Good day, ladies and gentlemen, and welcome to the Q3 2018 IHS Markit Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference call maybe recorded. I'd now like to introduce your host for today's conference Mr. Eric Boyer, Head of Investor Relations. You may begin.

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 based on non-GAAP measures or adjusted numbers which exclude stock-based compensation, amortization of acquired intangibles, and other times. 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 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 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, reg 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…

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…

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 broaden you our 2019 outlook early in November. Operator, we’re ready to open the lines for Q&A.

Thank you. [Operator Instructions]. And our first question comes from Jeff Meuler from Baird. Your line is open.

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][ph] 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?

Okay. Those are -- that’s a good broad question. So I’ll give it -- I’ll try to hit all those points. So first off, I think in putting MarkitSERV up for sale, our belief is that the post trade derivatives processing arena should be consolidated. And there’s three or four strategic assets in the marketplace globally and we saw an opportunity for either private capital or one of the strategic to take the lead to do that consolidation. And we thought that in that we could sell MarkitSERV at a sufficient value level to participate properly in that consolidation. We didn’t find that strategic buyer or the private equity buyer that asked the value proposition that we wanted for our asset to minimize any dilution would be -- was possible to reach. And so, we thought about it in a very disciplined way and felt that the best way -- and even in the quarter, we had a 7% derivatives processing growth. So giving us more belief that our asset was at the kind of baseline after many years of declining revenues, we felt that we’re at a baseline and the asset value should represent both participation in a consolidation and to a fair value for the EBITDA that the asset generates. So in not achieving that, we decided to keep the asset. And therefore, what does that mean going forward? We don’t see ourselves being highly acquisitive within derivatives processing. But we do think we made a loud statement to the marketplace that there’s opportunities for the strategic consolidation of certain assets. And if some of the strategic market participants wish to discuss or participate in those types of activities, we’re going to be open to do that. But we’re also quite open to manage the asset. We’re a key strategic market participant. We have valued customer relationships and we’re -- we’ll be in a good position to continue to offer the services we do. The last piece was the commercial arrangements. Within the Financial Services structure of IHS Markit, we do have some analytic products around FRTB for one where the MarkitSERV product offering and our FRTB analytic offering come together where customers see that can better allow them to model out their risk factors to support those risk calculations. Next question?

Thank you. Our next question comes from Peter Appert from Piper Jaffray. Your line is open.

Thanks. Good morning, Lance. Just sticking on MarkitSERV for a sec. Given you won't get the liquidity associated with selling and 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 the 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 lever 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 500 million approximately of our stock each year. In terms of M&A, I think that we’ve spent a lot of time for two years on less M&A and more 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, we get back to our capital plans in terms of buybacks, we will look at bolt-on acquisitions as we were doing before. Todd you want to add?

So 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.

Next question?

Thank you. Our next question comes from Bill Warmington from Wells Fargo. Your line is open.

Good morning, everyone.

Hi, Bill.

So a question on automotiveMastermind. You mentioned that the -- you weren't going to be paying out the -- or even had a different level of the earnout for the coming year. I wanted to ask if there'd been -- what was going on there if there had been a change in the fundamentals there. I mean, clearly, it's still highly accretive to the overall company organic revenue growth. But just wanted to ask what had changed in that?

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 of course 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 tag-end performance-based compensation. And that could either go up or down on a forward basis and we've -- 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, 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 is two parts of the Mastermind forward-looking revenues. One piece is around 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. And therefore, we put a delay into the release of Conquest. But we feel it's much better for the dealer franchises to both have the retention model and the Conquest model built into a single database and a single service. So we pushed ourselves into a 12-month delay, that's reflected into 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?

Thank you. Our next question comes from Tim McHugh from William Blair & Company. Your line is open

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 is 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?

Yes, I guess the way we look at all of our -- well the whole firm as well as the individual segments, the whole firm we told you go forward 5% to 7% organic growth, up from 4% to 6% with the Ipreo acquisition. We talked about and reconfirmed regularly the 100 basis points of margin. And we tell that we're going to drive double-digit earnings growth. So that's how we're managing the firm and that's what your expectations of us should be. Within the merger of IHS and Markit, we said that we were going to use our ability to drive operational efficiencies to give you the 100 basis points and anything incremental we could across that firm we wanted to -- across the firm we wanted to reinvest. Within Resources, we've seen significant opportunity in the upstream part of our business to invest in analytics, data analytics, our software offerings. We've seen some great growth year-over-year within our software offerings within our upstream energy businesses. And so the timing of that particular reporting of financial numbers to me personally it's a timing issue. I don't see anything changing in terms of our margin expansion or our growth plans into the low moving to mid-single-digits in the energy section. So yes, I don’t think there’s much to call out on that, except that those investments show up on a year-over-year basis.

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 of 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 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 and 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?

Thank you. Our next question comes from Manav Patnaik from Barclays. Your line is open.

Maybe you can touch on the auto business a little bit. So I guess longer term, I mean despite 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 are -- have strong fundamentals and are well supported to deliver a forward high-single-digit growth. In this quarter, we’d called out that recall we I think recalled previously that it would moderate, 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?

And our next question comes from Andrew Jeffrey from SunTrust. Your line is open.

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 convos 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?

Right. Well, I think, one thing that I would say in speaking to our energy customers is that I don’t think any of them are returning to the previous days in terms of the amount of CapEx and the spending levels that existed. There’s just a much more cautious and certain approach to how the energy companies are spending money on a forward basis. But higher oil prices support a CapEx spending level that you can see drifting upwards. And we do see increases in CapEx as we look forward. But I guess when you look at the current oil price, we see a whole bunch of market-based factors that are creating some uncertainty in terms of where the oil price is. You've got the Iran sanctions, you've got Permian supply challenges that are capping what can come out of the Permian at the moment. You've got a cartel that’s holding together very strongly in spite of the President's call for some lightening up in terms of supply distribution. And Venezuela, you got a whole bunch of it. And still when we look at our forecast, we look at 3% global GDP growth, and that also supports a continued strong demand. So, therefore, when you add all those things up, we're seeing a market with energy -- oil prices much higher than what we had forecast or the market had thought, but I still think the energy producers will remain cautious and will still be looking at their CapEx based off of much lower energy price. And -- but I think it bodes well for IHS Markit. It just means that projects that are looked at are certain when they start, they're going to have long-term needs from us for support. They are global. We're participating in offshore Africa and Brazil. We're very active in the Permian. North Sea is active again. So I feel our position is very well supported in terms of our mid-single-digit growth in terms of our upstream business that will be supported going forward and don't see any reason to put any risk parameters on that scenario, as we've laid out to the marketplace. But there is cautious, I think that's going to stay and there is an energy price -- oil price at the moment that based on all the market conditions I laid out is -- continues to drift higher. But that's not where we see the energy price in 12 to 24 months time, we'd see it lower. Thank you. Next question?

Thank you. Our next question comes from George Tong from Goldman Sachs. Your line is open.

I'd like to dive a bit deeper into your margin outlook. Your EBITDA margins expanded 50 bps 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?

Thank you. Our next question comes from Hamzah Mazari from Macquarie. Your line is open.

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.

So I just came back from Asia and I have to say reading the press and reading all the rhetoric with respect to the tariffs you'd expect to feel Asia that from the markets that we're in wouldn't be that excited -- but exciting. But I have to say I felt the exact opposite. I attended the Temasek Singapore Summit. There was lots of enthusiasm for business and opportunity, but there was also a lot of talk about the general geopolitics and the impact of tariffs and a lot of discussion. I think for a company like ourselves that's information and services base has a small consulting angle to it, I think that we bring a light on markets to help people make decisions in many different environments and sometimes the market that's got some turmoil to it requires more support from experts. And IHS Markit we have 1,700 research analysts out of our 14,000, 15,000 people globally that are very specialized in a variety of market activities across energy, transportation, aerospace and defense, technology, financial markets. And if anything we see strong double-digit growth in Asia throughout this year. We expect that to continue into next year. We see that we're able to operate at 1.5 to 2 times GDP in Europe in terms of our growth and similarly in the US. And that's driving an overall mid to upper single-digit organic growth for the company. And I don't see impact of tariffs changing our growth on a forward basis. Next question?

Thank you. Our next question comes from Jeff Silber from BMO Capital Markets. Your line is open.

Thanks so much. I wanted to talk kind of a big picture strategy question. Now that you've completed the Ipreo acquisition 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. I think that our focus is on the activities we do as a company. So we're highly focused on seeing the -- on participating in the forward growth dynamics of the energy market as it continues to recover. And we feel we're very well leveraged there to the upside. Automotive has consistently been driving our transportation, high-single-digits growth, our investments back into ADS and maritime and trade are supporting a continued upside into those high-single-digits and we see that continuing. And high-single-digit growth in automotive, if that continues for the next two or three years, you could easily see it pass financial markets in terms of size. And so, I think the thought that because I come from financial markets background, that’s going to be the place we focus, that’s not the case. We want to focus in all our segments and drive consistent growth as we’ve described it, high-single-digits in Transportation, mid to high now with Ipreo in financial markets, mid in -- on a forward basis in Resources and low to mid in our CMS division. And so, that’s our focus. And as we do that and we focus on our costs, we focus on our customers, we focus on our people, we increasingly feel confident in delivering that 5% to 7%, the 100 basis points and we see that mix being something that diversifies us in a different way than our peers set that are a bit more narrowly focused. Next question?

Our next question comes from Toni Kaplan from Morgan Stanley. Your line is open.

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 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?

Our next question comes from Joseph Foresi from Cantor Fitzgerald. Your line is open.

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. So in terms of -- well, it’s interesting because automotive or Transportation and Financial Services clearly seeing 8%, 9% organic growth are definitely as I would see them, they’re just very well diversified across the markets they operate in. And are getting a set of diversified upside that’s supporting that high-single-digit growth in both of those segments. So it'd be easy to think that that those were the divisions that were performing the best. I have to say that if I look at Resources and since the date of -- two years since merger and another six or eight months ahead of that as we got everything lined up, looking at Resources and seeing it come from where it was negative organic growth back to 5% organic growth, I'd say that that division within the IHS Markit has the best single leverage to the upside. It's got pretty much every customer in the space. It has C-suite access, it has thought leadership around CERAWeek. And Dan Yergin and his team, it has the leading position in chemicals. OPIS, a leading player in the downstream pricing and news for gas, for coal, for chemicals, we’re competing square on with the Argus and Platts, great single-digit growth. We've got a growing PGCR franchise that's well positioned. So when I look at Resources, I go well we're well positioned. And that 5% is a substantive achievement by the team. And I think there's continued upside. When I then go to CMS, it's interesting CMS, we got three businesses and CMS. One we provide economic and country risk. In a world with geopolitics and tariffs and all sorts of tensions, providing economic and country risk forecasts, I think is a good position, and that should bode for mid-single-digit growth, or low to mid-single-digits.…

Thank you. [Operator Instructions]. And our next question comes from Andrew Steinerman from JP Morgan. Your line is open

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

Hi, Michael.

Hi. I just want to touch on the Resources segment one more time. Based upon the ACV trends earlier, I was wondering what's 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. And 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?

And I am showing no further questions from our phone lines, sir.

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 achieved for one year on our website at www.ihsmarkit.com. Thank you and we appreciate your interest and time.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.