S&P Global Inc (SPGI) — Q3 2018 Earnings Call Transcript

Good morning. And thank you for joining us for the IHS Markit Q3 2018 earnings conference call. Earlier this morning, we issued our Q3 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 the 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 a 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 risk and uncertainties. Factors that could cause actual results to differ materially from expectations can be found on IHS Markit's filings with the SEC and on the IHS Markit website. After our prepared remarks, Lance Uggla, our 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 Uggla. Lance?

Thank you, Eric. Thank you for joining us for the IHS Markit Q3 earnings call. Today, we'll talk about our strong Q3 results, operational initiatives for sustained growth and profitability, an update on the Ipreo integration, and our decision to keep our MarkitSERV business. We had a strong quarter of financial results. The key highlights of the quarter were: revenue of $1.001 billion, up 11% year-over-year and 7% on an organic basis excluding the impact from the prior year biennial BPVC revenue. We continued to deliver broad-based growth across the firm. Adjusted EBITDA of $391 million, up 11% over the prior year, and a margin of 39%. Normalized margin expansion was 60 basis points excluding the impact of FX and Ipreo as we continue to streamline our operations and benefit from the natural leverage of the model while continuing to invest for long-term profitable growth. And finally, adjusted EPS of $0.58. Let me now provide some highlights. I'll start with Transportation, which delivered strong diversified organic revenue growth of 9% in the quarter. Growth was driven broadly by the same trends we've been seeing throughout the year. Within automotive, we continue to see strong growth from both our new and used auto businesses and are benefiting from deepening our penetration of existing customers and continued product innovation. As expected, our recall business moderated to a normalized level in the third quarter. Financial Services reported 8% organic growth with broad-based strength. Top performers included pricing indices, valuation services, regulation and compliance, analytics, enterprise data management, and the MarkitSERV derivatives processing. CMS organic revenue growth was 4% excluding the impact of BPVC, as we continue to benefit from improving end markets and operational changes 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. We are particularly pleased to see continued improvement in Resources recurring revenue. We expect the price of oil to end the year higher than the industry originally thought, and we expect the level of CapEx spending to improve in 2019. But on the whole, our customers remained somewhat cautious with spending. On the operational side, coming out of our product deep dive sessions this summer, I'm particularly pleased with the sense of continued urgency and the high level of commercial engagement across the firm. I can report that we are making progress on a number of fronts, which I'll outline. First, an increased focus on being even closer to our customers, a higher level of customer engagement from the top is cascading throughout the organization and helps us better partner with our customers and provides critical insights that fuel product innovation. Second, our teams are focused on streamlining all internal processes to increase profitability and to self-fund future growth initiatives. We're using technology to further automate and increase efficiency in how we create our information and solutions. We are also more effectively utilizing remote intelligence to tap into best cost pools of talent around the world. Third, we have increased targeted investment in product development across our business lines which will seed sustained future growth in the years to come. Let me provide a couple of examples. As we talked about on the Q2 call, we are increasing the level of investments within our upstream business as the industry is starting to spend again, especially on analytical offerings. Within automotive, we are making investments in our CARFAX for Life initiative, our automotiveMastermind led Conquest solution, and our cross-automotive dealer network planning solution. Within Financial Services, we continue to make investments in data and indices, valuations with respect to the private capital markets and hosted data management. And finally, we are seeing continued momentum with merger revenue synergies and remain on target to achieve a run-rate of $35 million exiting the year. We are especially pleased with the broad-based distribution of the industry offerings being sold into our Financial Services customers, and we are equally gaining traction selling our EDM solution into our energy market customers. Overall, we are very pleased with the operational execution of our teams and a really great job by all of them. On the M&A front, in terms of capital allocation, we closed the acquisition of Ipreo on August 2nd, and we are very pleased with the early days of the integration. We’re able to do a lot of groundwork ahead of the closing. And we’re now well on our way to the previously communicated financial targets, including 2019 adjusted EBITDA of $115 million, run-rate cost synergies of $20 million by the end of ‘19, and revenue synergies of $35 million by the end of 2021. Teams are working together extremely well and with a lot of excitement around what we can achieve. Customer response continues to be very positive, and we’ve already seen some early revenue synergy momentum, particularly in our loans and private capital markets businesses. Now relative to MarkitSERV. We’ve decided the best financial and strategic outcome for IHS Markit at this time is to keep our MarkitSERV business. We completed a disciplined and comprehensive sales process with both strategic and private equity parties and could not reach an agreement at a sufficient value for the asset with an ongoing acceptable commercial relationship. MarkitSERV has an integral part to play in the post-trade industry consolidation that we expect to occur in the coming years and continues to be a valued strategic partner across the whole financial markets. We look forward to continuing to invest and build this business and we’ll take the lead in innovating and looking for opportunities to partner with industry and our customers. You can continue to expect IHS Markit’s longer-term organic revenue profile, including Ipreo and MarkitSERV, to be as previously stated, in the 5% to 7% organic growth range and our Financial Services segment to be in the mid to high-single-digits. This organic growth profile, along with our commitment for 100 basis points in annual margin expansion and our $500 million annual share buyback target will generate solid double-digit adjusted earnings growth and $1 billion plus of free cash flow annually. We are very comfortable with this financial profile. And with that, I’ll turn the call over to Todd.

Thank you, Lance. Before we get started, as Lance said, we closed Ipreo on August 2nd. And as a result, our Q3 results include a one-month stub period for Ipreo, which contributed in line with our expectations with approximately $25 million of revenue and $6 million of adjusted EBITDA. Relative to Q3, we were pleased with the continuation of positive revenue and profit trends from the first half of the year. Our Q3 organic revenue growth was 7%, normalized for the BPVC impact, and included stable recurring organic growth of 7% and normalized non-recurring organic growth of 6%. Looking at segment performance. Transportation revenue growth was 16%, including 9% organic and 7% acquisitive. Organic revenue growth was comprised of 10% recurring and 6% non-recurring. As expected, our non-recurring growth was lower than prior quarter as our recall business did moderate to a more normalized level. Resources revenue growth was 5%, and organic revenue growth was also 5%. Organic revenue growth was comprised of 4% recurring and 8% non-recurring. Recurring organic growth was led by our chemicals, PGCR, and downstream pricing businesses. Upstream revenue increased 3% on a year-over-year basis. Our Q3 annual contract value across the entire Resources segment including OPIS was $726 million, which was up $17 million versus beginning of year ACV. We continue to track in line with our low to mid-single-digit ACV growth expectation for the year. Non-recurring revenue growth remained strong due to improved consulting and software performance. Normalized CMS organic revenue growth excluding prior year BPVC was 4%, including recurring organic of 3% and normalized non-recurring organic of 13%. Financial Services revenue growth was 16%, including 8% organic and 8% acquisitive. Information organic growth was 6%, with strong performance across the indices, pricing and valuation services. Processing organic growth was 5%, led by our derivatives processing of 7% and loan processing of 3%. Solutions organic revenue growth was 12%, led by analytics, regulatory and compliance solutions, and continued growth in our WSO loan management and enterprise data management offerings. We expect Financial Services organic growth to moderate in Q4 with continued strength in information and solutions offset by a challenging year-over-year comparison in our processing business. Turning now to profits and margins, adjusted EBITDA was $391 million, including a $6 million contribution from Ipreo. Adjusted EBITDA growth was 11% versus prior year. Our adjusted EBITDA margin was 39%, up 25 basis points on a reported basis and up 60 basis points normalized for FX and Ipreo. Regarding segment profitability, Transportation’s adjusted EBITDA was $128 million with a margin of 43.1%, an increase of 30 basis points. Financial Services adjusted EBITDA was $156 million with a margin of 44%, a decrease of 100 basis points. Excluding Ipreo, Financial Services adjusted EBITDA margin was 45.4%, an increase of 40 basis points. Resources adjusted EBITDA was $85 million, which was $3 million lower than prior year due to continued investment in the segment. CMS adjusted EBITDA was $30 million, down $2 million versus prior year with a margin of 22% due to higher royalty expense. Adjusted EPS was $0.58 per diluted share, up 2% versus prior year. Prior year adjusted EPS benefited by $0.07 from a favorable tax benefit. 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 7%. 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 US tax reform which were recorded in Q1. Q3 free cash flow was $293 million. Our trailing 12-month free cash flow improved to $938 million and represented a conversion rate of 62%. Excluding acquisition-related costs, conversion was 68%. We continue to see solid trends in our cash conversion. Our quarter-end debt balance was $6.06 billion, which represented a gross leverage ratio of approximately 3.5 times on a bank covenant basis, and we closed the quarter with $154 million of cash. As discussed on the Ipreo acquisition call, on a business-as-usual basis, we expect to delever below 3 times by Q3 2019. In the quarter, we completed $1.25 billion of public debt financing, including $750 million of 10-year bonds at a 4.75% coupon rate, and $500 million of 5-year bonds at a 4.125% coupon rate. Our quarter-end fixed debt as a percent of total debt is 61%. The fixed debt portion of our capital structure will increase as we delever and leverage moves back to our target leverage range. Our Q3 weighted average diluted share count was 405 million shares. We have suspended our share buyback until we return to our target leverage range of 2 to 3 times. Year-to-date, we have executed $758 million of share repurchases and have repurchased 16 million shares at an average price of $47.34. Regarding acquisitions, AMM continues to perform well with current year growth of 40% that has delivered lower than our original plan due in part to a delay of Conquest which we'll now launch in Q4. Because of this, we expect AMM financials to lag behind the original plan. As a result, in Q3, we've reduced the estimate for AMM acquisition-related performance-based compensation for the future purchase price of the remaining 22% interest in AMM. This is a forward-based calculation that can be adjusted up or down based on actual or future performance. In terms of guidance, we are updating our prior ranges for revenue and adjusted EBITDA to reflect tightening of the ranges with a modest increase to the high-end of prior ranges and also to include Ipreo for the four-month stub period. We are also updating adjusted EPS to the mid to high-end of prior range due to overperformance of adjusted EBITDA, offset by slight dilution from Ipreo.

Lance Uggla: Thanks, Todd. We continue to execute very well, accomplished a lot in the quarter and have set ourselves up to deliver a very strong year of financial results. We look forward to broadening our 2019 outlook early in November. Operator, we’re ready to open the lines for Q&A.

Just maybe a little bit more on MarkitSERV, because I think where you left us it sounded like there was a pretty robust process going on, and it sounded maybe there’s more than just the price of the transaction. So could you just maybe go into more detail? I think there was a comment about like reaching some sort of commercial relationship after closing the transaction. So I guess what part of MarkitSERV did you kind of need to continue to drive data from or whatever that comment was? And then to the extent to which that Markit maybe consolidating, I heard that you are going to continue to invest but if you’re not going to be a seller at this time, does that mean that you’re likely to be an acquirer in that space?

That’s a good broad question. I’ll try to address all those points. First, we believe that the post-trade derivatives processing area should be consolidated, and we identified a chance for either private capital or a strategic buyer to lead that effort. We believed we could sell MarkitSERV for a value that would appropriately support that consolidation. However, we did not find a buyer, either strategic or private equity, who offered the value we were seeking to avoid any dilution. We approached this matter thoughtfully and noted a 7% growth in derivatives processing during the quarter, reinforcing our belief that the asset had reached a baseline after years of revenue decline. We felt the asset's value should reflect participation in a consolidation as well as a fair value for its EBITDA. Since we did not achieve that, we opted to retain the asset. Looking ahead, we do not foresee ourselves being highly acquisitive in derivatives processing. However, we have made it clear to the marketplace that there are opportunities for strategic consolidation of certain assets. If other market participants wish to discuss or engage in such activities, we are open to that. At the same time, we are committed to managing the asset effectively. As a key participant in the market, we maintain valuable customer relationships and are well-positioned to continue delivering our services. Additionally, within the Financial Services structure of IHS Markit, we have some analytic products related to FRTB that integrate with the MarkitSERV offering, enabling customers to better model their risk factors for risk calculations. Next question?

Thanks. Good morning, Lance. Just sticking on MarkitSERV for a sec. Given you won't get the liquidity associated with selling, I'm wondering how this impacts the timing of a resumption of buybacks. I'm thinking that maybe we will not be able to get to the $500 million next year? And then related to that should we assume that the appetite for M&A is diminished here on a near-term basis, again in the context with leverage?

Okay, so I'll talk and I'll hand it to Todd just in terms of the leverage numbers. Clearly at 3.5 times leverage we need to delever first. I believe Todd said that our delevering back into the 2 to 3 times range can happen in Q3. And our goal, once we delever is that we will on an annual basis buy back approximately $500 million of our stock each year. In terms of M&A, I think that we’ve spent a lot of time for two years focusing less on M&A and more on organic growth. And I think that we found a good balance and pace within the firm. I think the organic numbers support our forward growth path regardless of M&A activities. But once we delever and get back to our capital plans in terms of buybacks, we will look at bolt-on acquisitions as we were doing before. Todd, do you want to add?

You know, Peter, we continue to drive good, strong cash. We're confident in the ability to get below the 3 times into our target leverage range by Q3 of next year. We'll provide the specific 2019 guidance in November. But I think there's a path to get toward the $500 million buyback in 2019, but certainly it will be very back-end loaded.

Good morning, everyone.

Hi, Bill.

Can you provide an update on automotiveMastermind? You indicated that there wouldn't be an earnout payout or that a different level would apply for the next year. I'm curious if there have been any changes in the fundamentals related to that. It seems to continue being very beneficial for the company's organic revenue growth, so I wanted to understand what has changed.

That's a good question. So as Todd said, we've grown the asset, in terms of its top-line growth 40% year-over-year, so we're happy with the growth of the asset but within the acquisition, and it happens a lot when we're acquiring an asset from an entrepreneur in order to complete that process, we put in a performance-related piece. In this case, it's 22% of the purchase. That piece of the transaction can move up or down based on the actual performance of the asset. So based on where we are after one year, we made an adjustment to the tail-end performance-based compensation. And that could either go up or down on a forward basis, as Todd outlined that. In terms of how the Group is performing? I have to say we're extremely pleased in terms of how automotiveMastermind fits into our automotive franchise and helps us drive our forward high-single-digit growth. What we've said before is being on the dealer floor, coupled with our Polk registration data, our CARFAX franchise, and our digital marketing franchise around building of audiences. We need a presence on the dealer floor and the reason to acquire this asset and pay what we did for the asset is to ensure our presence on the dealer floor; that's been established. The piece that didn't perform as well as we wanted is there are two parts of the Mastermind forward-looking revenues. One piece is around the retention of the customer, and one piece is around Conquest. When we started looking at the platforms on a go-forward basis, originally, we felt about building a new Conquest platform separate from the Mastermind's retention platform. But after doing our analysis, we felt that it was much better to build the two together. Therefore, we pushed ourselves into a 12-month delay, that's reflected in the numbers. But nothing has changed in terms of corporate view on the fit of the asset and the go-forward performance within our automotive franchise. Next question?

Can you just elaborate a little bit more on the spending in the Resources segment and the margin drag there? I know you talked about some incremental investments. I guess how long does that period of increased investment likely need to continue, I guess as growth improves here? And what's the outlook in general, I guess for the Resources margin as we think forward for the next year or two?

We view the entire firm as well as each individual segment with a focus on achieving 5% to 7% organic growth, an increase from the previous 4% to 6% target, thanks to the Ipreo acquisition. We have regularly confirmed our goal of achieving 100 basis points of margin expansion and are committed to driving double-digit earnings growth. This is how we are managing the firm and the expectations we want you to have. Following the merger of IHS and Markit, we plan to leverage our ability to drive operational efficiencies to achieve this 100 basis points, and we intend to reinvest any additional gains across the firm. In the Resources segment, we see significant opportunities to invest in analytics and software offerings, particularly in our upstream energy business, which has experienced notable year-over-year growth. The timing of the financial reporting is simply a timing issue for me. I don’t anticipate any changes in our margin expansion or growth plans within the energy sector, which we expect to remain in the low to mid-single-digits. Therefore, I don’t think there’s much to highlight, other than the fact that those investments will be reflected in year-over-year comparisons.

The other one I would call out is some investment in the downstream pricing as we add additional...

Into OPIS, yes.

Into OPIS, as we add additional spot market pricing. But energy is, I would say, of all the segments, it has certainly the highest level of operating leverage. And it's an area that certainly moving forward on a long-term basis, we would expect to have an opportunity to expand margin in energy. But this is the right time to put a little bit more money back into the business.

No, great. I have to say that the team, Dave and Brian working with Jonathan, Atul, Dan, they really have done a great job. We’ve got ourselves back first quarter in mid-single-digit organic revenue growth and that’s a real positive. So hats off to them, and I think they’re right on track. Next question?

Maybe you can touch on the auto business a little bit. So I guess longer term, I mean despite the slowdown by automotiveMastermind in all, I guess we’re still in the same range, with the same drivers. I was just wondering if you guys hash out that outlook a little bit more?

Right. Yes, I think, automotive division is doing exactly what we said it would do, which is high-single-digits. Occasionally, we’ve been above that. But if I look at all of the components, if you take CARFAX, CARPROOF, you take automotiveMastermind, you take our digital marketing, our automotive forecasting, our VPaC, and our Polk, our registration franchise and the audience building, all of those have strong fundamentals and are well supported to deliver a forward high-single-digit growth. In this quarter, we called out that recall; we I think recalled previously that it would moderate, and it did. That probably pulled us more back into that high-single-digits rather than slightly over that. But there’s nothing within automotive in terms of the forward-looking franchise that doesn’t support a combined high-single-digit organic growth. And that’s what we’ve been saying; we continue to expect that. Next question?

Lance, I think you mentioned that you still see a little bit of reluctance perhaps by some of your upstream customers to spend or just generally had the conversations on Resources' CapEx. Can you conjecture a little bit on what you think changes the demand environment? Is it a sustained higher price of oil? Is there something structural in the market? When do we get back to maybe a period of sustained higher CapEx in the Resources segment?

In speaking with our energy customers, it’s clear that none are returning to previous spending levels for capital expenditures. There's a more cautious and strategic approach to how energy companies are allocating funds going forward. Higher oil prices do seem to encourage increased capital spending, and we anticipate seeing rises in capital expenditures in the future. However, the current oil price is influenced by several market factors that create uncertainty regarding its direction, including Iranian sanctions, challenges in Permian supply, a resilient cartel despite calls for increased supply, and issues in Venezuela. Nevertheless, we project a 3% growth in global GDP, which should support sustained demand. Overall, we are witnessing oil prices that are higher than initially forecasted, but energy producers will likely remain cautious and base their capital expenditures on much lower energy prices historically. This situation seems favorable for IHS Markit, as projects that are initiated will require our ongoing support. We are actively involved in various regions such as offshore Africa, Brazil, and the Permian, with renewed activity in the North Sea as well. Therefore, we feel our position is well-supported for mid-single-digit growth in our upstream business moving forward, without needing to adjust risk parameters based on the scenario we've communicated to the market. That said, caution will persist, and while energy prices are currently drifting higher due to the factors discussed, we expect prices to be lower in 12 to 24 months. Thank you. Next question?

I'd like to dive a bit deeper into your margin outlook. Your EBITDA margins expanded 50 basis points in the quarter normalized for FX and Ipreo, where you had discussed plans for elevated investment activity in your various segments. Can you elaborate on the timing and quantification of your various investments? And the potential sources of upside or downside, outside of your investment activities, your targeted 150 bps of annual margin expansion over the near term?

George, I mean we're always balancing a level of investment in the business and delivery of financial commitments. We're driving good growth. We're driving a good level of profit flow through in that growth and we're also making an appropriate level of investment in the company. And if we look on a year-to-date basis normalized, we've delivered above the 100 point target for the year. And we're doing that as we're also delivering better revenue and better overall total profit growth. So we're comfortable with how the business is performing and how we're managing delivery of profit to shareholders at the same time while we're making forward investment decisions. There isn't going to be a large or lumpy item that's going to significantly change the trajectory certainly that I foresee. And you should just continue to expect more of the same.

Thanks, Todd. Next question?

Hey, good morning. My question is just mostly focused on what you're seeing regionally specifically in Europe. It seems like there has been a little bit of a slowdown there. And then any updated view on China tariffs? How that impacts your business indirectly, I guess? Thank you.

I just returned from Asia, and I must say that despite the press coverage and discussions about tariffs suggesting that the markets we operate in may not be very exciting, the reality was quite the opposite. I attended the Temasek Singapore Summit, where there was significant enthusiasm for business and opportunities. However, there was also considerable dialogue regarding general geopolitics and the effects of tariffs. For a company like ours, which is primarily focused on information and services with a consulting aspect, we provide insights into various markets to aid decision-making in different environments. Sometimes, markets experiencing turmoil need more expert support. At IHS Markit, we have 1,700 research analysts among our 14,000 to 15,000 employees worldwide, each specialized in various market sectors including energy, transportation, aerospace and defense, technology, and financial markets. We are witnessing strong double-digit growth in Asia this year and foresee it continuing into next year. Our growth is operating at 1.5 to 2 times GDP in Europe, and similarly in the US, which contributes to a mid to upper single-digit organic growth for the company. I do not anticipate that tariffs will alter our growth moving forward. Next question?

Thanks so much. I wanted to talk kind of a big picture strategy question. Now that you've completed the Ipreo acquisition and decided to hold on to MarkitSERV, would it be correct to say that the Financial Services segment is probably going to continue to be the biggest part of your portfolio and an area that you're going to focus on the most?

Not at all. Our focus is on our company’s activities. We are concentrating on the growth dynamics of the energy market as it recovers, and we believe we are well-positioned to benefit from that. The automotive sector has consistently driven our transportation with high-single-digit growth. Our investments in ADS and maritime and trade are supporting continued growth in those areas, and we expect this trend to persist. High-single-digit growth in automotive, if sustained over the next two or three years, could even surpass financial markets in size. The assumption that my background in financial markets means we will primarily focus there is incorrect. We aim to drive consistent growth across all our segments, targeting high-single-digits in Transportation, mid to high in financial markets with Ipreo, mid in Resources on a forward basis, and low to mid in our CMS division. This is our focus. By concentrating on our costs, customers, and people, we feel increasingly confident in achieving that 5% to 7% growth and the 100 basis points, which will diversify us in ways that differ from our peers who tend to be more narrowly focused. Next question?

Your stock comp guidance is up a little bit from the prior guide. And I’m assuming it’s because of Ipreo being included now. Could you reduce remind us of your longer-term strategy or philosophy around stock comp? I just wanted to see if it’s the same as sort of the way Jerre was thinking about it. And anything you can add there would be helpful?

Yes. So we are seeing stock comp come down post-merger, right? So it was 2.62 last year and we’re going to see that number come down, so we are making progress. Certainly coming out of the merger, we had an elevated level of stock-based comp expense. The target that we’ve provided at the time of the merger was the 1.25% of outstanding shares in year one. We took that down to 1% for 2018 in terms of stock comp shares that would be issued. And we’ll expect to stay in line with that target and look for opportunities to improve that target as we move forward. But it’s basically the 1% of outstanding shares.

Thanks Todd. Thanks, Toni. Next question?

So you had pretty good performance across the board here. I wondered if you could help us understand which vertical you think is seeing the strongest improvement in the demand backdrop? And then maybe just update us on the Ipreo integration and any regulation concerns there? Thanks.

Okay. In terms of automotive and Transportation and Financial Services, we are seeing 8% to 9% organic growth, which indicates that these segments are well diversified across the markets they serve. This diversification is driving the high-single-digit growth in both areas. While it might seem that these divisions are the top performers, I would highlight Resources. Since the merger two years ago, Resources has experienced a turnaround from negative organic growth to a current 5% organic growth rate, making it the division with the best potential for upside within IHS Markit. It boasts a broad customer base, C-suite access, and strong thought leadership, particularly around CERAWeek, as well as significant positions in chemicals and downstream pricing. When I assess CMS, it has three components: we offer economic and country risk assessments, which are increasingly relevant given current geopolitical tensions, suggesting mid-single-digit growth. The TMT business, led by Ian Weightman, is exceptional and should attain mid to upper single-digit growth as we regain momentum in that area. Additionally, our large product design segment is facing challenges due to rising royalty costs, which we don't control, but with expected global GDP growth of 3%, we anticipate an overall positive outlook for engineering and projects, allowing for low to mid-single-digit growth for CMS. In summary, I’m proud of the performance across all divisions. Transportation and Financial Services are exceeding mid-single-digit growth, and as we work towards achieving that in energy and enhancing operational efficiencies in CMS, I believe we are well-positioned for future success. We expect to achieve an ongoing 100 basis points improvement each year until we reach the mid 40s. Next question?

This is Michael Cho for Andrew this morning, good morning.

Hi, Michael.

I just want to touch on the Resources segment one more time. Based upon the ACV trends earlier, I was wondering what the third quarter Resources ACV trends were year-over-year on a constant currency basis including OPIS? And there were some comments around the expectation of higher CapEx spend by oil companies. I mean, is that CapEx spend you're expecting driven by oil companies expanding into new geographies?

Yes. Do you want me to do the CapEx and you do the? The CapEx that I focused on is that it's cautious, the CapEx. But we expect continued improvements or increases in CapEx. And that's based on energy companies spending more year-over-year with respect to CapEx, which is supported by the higher energy prices. But we expect them to be cautious and careful in the allocation of those dollars. So we don't just put a trend line with the energy price and CapEx spending in a way that we'd see substantive increases in CapEx. We think they will all remain cautious and they feel that there is a lot of geopolitical factors hanging over the high energy price that we're seeing at the moment. Todd, do you want to do the ACV?

Yes, Eric will keep me honest here. But I believe that the first half year-to-date ACV was up $5 million or $6 million. So the Q3 was up $12 million. If you look at the context for that $12 million and in terms of renewal base that would have been available to renew in the quarter, probably a $175 million. So a pretty good quarter when we look at the performance of the ACV growth.

Thanks Todd. Next question?

Good. Well at that note, we'll wrap it up. I just want to say thank you once again to all the teams globally, not just the businesses but all the shared services that support us, and the great work that they're doing. And to our analysts and investors, thank you for your support.

This call can be accessed via replay at 855-859-2056, international dial-in 404-537-3406 conference ID 4978218 beginning in about two hours, running through October 2nd. In addition, the webcast will be archived for one year on our website at www.ihsmarkit.com. Thank you, and we appreciate your interest and time.