustain revenue growth.

Lance, could you provide an update on MiFID II? Specifically, regarding Financial Services performance and information, do you see or can you estimate the positive impact you might have experienced? Some of your competitors are discussing an increase in demand for reference data, best execution, and similar areas. I'm curious if you’ve observed the same trend and if you can quantify it. Additionally, if this is a one-time increase this year due to preparations for new regulations, will it result in a challenging comparison or a headwind next year, particularly as any unintended consequences emerge? I’d appreciate your thoughts on the future trajectory. Thanks.

Thanks for the question, Alex. I would like to say that MiFID II has been a major success. While it has provided a consistent stream of revenue for IHS Markit, it hasn't been extraordinary. What I find noteworthy is that large banks are experiencing a shift; many researchers who used to provide research to bank clients are leaving, and the quantity of research from top financial market entities to banks is declining. Furthermore, the research produced by these entities is now being monetized. If I were to ask UBS how many senior professionals they have dedicated to energy market research, they might mention a team of around 10 or 5, but likely not a team of 25. In contrast, IHS Markit, including legacy HIS, has around 1,700 researchers in equivalent roles. This represents a substantial volume of research and content that is utilized and compensated by market participants, primarily corporations, some financial entities, governments, national oil companies, automotive firms, original equipment manufacturers, major technology companies, and solar technology investors. We possess a vast array of research, almost like a fire hose of information. However, when I consider why we aren't experiencing growth rates of 10%, 20%, 30%, or even 40% year-over-year in the financial markets, I can only say that we are making the necessary investments, adjusting our research, and developing effective sales and pricing strategies. We are growing annually and will continue to do so for years to come. Yet, it is not at a level that warrants significant attention because we haven't achieved anything out of the ordinary. This contribution will factor into our synergy goals, and we’ve invested in resources and a structured team to sell our data and research effectively. We are optimistic about the future impact of MiFID II. Conservatively, it adds value; it could yield even greater benefits, but that has not materialized just yet.

Hi. Thank you for taking my question. Lance, could you discuss the non-recurring revenue growth in the Resources segment? We've observed three consecutive quarters of solid growth: 8%, 10%, and now 14%. Are any of these figures indicative of stronger recurring revenue growth in Resources, or can you provide some insight into what the non-recurring sales entail? Have they been increasing from a low starting point, or is there some building momentum? Please share your thoughts on this.

Right. Okay. Well, the first thing to call out is CERAWeek. So, that’s one piece of the puzzle. And that’s an excellent grower, both last year and this year and specifically in its reference quarter. The other thing I would say is as recovery and investment, higher oil prices, more projects being looked at now again, whether it is Brazil or offshore Africa, things going on in the Middle East, potential public offerings, all of a sudden the opportunity for us to take our experts in and consult to lead to subscription-based revenue services is increasing. And therefore, I think that we’ll see a managed increase of that year-over-year as we look forward. But we will manage it within the context of our recurring revenues, so that that mix is well-balanced. So, it’s really market conditions positive, a little bit of professional services around software sale, so we sell the software that’s a subscription. But there is since some professional services around setup and implementation and that goes into the non-recurring bucket. So, nothing really extraordinary to call out, except that market conditions are a bit better, and both the recurring and non-revenue components are moving up. And I think the non-recurring components moving up first in a bit faster makes a lot of sense to me. Todd, do you want to add anything to that?

No, I think that covers it.

Okay. Thank you. Next question?

Thank you so much. I just wanted to go back to your guidance for the year. You raised the revenue guidance slightly; you’re not coming in at the top end of the adjusted EBITDA guidance. I know interest expense might be a little higher than we thought. But just curious why you did not change your EPS guidance? Are you just being overly conservative or is there something else we’re missing?

Okay. I’ll pass to Todd. I think Todd mentioned that we’re comfortable with the upper end of our range, we increased revenue slightly, and we’re halfway through the year with half the year still ahead. So, I believe the numbers are reasonable. We’ve aimed to provide a consistent and transparent view of our operations after the merger, and at this time, we consider this an appropriate level of guidance for the market. Todd, you were going to add to that.

I think regarding the adjusted EBITDA and adjusted EPS, there is a slightly higher interest expense. We want to consider Ipreo in our guidance. We expect a small impact from that acquisition, which is why the adjusted EBITDA and adjusted EPS do not align perfectly.

Hi, guys. This is Mike Reid on for Joe. I appreciate you taking our question. Just looking at the information segment, was strong again for I think the third period in a row. Could you go into a little more detail, what was driving this thing there and maybe the expectations there going forward?

I’m always surprised by the information, with solid double-digit growth now in high single digits. I could have easily thought those numbers might be reversed, and I would have been just as pleased. Our performance in financial markets is well diversified. We're becoming one of the world leaders in fixed income indices, and we’re participating in a growing marketplace, capturing our share and possibly expanding it. The teams have excelled in this area. Markets related to pricing and reference data are also experiencing growth, particularly on an international scale. Global market participants are elevating their standards and seeking independence and transparency in products. Part of our growth strategy involves breaking into expanding markets and increasing our market share at the expense of competitors. I must commend Adam and the financial markets team for their consistent performance. The information sector, as well as the solutions managed by Yaacov—which includes our data science and analytics—has shown variability but is performing well. I believe the synergy of these elements, together with our position in the loan markets, suggests mid single-digit growth is attainable. This is a conservative projection that you can integrate into your models looking ahead, and I think it will be favorable. Todd, do you want to add anything?

I think that’s good.

No? That’s good. Okay, good. Next question?

Thank you. Since the MarkitSERV divestiture has not yet been completed and you are anticipating that for the fourth quarter, you do not have a determined sale price. Could you provide some insight on whether the combination of Ipreo and MarkitSERV in 2019 could be neutral for earnings per share, or is it more likely to be dilutive? Additionally, with the sale of MarkitSERV expected to close in the fourth quarter, will that coincide with the Ipreo deal, or will it happen afterward? Would you consider holding a guidance call after the Ipreo close and then another one for the disposition, or what is your approach regarding that?

In relation to Ipreo, we clearly outlined the 2019 numbers: $370 million in revenue and $115 million in adjusted EBITDA, indicating it was somewhat accretive. Regarding MarkitSERV, we have shared insights into its size, revenue, and margin profile. As the process progresses, we will offer more details, but we have not discussed the valuation concerning the MarkitSERV sale.

I think, one thing, we could provide, which is how is, how is the process going. The team kicked off the process, Toni, once we announced it. I think, they’ve signed between strategics and private equity, close to 30 NDAs. There’s still 5 or 6 kicking about to be completed, early indications of interest. We expect by the end of this month, beginning of next. We’ll narrow that group down. I can see with the number of strategics and the deep interest around private equity, it’s going to be a robust process and one that should deliver a fair market value. And we’d expect that we’d get this announced before our fiscal year ends. So, I think it bodes well that there’s a good process, it’s robust, there is a lot of players. And, therefore, we should be able to drive it to a reasonable conclusion, barring any unforeseen events that we’re not aware of today. So, no, I think the team has done a great job.

In the past, you’ve spoken about perhaps increasing technology spend in the near-term around cloud, information, security and so forth. Wondering if you’re towards your full run rate today, if that is plan to continue, and how that sits in your broader margin expansion framework? Thank you.

As we look ahead, we are managing the Company to achieve a long-term revenue growth target of 4% to 6%. We have reached 6% twice and recently 8%, still operating within that 4% to 6% range which we have now adjusted to 5% to 6%. I believe this is a good operational level for the Company. With the transition from MarkitSERV to Ipreo, we aim to shift our target to 5% to 7%. Moving forward, we intend to identify all our strategic levers to maximize our potential at the top of our range. We will also manage our costs, teams, and performance, ensuring that even at the lower end of our range, we maintain a 100 basis points margin and work towards a mid-40s margin target in the coming years. If we exceed 5%, we know there will be expectations for higher margins, and we will assess how much additional margin we can provide compared to investing in our people, products, technology, and customer strategies. Our goal is to balance these four investment levers to consistently reach the upper end of our range, as a 5% growth with a 100 basis point margin can lead to double-digit earnings growth. At 7%, we can invest more and have a better chance of maintaining the top of our range while still delivering double digits. Achieving consistency and long-term stability is beneficial for shareholders, and our challenge will be to balance these factors. I am truly pleased with how the team is consistently performing within the 4% to 6% range. Achieving this once is good, but we won't let that lead to complacency, especially knowing we might miss it in any given quarter. Our focus remains on long-term strategies that benefit the Company, customers, employees, and shareholders alike, which is precisely what IHS Markit should be pursuing.

Hi. This is Trevor Romeo on for Tim. Thanks for fitting me in here. Just had a quick one on the CMS margin being down almost 300 basis points year-over-year. I know it’s only one quarter but is there anything you’d call out is driving that? Thank you.

Yes, that’s a valid question as our margins are down. We are beginning to see revenue growth. To clarify, this revenue growth is coming from our product design department, which provides engineering specifications and standards that we license to industry players who are constructing various projects. This includes contributions to sectors like aerospace and infrastructure. With the global economy growing, we expect continued revenue growth. However, it’s important to note that distributors and standard owners have raised their royalty fees over time, which affects our margins negatively. Overall, we have a top-notch team and robust resources like our engineering workbench and Goldfire software, which leverage natural language processing in our product design efforts. These elements position us for growth, although we anticipate maintaining margins around 25%. If we can achieve revenue growth in the high single digits instead of low single digits, that would signify a positive trend for our business and reflect the strength of our team. I would be very satisfied with that outcome within the context of our Company.

Okay. Thank you. Next question?

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