Q4 2019 Earnings Call
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The conference over to your Speaker today, Eric Boyer head of Investor Relations. Thank you. Please go ahead sorry.
Good morning, Thank you for joining us by just market Q4, 2019 earnings conference call.
Good morning, we issued our Q4 earnings press release imposed to supplemental materials that I, just mark Investor Relations website or discussion on the quarter before non-GAAP measures are adjusted numbers, which exclude stock based compensation amortization of acquired intangibles and other items I guess market believes non-GAAP results are useful in order to enhance understanding for ongoing operating corn burden. They are supplement to it's not big Teradata.
Placement from or add to substitute for GAAP financial information as a reminder, this comscore being recorded webcast and copyrighted property of I just market any broke Regal rebroadcast of this information horan part without prior written consent of I just markets prohibited This conference call, especially discussion of our outlook may contain statements about expected future events are forward looking at subject to risk uncertainties.
Factors that could cause actual results could differ materially from ethic patients can be found I just markets filings with the FCC and I'll now I just market website. After <unk> prepared remarks went to go chairman CEO , Todd Heikki, VP and Chief Financial Officer, Entropic. Your present transportation resources, and CMS will be available to take your questions with that as my pleasure to turn the call over to man.
Okay. Thank you, Eric a happy new year and thank you for joining us for the <unk> market Q4 earnings call.
Our 2019 was another successful year fried chess market.
We delivered another Europe consistent financial results, we rebalanced our portfolio.
Update or a capital allocation policy that increased our capital return commitment, including a new quarterly cash dividend and we continued to increase the pace of innovation across the firm.
Overall, we finished the year with a solid Q4, and we are reaffirming our 2020 financial guidance, which is once again within our longer term commitments.
Now onto the financial highlights organic revenue growth was 6% in both the quarter end the year.
Adjusted EBITDA margin expansion ex FX was 120 basis points in the quarter and 100 basis points for the year and adjusted EPS growth was 14% in the quarter and 15% for the year.
In terms of core industry verticals Oprah <unk>.
Four and full year 2019 highlights and then our outlook for 2020.
First the financial services segment.
So financial services organic growth was 6% in Q4.
And for the full year.
During the year.
Within information, we expanded our pricing in reference data and valuations offerings.
Successfully launched new regulatory solutions and launched a number of new indices, including.
The global carbon index, a first of its kind product that is already won its first MTF mandate.
Our solutions team continues to innovate to meet the needs of our customers that desire tools that increase efficiency and reduce risk. We made great progress with cross business integration of capabilities, which included a next generation regulatory compliance platform.
We increased the adoption of our corporate actions managed services expanded our portfolio and data management solutions into alternative asset classes and into the energy sector.
We now it's the joint venture in China with Hudson technologies to extend the global connectivity of our bond syndication platforms.
And we accelerate it accelerated new customer wins.
With over 100 added in private markets alone.
Within processing, we continued to invest in new capabilities for our core offerings, we made progress replatforming, our systems to drive long term efficiencies and growth opportunities and invested in new solutions for the FX market.
Within financial services, we also completed the integration to buy pro with strong progress.
Against our synergy targets.
In 2020, we expect organic growth within financial services in the 6% to 8% range.
Within the information, we expect growth from our pricing in reference data and valuation services businesses from continued share gains.
Our equities business, driven by new regulatory products and from our index franchise due to the continued shift a passive investing.
And new products launched.
Within solutions, we expect continued growth across our diversified offerings in particularly.
We are looking for a strong year from our Onboarding and compliance management tools, especially within alternative asset classes.
We also expect to see normalized levels of equity and debt issuance that will drive solid performance in our syndication and book building businesses.
Processing is expected to be flat to slightly up year over year with mixed market conditions in both loans and derivative markets.
Moving on to transportation, which continues to produce very strong results with organic revenue growth of high single digits in the quarter end the year.
In 2019 within autos, we successfully launched our carfax for life product, which helps dealers better targeting their service lane marketing.
We made progress with our new unity auto forecasting platform, which leverages the data lake and new analytic tools.
We continued to improve masterminds competitive positioning leveraging its combined loyalty and conquests product.
And we integrated a small but strategic acquisition of our JV partner that provides analytics support for our emissions.
And regulatory compliance offerings.
Finally within Maritime and trade, we continued to drive post merger cross sell initiatives into financial markets with positive results.
In 2020, we expect transportation organic growth to continue to be in the high single digits driven by strong recurring revenue performance.
Our used car business will continue to see strong results from used car listings are banking insurance products and our new carfax for life product. The core vehicle history reporting business will continue its steady growth.
Our new car business, which is 35% of our auto business is expected to deliver strong results as the industry looks for our support to manage through challenging new car sales, which were down 5% globally in 2019.
Mastermind is expected to contribute strong double digit growth as it continues to expand its deal or footprint.
And then finally within maritime and trade, we expect accelerating growth due in part to the launch of our new trade compliance product that will be leveraging the newly built data Lake.
Moving on to resources, where organic growth was 3% in the quarter and 5% for the full year.
Here are downstream business.
Businesses. Once again grew high single digits for the year due to a healthy end market and new product launches our upstream business showed modest growth driven by insights and analytics.
International data.
Partially offset by North American data.
Our Sarah we conference had another year of record attendance with over 5500 delegates from more than 85 countries.
Demonstrating our position as a critical partner and thought leader to the industry.
We also made great progress with the integration of the agribusiness intelligent acquisition with our downstream businesses.
In 2020, we expect a continuation of the trends we saw in 2019 and for our organic revenue growth to stay in our longer term, 4% to 6% range.
Today's energy markets are complex and a tale of many scenarios, which provides for an increasing role for us to support our customers as they way the impact of a GAAP evolving global trade relationships future up the car the growing use of renewables the increasing relevance of BSG.
We've been organizing ourselves internally to capture our share of these developing growth markets.
Within upstream we're excited to the launch of our energy studio, which is our new upstream data delivery platform that will provide for new visualization and amalie analytic capabilities enhanced by the data Lake.
Within our downstream businesses, we expect strong growth due to favorable industry dynamics.
Agribusiness synergies and new product rollouts in the greenhouse gas and plastic space.
Downstream will also continue to benefit from increasing demand for retail fuel pricing and solutions for connected cars and petroleum retailers.
Finally, CMS organic revenue growth was 4% in the quarter and 1% to the full year in product design, we continued to deliver low to mid single digit recurring revenue growth and also made good progress stabilizing our royalty rights.
We also completed the divestiture of our market research business within TMT.
In 2020 within CMS, we expect to deliver low.
To mid single digit organic growth.
Moving on to some of our strategic initiatives around innovation and product development.
I feel very good about the progress that we made in 2019 and continuing to drive a culture of innovation across our firm.
We continue to better leverage our data assets, our industry experts and our growing data science capabilities to help our customers in new ways and to create new revenues.
We launched a more formalized innovation lab within financial services and held a firm wide innovation month for the first time. These programs created new product ideas that will look to launch in 2020 and beyond.
Also met our goal of Onboarding all are key strategic data into the data Lake and we're already seeing early benefits.
Going forward, we expect to see growing efficiencies around data ingestion.
Faster product development and improved distribution of our data and products to customers in.
In 2020, we'll look to further commercialize the value of the data Lake and to further drive product innovation across our businesses I look forward to given you updates in the future.
With that ill turn the call over to talk.
Thank you Lance we had a strong finish the year with results ahead of our expectations. Our Q4 financial performance included revenue of 1001 $2 billion with organic growth of 6% and all in revenue creams increase of 5%.
GAAP net income of $202 million and GAAP EPS of 50 cents adjusted EBITDA of $453 million, an increase of 9% with margin of 40 dot 4%.
And adjusted EPS was 65 cents, an increase of eight cents or 14%.
We were pleased with the finished the year and the solid revenue and profit performance we delivered throughout 2019.
Relative to revenue our Q4 organic revenue growth of 6% included recurring organic growth of 7% and nonrecurring organic growth of 1%.
Looking at segment performance financial services revenue growth was 5%, including 6% organic and flat FX recurring organic was 7%, while nonrecurring organic declined $4 million or 13%.
Our information business organic was 6% led by strengthen our pricing and indices.
Processing organic declined 1%, we continue to see growth in derivatives processing offset by lower loan processing revenues.
Solutions organic was 1% due impart to difficult comp in our analytic software business.
Offset by good growth in our enterprise data management and corporate actions business has.
Financial services revenue included IPO revenue of $93 million with organic growth of 19% in the quarter.
Transportation continued its strong operational performance with revenue growth of 9%, including 9% organic and flat FX.
Organic growth was comprised of 12% reoccurring and 4% nonrecurring.
Resources revenue increased 7%, including 3% organic 3% acquisitive and flat FX recurring organic was 5% with growth benefiting by one percentage point in the quarter and for the year from the new revenue recognition standard.
Nonrecurring organic declined $2 million or 7%.
Our Q4, ACB increased $2 million and our full year ACB increased $24 million.
We ended the year with HCV and $759 million, which was up 3% versus prior year.
CMS revenue declined, 8%, including 4% organic TMT divestiture impact of negative, 11% and flat FX.
Recurring organic was 1% and included 5% recurring organic in our product design business.
Non recurring organic growth was $4 million or 20% due primarily to uplift from the boiler pressure vessel code.
Turning now to profits and margins.
Adjusted EBITDA was $453 million up 9%.
Our adjusted EBITDA margin was 40 dot, 4% up 130 basis points on reported basis, and up 120 basis points normalized for FX.
Regarding segment profitability.
Financial services, adjusted EBITDA was $198 million with margin of 46 dot, 1% up 220 basis points.
Transportation's adjusted EBITDA was $136 million with margin of 41 dot, 8% up 250 basis points.
Resources, adjusted EBITDA was $100 million with margin of 42 dot, 2% down 220 basis points.
CMS adjusted EBITDA was $31 million.
With margin of 24 about 5% down 100 basis points.
GAAP net income was $202 million or 50 cents per share.
Our adjusted EPS from 65 cents per diluted share and 8% or 14% improvement over prior year.
Our full year adjusted tax rate was 19%.
Q4 free cash flow was $148 million.
Our full year free cash flow was $973 million and represented a conversion rate of 55%.
The full year free cash flow was impacted by five percentage points due to the onetime tax payment discussed in our Q3 call.
Free cash flow was also negatively impacted by two percentage points from tax payment on the sale of our TMT assets.
And a further one percentage point from capital spend associated with consolidation of our Denver campus.
The Denver capital spend was offset by proceeds from the cell of one of our Denver buildings, which was reported in the investing section of our cash flow statement as proceeds from cell of assets and therefore did not flow through to our free cash flow calculation.
Turning to the balance sheet.
Our year end debt balance was five doubt $1 billion to $6 billion, which represented a gross leverage ratio of approximately 2.9 times on a bank covenant bases.
And we closed the quarter with $112 million of cash.
In the quarter, we also amended and extended our revolving credit facility through November 2024, and reduce the size from $2 billion to $1.25 billion.
At year end, our Undrawn revolver balance was approximately a $1 billion.
Our Q4 fully diluted weighted average share count was 494 million shares and our full year fully diluted weighted average share count was 409 dot 2 million shares.
Our full year share repurchases were approximately $576 million or 9 million shares an average price of $64.16.
We launched a $500 million MSR on December Onest 2019.
Yes, our will be completed during Q1.
We also have a regularly scheduled board meeting on January 17.
And at that time will recommend the board approved for Q1 dividend.
In terms of capital allocation with the 500 million dollar MSR and our plan dividend, we have already committed in year capital returned to shareholders of approximately 50% of our annual capital capacity.
We plan to increase 2020 capital return to the high end of our capital return target of 75% through additional share buybacks.
In terms of M&A, we closed the sale of our SMB business for $470 million on December 2nd.
We expect net proceeds from the transaction of approximately $440 million.
Also in the early December we paid $76 million to acquire an additional 14% of VMM business, we now own 92% of Hmm.
We will acquire the remaining 8% of Hmm No later than December 2022, based on an earnout mechanic tied to adjusted EBITDA performance.
Moving to full year financial results.
Total full year revenue was four dot for one $5 billion, which represented growth of 10%, including 6% organic 5% acquisitive and negative 1% FX.
Actual services organic revenue growth was 6% with all in revenue growth of 20%.
Transportation organic revenue growth was 8% with recurring organic growth of 10%.
Ill and revenue growth was 7%.
Resources organic revenue growth was 5% with all in revenue growth of 7%.
CMS organic revenue growth was 1% with all in revenue decline of 4%.
Turning now to reported profits adjusted EBITDA was one dot $779 billion up 14% versus prior year.
Adjusted EBITDA margin was 40 dot, 3% with reported margin expansion of 130 basis points.
And normalized margin expansion of 100 basis points, excluding FX impact.
GAAP net income was $499 million with GAAP EPS of $1.23.
And adjusted EPS was $2.63, a 34 cents or 15% increase versus prior year.
In terms of guidance, we are reaffirming our 2020 guidance, which we provided on our on our November Eightth guidance call. This guidance provides for revenue of four dot five to pour about five $9 billion with organic revenue growth of 5% to 6% including recurring.
Inorganic growth of 6% to 7%.
Adjusted EBITDA of $1.86 to one dot e. $9 billion with adjusted EBITDA margin expansion of 100 basis points.
And adjusted EPS of $2.82 to $2 in 88 cents.
In terms of the cadence of quarterly profitability, we expect the progression to be in line with 2019 profit progression.
Finally, we expect cash conversion in the low sixtys or approximately one dot $105 billion free cash flow, taking account of termination of our us and UK pension plans.
And with that I will turn the call back over to land.
Thanks, Todd we delivered another year of consistent financial results in 2019 and have strong momentum entering 2020.
Want to thank our colleagues around the world for their hard work and delivering for our customers and shareholders.
And before we turn the call over for Q and eight I want to personally thank Todd for his partnership as this will be his last earnings call as we complete the CFO transition on fed one as previously announced.
And I have to say personally I couldn't have asked for a better partner and.
The last three years results come through partnership not just caught night together, but the whole firm, but the relationship.
That we've struck up has been first class. So thank you and Q Lance will open for questions.
As a reminder to ask a question you will need to press star one of your telephone withdraw your question press the pound.
We ask that you please limit yourself to one question. Please symbolic compiled the kewaunee roster.
Okay.
Our first question comes from Gary Bisbee with banks.
Open.
Hey, good morning, Yes, Todd I'll I'll add my congratulations to you spend.
It's been a fund rod.
The questions around margins the the a quarter ago. There was some discussion of maybe pulling forward some investment into Q4, but but the margin performance was was excellent. So I just wanted to understand.
What the cadence of investment looks like and then Todd if you could give us any color. Just there was a lot of moves at the segment level anything standout in terms of explaining some of the positive and negative moves there. Thank you.
You want it well I can I get started I'd just say on the margin we do focused on returning 100 basis points of margin to our.
Shareholders, it's part of our long term guidance in something that we feel confident in delivering for the next three to five years and therefore, it's part of our long term guidance. What we do look to do is throttle our investments internally.
Against that delivery.
And so if I look across the whole year I think.
We delivered 100 basis points FX adjusted margin, we expect to do the same next year and.
Incrementally, we look to invest in our organic growth pipeline over and above that you want to add today, yes, what I would say as a segment level, Gary I actually put to get together schedule and just look at.
The year over year revenue growth in the year over year margin flow through and when you do that would you really see as.
It was a really consistently strong year for financial services and I agree on certainly benefited I pre IPO performed very well, but but in general financial services with strong throughout the year.
Transport, probably little bit of Bumpiness, we talked about recall lower margin recall, which saw a really strong margin in Q4 really strong recurring so that follows through.
Resources had a pretty good year.
Q4, not as strong, but I think a little bit a timing in there and then CMS.
A bit of a challenged year.
With some of the headwinds we've talked about but when I look at CMS I'm actually encouraged by what has been good performance in product design over the last couple of quarters, but I think that provide some color on what we've seen within the segments for at a margin level. Thanks, Todd next question.
Our next question comes from enough.
Please your line is open yes. Thank you. Good morning, I was hoping you could just walk us through some of the moving pieces in resources I was just wondering why nonrecurring was down seven and then it in on the recurring side I think you had call from mid single digits, but came in at three so just wondering in the context.
You expecting next year would at what are those moving pieces.
Right, Okay, No I think.
Resources has shaped up nicely into that 4% to 6%.
Long term our guidance that we've laid out and this year, we delivered right into the midpoint to that and I think we'll do similar as I look forward into next year, but it really is a tale of three part.
You've got a.
An upstream business that has two of those parts about a third of the division each.
The one focused on data was led internationally with offset domestically in North America.
Therefore, having a slight negative growth on us subs when you get into the analytics in software and events like Sarah week, you've got high single digit growth on the other third of upstream and then finally, our mid and downstream chemicals renewal and renewables open.
Yes, Agri business.
Paul.
Play a power and energy transition.
With high single digits as well so net net I think resources stands strongly in that 4% to 6%.
Guidance, albeit the mix.
Is slightly.
Very slightly quarter to quarter.
But.
Field feel good about next year, one thing about the data assets of.
Our upstream business. It really is our store front that leads us into all other activities.
So if you look at Sarah we growing.
20% plastic grows at 20% plus because we've got.
Deep relationships around the world with respect to our solid data assets in the research around them. It would be the same with our analytics and software where that data feeds to same with our consulting and really a really strong nonrecurring revenue pipeline building.
Up into 2020, and that's primarily coming because of just the challenge is that the energy market are seeing and the need for you know experts like ourselves to help our customers navigate those.
Those forward marketplaces, so thats.
Todd you want to add to that one the other thing I'd add on the nonrecurring specific in the quarter I mean, I think nonrecurring in quarter as always.
There's always some timing there.
Nonrecurring for the year was 8% and it was really good story and resources.
Good software performance consulting were while we're not investing.
Significantly and consulting of performs well.
Another record breaking Sera week and.
Lance called out in his script that we do expect to see.
Good nonrecurring insight analytics next year and I think when we look at the at the backlog going into the year, we feel okay about where we're app.
Good good. Thank you next question.
Our next question comes from Bill Warmington with Wells Fargo. Your line is open.
Good morning, everyone and too Todd Congratulations on a great Ron and happy Trail. So.
A question for you on the data Lake.
You mentioned that the data Lake is fall.
You also mentioned some of products and passing in prepared remarks.
And.
I wanted to know if you could review for us.
How the data Lake is being commercialized today and your thoughts on how you plan to commercialize it further in the future.
Okay. So yes clubs actually with me, so I'll, let him add too.
Part of what I I'm going to say now so so first off 2019 is about making sure and it was a board commitment to get.
All of our data sets across our verticals into the data lake and that with the successful outing and we also had said that we begin the commercialization by building new products in 2019 to the data Lake and I think we talked about those throughout.
The year in various quarterly calls so great success. So we have discoverability of our data across the entire from for the first time in a single location. That's not just valuable externally, but also to our people internally who want to gain access to the data for product development.
As we move into 2020, we don't want the marketplace to just discover our datasets, we want them to be able to discover.
Our two or 3000, our 3000 subject matter experts globally that are experts on.
Various parts of our.
Our data assets, we'd like.
Our research to be discoverable, and therefore, we'd like to be able to create new commercial packets of information that are more readily available to our our customers both domestically and abroad and when we see that as.
Incremental growth.
For our.
For our key datasets going forward.
Finally, I'd say that.
This year.
Is about building that commercial model. So yacht club has passed the commercial aspects of the day those data lake over to Sally more who's taken responsibility and she recently hired.
A executive to come into to lead.
That.
Product offering reported to her and he's already started yep up do you want to add anything too.
My comments there in terms of excitement around the data lake the the types of things you're working on that are exciting you for 2020.
So.
Oh. Thank good on so just few points about 90%, 90% of all lock curated data is discoverable ease in data Lake and available to everybody does it extend the abuse today, although to date, we'll open the data lake for internal use only up too much 2020 .
Although during the data the bill the various data science projects powered by the data Lake today. The beer you have the businesses I engaging with data lake because of the way, it's constructed and people have been trade worldwide, how the engagement that technology and what opportunities that opens.
The next thing that they want to dimension the platform for March. This year is good we opened in a multi tenant way, which allows us the opportunity to coalesce, our client or partner data together with our data with the same level of discoverability ease of access and the team in say may be subject to secure.
Do you constraints et cetera.
In my view this opens a new possibly do we engage all clients and the way we engage apartments.
In terms of other key issues of 2020 .
Upto disciplined and time, we mostly focused on structured.
Semi structured data it is our objective before the end of 2020 , just all our research content and to make it a discoverable in similar way, we discover unstructured is structured data as well as through feature engineering and seamless processes clinic, our research content both structured data.
It does move would you would just generally called enterprise knowledge graph I will I will still did announce any question does anyone know thats. Good. Thanks, Jack up so theres theres a lot going on it is a exciting.
You know strategic initiative over the last few years for our from post merger, but the investments that we've made in the technology stack.
We will begin to pay off commercially but also pay off from a we expect in our in our quest for 100 basis points of margin a year, we hope that we start to see some of that margin coming from data ingestion and lower in the cost of handling the data into the from as well and.
We hope that Didnt 20, some of that 100 basis points will come from.
Fission sees there.
Next question.
Our next question comes from Jeff Miller with Baird. Your line is open.
Yes. Thank you good morning on Carfax for life. How are you measuring success at this point is it about service provider sign ups or consumer engagement with the my carfax up and whatever the Kipp you guys are how are they trending and then where are you in terms of monetizing the carfax for life initiative is it a needle mover on.
Particularly strong transportation or current growth you delivered this quarter. Thank you.
Thanks, Jonathan you want to grab that share olive garden dive and Thats. The question. So in terms the metrics can we launched the program early in 2019, it's been a.
A lot of historical book on before that and the my Carfax App and building the consumer uptake of it we launched has.
Normally in 29 team so the metrics this and 29 team really around customer penetration, we sell it as an add on primarily to our vehicle.
Our core PHR dealer customers. So the metrics have been Rob around rooftop penetration, we feel very very good about the progress being made theres really hit hit all of them out internal milestones, we had around that in terms of a needle mover.
Not a huge revenue impact in 2019, we certainly had that I think you'll see some impact in 2020, because one of those long term growth engines that we see from carfax, we've seen really the last six seven years, starting with the core PHR then build into used car listings. We took this high impact from USIO in 2019 carfax.
For life I expect to be a growth cyber begin to have impact really in 2021 and beyond.
Thanks, Jonathan next question.
Our next question comes from Kevin Mcveigh with Credit Suisse. Your line is open.
Great. Thanks, Congrats to Todd and Jonathan as well he talked real quick just.
You've done kind of automotive mastermind you've done in form of the in former swap I Pru deal selling D is there any way to think about as you positioning the portfolio what it can do the longer term growth given.
Clearly transitioning the model into higher growth and markets, what that can mean for the organic growth longer term.
Well you addressed it to me so I'll start and sort of Lance will jump in I think the key on acquisitions is we want to acquire companies.
At our complimentary to and support our existing.
Asset positions and so we can support those assets to be more successful the acquired assets, but we can also use the assets that we acquired to support our underlying core businesses and I think thats, what you see with IPO you see.
Synergistic value with IPO, bringing additional pricing data to our municipal bond offerings to our loan business you see our fs account managers being very effective on cross selling creo.
Into a lot of the.
Alternative space and so to me it really is about building on our core underlying market positions and competitive advantage and acquiring assets that are very complimentary to and support that hmm. Similarly filled the gap in our automotive.
Portfolio, where we really didnt have a presence in the new car dealer space and now we look at am and we say, okay. We are using information in our.
Core.
Opn space to support a.
Likewise, we can you say and product to start to build in enterprise Master mine life products. So yes to me Thats, what Weve done successfully I think that's what we'll continue to do.
No I make Todd just add.
You know a little bit.
To that as well if I look at.
Our threescale verticals.
Where are you look at transportation.
You look at.
Resources you look at.
Financial markets and as you look at each of those verticals each of them plays a big role and cleaning processing in providing data to our customers to use and decision, making and Theres a lot.
Synergies around the management of data and the relationship to the data Lake. So we want to assets that are in full heavy and.
Can leverage our technology, our data lake our delivery and our ingestion and we think we've got ample commercial as well as efficiency gains could be had from continuing down that path. The second thing. We want to do is we want to be the company that has experts applied to.
Our data so the 3000 experts we have are not able to just rate research on a subscription basis, they're able to engage with our customers around helping them decision make with respect to the key issues within that surround them as our as our customers in the environments. They operate in.
And then finally.
With the organization of the data into the data Lake we have a growth engine across those three scale verticals KOL data science, which was really the application of math and technology to our data sets and we want to get those efficiencies and those synergies so.
Albeit you look at us as an information company offering products in transportation.
Energy and financial markets when you get inside the company. We think of ourselves is managing information, providing research insights consulting and now data science to help our customers, which happened to be an energy.
Transportation in financial markets make decisions, so by cleaning up and managing the portfolio against the information company objectives. We think that we can maintain our 5% to 7% organic revenue growth. We've got room for the 100 basis points of margin.
Expansion and we manage our expense growth the 4%, we will be able to deliver you.
Double digit earnings growth as well so our long term guidance very much intact and we've got opportunities to performed at the high end of that guidance, but will be just dissatisfied operating at the the 5%.
As well because it allows us to can contribute and.
And continue to respect our our guidance that were given to shareholders.
Next question.
Our next question comes from Andrew Steinerman with Jpmorgan. Your line is open.
Hi, could you share what they I pre IPO organic revenue growth rate is assumed within the 2020 guide.
We don't do that.
I think when we acquired it we talked about double digits and it's been performing at double digit yep.
Our next question.
Our next question comes from Andrew Jeffrey with Suntrust. Your line is open.
Hi, Good morning, guys. Thanks for taking the question.
Land site I had hoped you could elaborate a little bit on a comment you made in auto in particular on the new side of the business.
I think you mentioned that.
We feel like you're well positioned to help manufacturers so to manage through more challenging Saar environment.
Just kind of.
Flush that out a little bit I would think that might present challenges rather than opportunity. So those are notable comment.
Okay, well I think the.
You know the transition by auto makers to ease the research and development into ABTS the overall.
You know componentry and management of.
The connected car. These are all quite complex and so what we're finding and the demanding regulatory environment around emissions. Those are things that are all playing favourably into somebody like ourselves benchmarking cleaning processing data for decision, making and those are subscription based.
Longer term contracts. So they really don't have the ups and downs of.
The actual 5% decline in the auto market really.
You can see year over year, it's not impacting us and if anything our recurring growth in the quarter, but as you know.
I was at 12%.
So.
A substantive.
Very strong the second thing I would say is that.
In tough markets, our customers are become two fold in terms of.
There are challenges one they've got big incentives there imply applying to the marketplace to sell cars and those incentives require audience building and were where the world leaders in terms of.
Car registration and our ability to help our customers build an audience for Directv social media.
Print based advertising and so that's one piece and incentives is tens of billions and it's.
Plays very well with masterminds in terms of a product, we're calling enterprise mastermind and we hired a very seasoned executive to lead that up for us in its marrying mastermind.
Carfax and our registration data to help the incentive spend the second bit that's really important is the advertising spend and that gets write down into the dealer footprint and the dealers also need help with.
The building of the audiences around their marketplaces and.
We have a great role to play there as well.
So so in general I guess, what I'm, saying to you is I don't wake up in the morning, and look at the 5% declines in the auto market and have a concern that our transportation segments going to be down if anything in both resources and automotive today I'd.
Get the decision, making complexities of our customers and I feel we have a growing role to help them navigate that and the cost to them buying a service from us versus trying to do these things on their own is a substantive savings to them, so I feel well insulated.
Around helping our customers decision maker in complex challenged market when we're at data insight analytics company.
Next question.
Our next question comes from him.
With Jefferies. Your line is open.
Good morning, Best of luck charge as well my question is just around retention rates overall in the portfolio I think back in 2007 deemed maybe we're in the low ninetys any opportunity on on retention rates as you look across your portfolio. Thank you.
Well, obviously, that's the best we'd say that's the best revenue get is retaining the customer and but we still operate in that 90% to 93%.
Retention rate across the firm and it seems pretty consistent.
But I can tell you that every one of our business.
Leads looks to try to improve on that and.
So of course.
That's always a full time effort by the teams to try to move their retention up slightly but it has been consistently in that low ninetys and I don't see that changing.
Next question.
Our next question comes from Alex Kramm.
Yes. Your line is open.
Hey, good morning, everyone.
Just wanted to come back to the resources Lance and I guess talk to you guys sound very comfortable with the guidance range here.
When I look at.
Some of the yet this quarter I mean, the non subscription growth, obviously was negative and I appreciate its lumpy, but historically, it's been a leading indicator and then more importantly, HCV I think Todd if I heard you are right plus 2 million quarter over quarter, plus 24 million year over year, that's that's pretty soft I think the lowest since 2017 so.
That doesn't suggest you know that's just the or you actually adding subscription at lower rates. So just is there a timing issue or or why you see HCV, so low relative to our guidance.
I think ACB has been.
It's been pretty consistent for the last three years, so that ACB number has been in the 3% to 4% range consistently over that period of time.
We didnt you step out bid.
On a bit in Q4, but it's certainly.
When we look at our plan and we look at.
You know our expectation that the nonrecurring will overperform again, we certainly see.
A clear path to deliver within the guided range, but certainly.
Something we're very focused on is elevating maddie CB, but I don't think we.
Really indicate what Weve consistently said is very stable and we feel comfortable.
With sort of the stability of the business and really big questions. When do we see this upward acceleration and.
But right now I think we have a performance that supports within the guidance range for 2020.
Yes, good maybe I can add a little bit to how I look at it because I really since merger I've never been that bust about.
The.
Energy price relative to what our performance can be in NR and.
If I look at it now I look at.
Our performance in both.
Both downstream, which weve diversified with acquisitions of Opus agribusiness chemicals that pricing a news business. So three small you know two small one larger acquisition.
There we were world leaders in chemicals.
We are the go to around plastics and sustainability.
We are.
We're now.
No.
Leading leading.
Player in the discussion around energy transition with topics such as hydrogen battery storage solar technology.
You know.
Really having a real understanding of.
The market place an extension into.
Yes, G which will be.
Worked on between financial markets and energy, we understand the climate story, and we understand the impact that thats, having to our customers and were required there to support them.
Shortage of food with our agro business, we've got a great position there our environmental registry last year, all the albeit small grew north of 40% so the whole.
Topic of voluntary carbon credit.
I look at it and I go you know if if data is our storefront.
And last year, North American data demands were down and international up that was interesting that was a small offset but you're talking around a third of the revenue at the division. If you go the year before international was flat or at the time, a merger and North America was growing.
But if you really look at what are the customers in those areas need the people that are lending money to the assets buying the assets selling the assets consolidating the assets they need I understand the downstream markets.
We need to understand.
Gaining efficiencies in their current operations and production they need understand costs and benchmarking our Rushmore service actually grew last year for the first time to the benchmark in service. So when I look at it I kind of wake up night go if the actual.
Data market was down.
Was flat even down 5% is that really an impact to our growth story at 4% to 6% and the answer is no because you've got two thirds of the revenue that can grow at mid to high single digit and support our lower end up 4%.
Our growth so.
Maybe when you looked at I chat five years ago, you really had to look at.
The data and subscription sales and the nonrecurring revenue around debt to actually support undervaluation now if I was building evaluation on I chest market you build it off of your 4% resources, you are 6% financial markets and your 7% transportation and you have.
Upside to six eight.
And 10.
Thats the story and you know we know how to manage costs. You know we know how to invest for organic growth. You know we're innovating you know, we're adding data science and analytics, which is you know a growth region and so I look at it might kind of go. This is you're asking whether it's in autos or resources asking about our the auto markets up or down into.
The energy prices up or down is there going to be more or less than 100 million barrels today and how that can impact our data that I guess I don't wake up and asked that question as the CEO I look at the diversified impact across.
Our decision, making and the businesses were operating and therefore I was quite comfortable to reaffirm our guidance for the fourth year running.
Next question.
Our next question comes from Jeff Silber BMO capital markets. Your line is open.
Thanks, So much just wanted to go back to the resources performance in the quarter you. Todd I think you had mentioned some timing of nonrecurring that kind of got you to this 3% organic growth.
Yet you're still confirming your guidance for 4% to 6% organic growth in 2020 is there anything we need to know about the cadence on a quarterly basis I know the comps will get easier in the fourth quarter next year, but anything else intra year that you could point out would be great. Thanks.
I don't think Theres anything I mean, you're just have to be aware Q2 s big quarter with events and.
Yes, so you'll see.
I think if you just look at the trends the relative.
One of revenue that was diverted delivered last year quarterly those probably as good as anything.
I mean, there's always going to be a little bit of bumpiness in non recurring but.
Thank you will be close enough.
Thanks, Todd Thanks next question.
Our next question comes from Shlomo Rosenbaum with Stifel. Your line is open.
Hi, Thank you for squeezing me in over here Hey interest.
Just a question is on two areas.
Just in the resources area can you give some examples of the investments that are being made and are the product specific right now or the and data Lake area. And then also if you could just comment on the growth in solutions, which seems to have kind of trended down.
Jonathan do you want to start and then I can add sure I'll kick often talk about the investments and energy natural resources, and maybe one or two I'll call out first Lance did mention energy studio, which is our platform for all of our underlying data and this is something we've been working on last last few quarters, we spend.
Launched kind of ended this year and that'll be a brand new state of the our platform leveraging that data lake that it'll be a new all the way a deliberate delivering.
Visualizing in analyzing our core energy data I think it puts us in the very very strong competitive position.
At both the to be competitors and new ways per client to leverage and line data thats kind of a core thing around or data and then we've also been launching in the world of energy, it's interesting that as a lot of singles and doubles and there are lots of new product squared launch. We have launched ended the quarter in Q4 are launched new seer around price.
Same providing new pricing benchmarks actually with our agriculture acquisition last year taken that business model applying some some business models of we've seen successful in the past around around pricing and adding market intelligence launching that throughout the year as a loss of singles throughout the year, there with the kind of add up to something impactful.
And we'll talk about solutions, yes, I would just say that one of the more exciting areas. We pulled together under a tool ARIA who was the ex head of BP strategy team.
He he's pulled together across from team across financial markets energy in automotive and its here, where all the discussions around clean tech or taken place and energy transition and I know those are big Buzz words, but if you take it down what are the types of things we're doing their take.
For example.
Hydrogen hydrogen is a future has a lot of future potential in order for the energy market participants to understand and.
Look at the markets the.
The distribution of.
New power sources into the market places the contribution to.
No the energy grid. It always starts with what you might call nonrecurring revenue so in the first year.
We may do look across industry.
Report that might add one or two or even $3 million, but out of the back of that comes to the recurring subscription services around around the the study and so we have that going on.
Within across hydrogen we formed a market group around plastics and.
And sustainability.
We have.
The commodities that see project, we're extending that.
From.
Accrued.
Coal and to iron ore and all these.
Very interesting data led initiatives, where we're applying our subject matter experts to.
Activity in the marketplace that affected our customers and our customers need help to decision make and.
Need the.
The cross.
Market expertise to come together in formal studies and.
Our teams are really really good at.
You know working with the customers to develop new products and so I would I would say that you'll see more of us.
In terms of revenue growth around energy transition clean Tech and then the extensions into climate.
Next question.
Our next question comes from George Tong with Goldman Sachs. Your line is open.
Alright. Thanks, Good morning, Todd I also want to add my thanks, and best wishes ahead within financial services, you experienced a 13% nonrecurring revenue organic decline in the quarter can you drill into the factors behind the decline if it should continue and also touched on touching IPO performance.
I wouldn't expect it to continue I mean, the numbers are relatively small so I think the percent seems big.
But the decline is $2 million theres year over year, and I think if you look sequentially. So.
Yes, you will see a few ups and downs, but I wouldnt call out anything specific or any concern.
And then the question on Creo, but can you say that again George.
The performance has been strong I mean, I feel is performed well and.
We got off to slow start in Q1, we talked about that but.
At the top line, it's performed very well throughout the year.
We have been Barry.
The effective from a synergy perspective.
And the cost, particularly around shared services and.
It was that it was very good story and I think we.
Continue to expected to be a good performer going forward and we'd expect it to deliver this double digit level that last talked about earlier.
I mean, the private capital markets in particular, very very strong very high growth, but but global markets and the corporate services are also performing very well.
Thanks, Todd next question.
Next question comes from Ashish Sabadra with Deutsche Bank. Your line is open.
Thanks for taking my question my questions on the product design, you seem pretty good Steven.
Single digit, but as you think about the strategic fit within the businesses. How do you think about it now and has more to flush new d. flipped portfolio rationalization.
Thanks.
Turning to start.
Sorry, but royalties and why you start shopping and talk about thought of that Accella.
Well first I think your observation is it going this has become a very strong stable.
Growing growing business line. It was really hit a little bit within the performance of CMS last couple of years here, but it has been delivering typically last few quarters. As we look into next year is going to be a good strong performer kind of as we expect to be and in terms of it perform it's fit in our portfolio, it's running assets I mean financially different profiles.
And the rest of our businesses given primarily the royalty bearing nature of the product. However, it does serve the customers, we serve and automotive the customers, we serve and energy a rather large.
Manufacturing businesses. So we certainly see an opportunity that too to see synergies, but took on the customer lens going forward.
Anything you want to add.
Okay. That's good. Thank you next question.
Our next question comes from Seth Weber with RBC capital markets. Your line is open.
Hey, good morning, guys. Thanks for keeping the call going.
Lance in your prepared remarks, I think I heard you say something about the China JV update Im just wondering if there's anything.
Any color there and what should we expect you to accelerate your business in China should we expect to see more more deals they are more jvs or how you're thinking about that market. Thanks.
Okay, well weve across the firm now we have several.
No.
Jvs and partnerships within China across our.
Our our three verticals.
It's definitely on a percentage term growing faster than Europe , or or North America, but absolute terms of course.
We still that strong.
Absolute performance out of our more developed markets.
We did that particular JV bodes well for financial services in particular.
The IPO businesses, where we formed a full JV to leverage our book building Syndicate book building expertise into the Chinese.
Debt markets, which.
Or amongst the largest in the world. So we do see some.
Good growth that will support.
The continued 68% organic growth targets, we have for financial.
Services.
Next question.
Our next question comes from Joseph Foresi with Cantor Fitzgerald Your line is.
Hi, This is Steve Chen coming on for Joe Thanks for taking my question.
We will just wondering on do you see any swing factors for growth from any of the verticals and maybe also how economically sensitive do you think the businesses now compared to prior years. Thank you.
Yes, I see in each of our divisions I think we've got.
We have strong.
Opportunities for growth that our undeveloped are not developed fully yet so I have talked already about energy and natural resources. There it's about energy transition it's about.
Climate, it's about.
Data science analytics, when you get into transportation I talked a bit of but that connected car carfax for life enterprise mastermind data science and analytics around emissions and regulatory compliance and we're well positioned there and then.
Finally, I'd say in financial services I still see the biggest growth for us coming long term in providing.
You know middle and back office pricing valuations reporting solutions.
Into the alternative space, which is a rapidly growing part of the financial markets and one where.
You know.
The call for increased transparency is starting to come from not just the market participants.
The the.
Lps that are buying the product from the GPS but also from.
Some of the associations and bodies around the marketplace and so I see a great role for US there and then finally I'd say asset managers.
Our struggling with the cost total cost of ownership of their infrastructure so like banks.
You know in post 2008.
The cost of.
Systems in compliance and build versus buy has shifted.
To a favorable place for companies like ourselves and we see a growth around.
Data management solutions risk.
Corporate actions.
The.
The order management the tools that we provide to support.
The asset managers in terms of their tech footprint. So I think we're very well positioned.
On CMS product design, one of the growth areas there is.
Leveraging our natural language processing and data lake capabilities around the.
Search and dissemination.
Of specs and standards also providing efficiencies for our customers. So in all of our divisions, we have new growth.
To focus on and.
Our teams are our spending a lot of times strategically on figured out how to develop product into those.
Into those.
New areas leveraging both our tech footprint our customer footprint.
Our our current products globally next question.
Our next question comes from Andrew Nicholas William Blair. Your line is open.
Hi, good morning, Thanks for taking my question.
I was hoping you could speech the major growth initiatives at IPO in 2020 in the past I think you've talked about doing some additional work around valuation, but I'm wondering if there's any other areas of focus this year in terms of investment and then related Lee if theres any commentary you could provide about how you think about end markets cyclicality.
When investing in.
New products with respect to guide Creo specific it thank you.
Right well the cyclicality there is obviously around the market place in terms of security issuance. So of course in municipal thats up pretty pretty steady.
We actually when we budget equity and debt market, we take a long term look at.
What has been the average amount of issuance in terms of number of deals and we model that we take into account because some pretty low cycle years up but the real growth for us is coming around again the reporting.
Tools into the private markets as I said in the call. We added 100, new customers globally in private markets alone.
This this year and we see that as an expensive.
Growth area for us providing tools to help GPS.
Report to Lps and Lps to organize themselves in terms of compliance subs and understanding of the attributes of their investments. So I think we're really well position. There. We're now building we put all of those products under Andrew Ryzen.
And he's looking to gain the synergies between data management.
I level, which is the reporting tool I just talked about Ws, So which is our you know are.
Our products for the.
Leveraged.
Loan market in terms of middle and back office reporting.
And other tools, so bringing those together.
Really is a.
No.
Powerful opportunity with great growth and I think the alternatives piece of that that was in the IPO acquisition is one of two major alternative.
Data management plays in the marketplace, but.
He front, which recently sold the Blackrock and I level, which is our product is probably the two most important alternative markets.
Platforms in terms of building off of for future revenue.
Next question.
Our next question comes from Joseph.
With Canaccord your line is open.
Hi, guys. Just a question on the margin side I was wondering if you could just remind us where we are now and.
Delivery mix in terms of.
Resource delivery kind of maybe from lower cost geographies, where that could go and then secondly, just related to that.
Margin potential on incremental investments spend on new.
New products today.
What may be the margin potential on kind of some of the existing business. Thanks.
Okay, well, we have about 25% of our.
You know staff in.
Our our lowest cost.
Total cost location in terms of overall costs health benefits.
Cost of living.
We have another probably 25% in.
On a near shore.
Ben advantageous cost centers, whether its Raleigh, Manchester Calgary.
Places like that.
And then we of course have still a large number of our teams in London in New York in Houston, and Dallas and of course those are.
Got more expensive so we do see.
That.
Over the course of a 235 year period, there is ample opportunity for us to manage our growth and attrition to allow us to.
Have efficiencies on our.
Salaries and benefits and those fixed costs. The second piece that we think that.
We have benefits on is one that you you alluded to which our tech efficiencies gained through.
Using technology to be more efficient machine learning.
Other tools around data ingestion that actually can become less people intensive and.
Yes of.
Spending a fair amount of time.
The technologists on identifying those opportunities so I think the 100 basis points.
Well, we get to 40, 547% margin.
Which is.
You know a five year target.
I think we.
We've got ample.
Opportunities to deliver that margin expansion and it would also at our 5% to 7% growth right leads the appropriate amount.
Of investment to support our organic growth so I think were.
We're in a well oiled.
Part of our strategy and one that I think that we'll be able to consistently deliver on for the next few few years.
Next question.
I'm currently showing no further questions at this time I turn the call back over to Eric for closing remarks.
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