Q2 2020 IHS Markit Ltd Earnings Call
Ladies and gentlemen, thank you for Ciena buying and welcome to the I Aegis second quarter 2020 earnings conference call. At this time, all the kitchen am I going to listen only mode. After the speakers presentation. There will be a question answer session. That's a question on session will need a press star one of your telephone please be advised to today's conference.
Being recorded if your corny furnishes, let's please press star there Oh, no I'd hand, the call for them to speak your day, Eric Boyer Senior Vice President of Investor Relations. Thank you. Please go ahead Sir.
Good morning, and thank you for joining us for Digest market Q2, 2020 earnings Conference call earlier. This morning, we issued our Q2 earnings press release and posted supplemental materials to digest market Investor Relations website, our discussion on quarter based on non-GAAP measures are adjusted numbers, which exclude stock based compensation amortization of acquired intangibles and other items I just market believes non-GAAP results are you.
Full in order to enhance understanding of our ongoing operating performance, but there are supplement to and should not be considered an isolation from where as a substitute for GAAP financial information. As a reminder, just comes called to being recorded webcast and it's a copyrighted property of it I just market any rebroadcast of this information horan part without prior written consent nobody just mark is prohibited that's comscore, especially discussion.
Our outlook may contain statements about expected future events that are forward looking and subject to risks or uncertainties factors that could cause actual results to differ materially from expectations can be found and I just market filings with the FCC and a nights as market website before we get started I want to direct your attention towards supplemental slides person or IR website, which will be referencing tonight. After our prepared remarks plant will check.
I've been CEO, John I think your E beam Chief financial Officer will be available to take your questions with that as my pleasure turn call over the landscape Atlanta.
Okay. Thank you Eric and thank you everybody for joining us for the I just market Q2 earnings call.
In light of a recent events in the U.S. specifically the murder of George Floyd I want to say that I chess market stands and solidarity with our black colleagues and with all those who face discrimination in our communities around the world.
I've learned a lot in the last few weeks and have much more to learn.
And I just market, we are committed to inclusivity and a quality.
Well not tolerate any racial prejudice in our workplace and we'll take aggressive actions in the coming weeks and months to improve diversity inclusion in our firm and in the communities around us. These actions will not be temporary reactions to current events, but long term commitments to change.
As expected Q2 was a challenging quarter due to the coal good pandemic.
However, I'm extremely pleased with the way the organization responded and our position to deliver results within the scenario ranges, we provided on our Q1 call.
This includes recurring organic revenue growth strong margin expansion and double digit earnings growth on a normalized basis.
Through our strong cost management, we've also protected profit against further revenue downside and funded investments for our growth initiatives.
A great result in a challenging period and I personally want a thing.
My team globally for their hard work and dedication in this new adjusted work model.
For today's financial discussion when we speak to the normalized results. We are excluding the impact of the aerospace and defense divestiture as well as the events cancellation on growth rates for revenue EBITDA and EPS.
So let's start with the financial highlights in the quarter.
Revenue.
1.08 billion down 3% on a normalized organic basis.
Adjusted EBITDA for.
454 million and margin of 44.2%, which is up 320 basis points year over year due to strong cost management.
And adjusted EPS of 69 cents up 11% over the prior year again on a normalized basis.
On our Q1 call, we provided 2020 guidance based upon macro and market recovery assumptions.
And we suggested three potential scenarios.
Q3, Q4, and a 2021 recovery.
I can say since our call in Q1 in March we now have clarity on how our markets and customers are reacting given us a lot of confidence in our revenue assumptions.
Additionally, our cost actions executed early in the year.
Have given us strong line of sight into adjusted EBITDA and adjusted EPS for the year.
As such we're now comfortable providing a tight guidance range for 2020 revenue.
Adjusted EBITDA and adjusted EPS.
Now let me provide some segment commentary for our Q2 and rest of the your assumptions.
Financial services provided strong resilience for the firm.
With Q2 organic growth of 3%.
This was achieved with very strong results from information and processing somewhat offset by temporary slower growth in solutions.
Information key areas of strength included pricing in valuation services indices and equities information.
Within processing derivatives business benefited from increased market volatility, which led to higher volumes.
Solutions was pressured from a hard hard year over year comparison.
Last year in Q2 was a 15% quarter and some services of course being delayed through the cobot period in terms of implementation.
Going forward, we expect mid single digit organic revenue growth for the year with continued strength in information improving growth in solutions.
As customers are resuming their normal operations and processing to normalize.
To pre cobot volume levels.
Transportation in Q2 reported a normalized organic revenue decline of 16% revenue from the used car portion of our auto business was impacted by our voluntary price relief for dealer customers a pause in new sales activity and some cancellations are new car business was.
Acted around new sales activity and a pause in non recurring services around recall in marketing.
Our maritime and trade business performed as expected.
Our revenue guidance for transportation is now for a decline of low to mid single digits for the year.
We expect our used car business to benefit as consumer demand continues to improve and our new car business to be somewhat negatively impacted as customers remain in conservation mode until late second half.
Within maritime and trade, we assume a gradual improvement over the second half with the shipping industry.
As global trade begins to improve.
Now moving to resources, which reported a normalized organic revenue decline of 1%.
Our downstream organic growth was offset by challenged upstream environment.
The industry remains on pace for global Capex reductions in the 30% range for the year in line.
With our previous expectations as such we expect normalized organic revenue growth for the year to be negative low single digits.
CMS organic revenue growth was low single digits as expected with strength in product design somewhat offset by weakness in our TMT business.
For the year, we continue to expect organic growth in the low single digits, excluding the impact of the boiler pressure vessel code.
Moving to our cost actions have to say I'm very pleased with the speed and level of cost reductions that were achieved focusing on both near term necessities and long term optimization, we exceeded our initial objectives.
Overall, we're well positioned to deliver solid earnings growth this year.
And to returned to strong organic revenue growth in 2021.
Sure I'll detail after Jonathan goes over our Q2 results.
Jonathan.
Great. Thanks Lance.
Q2 results included the following.
Revenue of one Dot Oh, 3 billion organic decline of 7% and total revenue decline of 10% normalized organic decline was 3%.
Net income of $71 million and a GAAP EPS of 18 cents.
Adjusted EBITDA of 454 million, which is an increase of 9% on a normalized basis with margins of $44 2%.
This represents a margin expansion of 320 basis points.
And finally, adjusted EPS of 69 cents, an increase of 11% on a normalized basis.
Regarding revenue our Q2 normalized organic decline of 3% included a recurring organic growth of 1%.
And nonrecurring organic decline of 26%.
This decline and nonrecurring was primarily driven by a tough year on year comp in financial services, lower OEM auto activities and lower energy consulting.
Now moving on to segment performance, our financial services segment drove organic growth of 3%, including 6% occurring in the quarter.
Information processing had a strong performances, delivering 7% and 8% organic growth respectively. While solutions had a 3% organic decline due to a difficult comp to prior year quarter, and lower software and consulting delivery driven by cobot delays.
Our transportation segment delivered normalized organic decline of 16% in the quarter. This included a decline of 10% occurring and it declined to 31% and nonrecurring primarily driven by delayed and digital marketing recalls and the retail portion of our used car business.
Our resources segment had 1% organic decline normalized for events, which is comprised of 1% recurring growth and 15% nonrecurring decline.
You talked Q2 organic ACB decreased by 20 million in the quarter and our trailing 12 month organic ACB is negative zero das 7%.
Our CMS segment delivered 2% total growth, including 2% recurring and flat nonrecurring.
Turning now to profits and margins our adjusted EBITDA was 454 million down 11 million versus prior year.
Adjusted EBITDA grew 9%.
On a normalized basis, our adjusted EBITDA margin was 44, dart, 2%, which is up 320 basis points.
Moving to segment profitability financial services, adjusted EBITDA was 231 million with a margin of $52, 2% up 470 basis points.
Financial services margin was driven by strong revenue flow through benefiting from prior year cost reductions and a favorable product mix.
We do expect some moderation and financial services margin in the second half due to increase investments and a shift in our product mix.
Transportation is adjusted EBITDA was 102 million, where the margin of 41, dot, 8%, which it down 120 basis points driven by the dealer pricing concessions, which we have discussed.
Resources adjusted EBITDA was 96 million, where the margin of 43 dock, 9% an increase of 10 basis points.
CMS adjusted EBITDA was 35 million, where the margin of 29% up 710 basis points.
This large increase was driven by the rationalization or the TMT resources posted divestiture last year and great cost control measures across product design and SCR.
Moving onto adjusted EPS, our adjusted EPS was 69 cents per diluted share a decline of two cents or 3%.
Or 3%.
We had an increase of 11% once normalized for the 80 net divestiture and the best cancellation.
Our GAAP tax rate was 6% and our adjusted tax rate was 18%.
Our Q2 free cash flow with 209 billion as a reminder, our trailing 12 month conversion rate was impacted by several nonrecurring items and I would call out the following onetime tax payments in Q4 2019 associated with changes in the U.S. tax provisions.
The Q2 settlement of our U.S. and UK pension plans.
Q1 payroll taxes associated with the exercising of a majority of the remaining outstanding options.
And finally onetime costs associated with our cost reduction efforts.
Turning to balance sheet, our Q2, ending debt balance was five dot 4 billion.
And represented a gross leverage ratio of approximately Threed auto times on a bank covenant basis to Dot Nighttimes net of cash which is in line with the top end of our capital policy.
We continue to manage our balance sheet to provide liquidity and flexibility in that environment.
We closed the quarter with 208 million of cash and our Q2, undrawn revolver balance with approximately $750 million, representing a great liquidity position.
In Q2, we closed the very small acquisition that extends our derivatives processing capability within within APAC admittedly small investment in an AI based retail fuel pricing solution.
In June we also divested our small product tear down business within TMT.
Our Q2 weighted average diluted share count was 400 million shares we repurchased 252 million of shared in the quarter, including completing our 215 million dollar Q2, MSR at an average price of $62.20.
Year to date share repurchase is 862 million.
We expect to return to share buybacks later this year or early next year, while maintaining our capital policy of operating within the two to three times gross leverage range.
Moving on to guidance as Lance stated, we entered the second half with strong visibility to revenues and a very clear line of sight to earnings.
Based on this we are comfortable providing a tighter guidance range, which assumes no additional major lock ins.
Our full year guidance is as follows revenue of four to eight to four dot $3 billion.
This represents an organic growth rate normalized for the year between zero and 1%.
Adjusted EBITDA of $1.82 five to one dot aid three 5 billion.
This represents a margin of $42 7%.
Adjusted EPS of two Dot 76 to two dot seven eight representing 10% year on year growth.
And we expect free cash flow to run at 50% of adjusted EBITDA.
And now I'll turn the call back to lists to go through our outlook for 2021.
Okay. Thanks, Jonathan I feel very confident in our 2020 guidance as shown by the tight range is that Jonathan just provided you.
Looking forward to 2021.
I want to once again break with the traditional practice and actually give you a deep insight into our 2021 planning forecasts.
We'll look to taking these ranges as we enter 2021.
And our starting point for 2021 is that we're going to have a gradual global economic recovery.
No further major lock ins and by major lock ins complete world shutting down as we've seen in Q2, there may be small regional.
Walk ins like we've recently seen in Beijing, but there will be well managed.
And very conservative events revenue.
Okay. So topline, we expect organic revenue growth next year up 7% to 9%.
Which includes the following assumptions by segment.
So first financial services revenues.
We'll return to its longer term organic revenue growth range of 68%.
Strength will continue and information.
We'll return to our high single digit growth in solutions.
Which is well supported by strong backlog backlog and pipeline of orders and processing revenues moderate back to more normal levels.
Transportation.
We're expecting to grow in the range of 14% to 16%.
Now this sounds high but this is well supported by our usual growth up high single digits.
Plus a favorable year over year benefit due to.
2020 dealer price concessions that were made and the resumption of a more normalized OEM service level.
In resources, we expect or Ken organic revenue growth to be in a range.
Around 2% to up 2%.
And this is assuming continued downstream strength.
Which we're seeing on a growing.
Portion of our energies division offset by weakness in upstream as result of lower 2020 bookings.
Being fully reflected in our annual recurring recurring revenue.
And then finally CMS.
She has actually done a great job post merger and is now.
Expected to maintain itself in mid single digit organic growth range.
Okay, let's take a look at EBITDA here the teams done a lot of work in this kobin period, but we still expect approximately 100 basis points of margin expansion.
Next year this will put us within the mid Fortys range solidly that we set as our intermediate goal when announced in the merger.
And we remain confident.
From this range.
Margin.
In our ability to continue margin expansion going forward.
Some of this has come from the illuminated additional opportunities for margin expansion.
That we witness through the Kobin period and working from home.
And finally, we expect adjusted EPS growth in 2021 to be in the 13% to 15% range.
And that's 10% to 12% when normalized for the impact of events. So make sure you think about the events and that that impact and that puts us solidly into our 10% to 12% range, but next year will be 13% to 15%.
With the without the without you normalizing the events.
Now as in our 2020 forecast provided on our Q1 call.
We're also providing an expected floor to our 2021 floor forecasts. So how are we thinking about.
The downside to that 7% to 9% scenario.
The floor.
Accounts for a potential second lock down.
I would be similar in magnitude to the one just things experienced.
In this instance, our organic revenue growth would be approximately 5%.
So we see an adjustment and that's really about automotive locked down.
And adjusted EPS growth would be in the high single digits and that combination of revenue.
And expense marriage, and automotive around to lock down is now well understood through Q2.
In conclusion, we have made tough decisions to protect our earnings growth. During this challenging period, which I'm pleased that team has done an excellent job on and we created capacity to invest.
In substantial opportunities that will enable us to deliver within our longer term long term organic revenue range of 5% to 7%.
For the continue in years to come.
Well the world's still faces uncertainty will continue to provide unparalleled transparency into how we're managing the business to help you as shareholders navigate these challenging investment times, we're firmly positioned to deliver strong results through this uncertainty demonstrated by.
Our 2020 tight guidance range that Jonathan provided.
And the outlook for even stronger performance in 2021, operator, we're ready to open the lines for questions.
Thank you as a reminder to ask a question you the press star one where your telephone.
Withdraw your question press the pound.
Yes. Thank you please.
So for one question.
Our first question comes from Gary Bisbee with Bank of America Securities. Your line is open.
Hey, guys good morning, I guarantee.
I guess I'm not trying to sneak in a two parter here on transportation.
Yes.
Just how how are you how are you seeing the business trend in recent weeks as we're seeing the reopening.
Begin to flow through and I would expect impacted dealerships and in the second part.
A discussion in the press about auto sales moving online or a lot of the process for dealers moving online I guess any thoughts on how your portfolio is impacted or plays in that transition. If we see this continue both new and or used cars being more of the probably okay going.
Thank you.
Great Good question.
Got my management team with me on today, So Edward to burn it runs all transportation's on let Edward to take that and I'll add to it if if needed at work.
Great. Thank you loans and thanks, Gary for the questions I'll take you to thoughts are on the first spots. Obviously, we saw strong drop off in activity in late March which lasted through end of April but since late April we have seen as you suggested.
An earlier than expected recovery in both used cost saves a new cost savings.
Putting together the use cost a bucket is solid the outlook remain solid for the rest of the year doesn't it a little bit of pent up demand that supporting awesome, but we've seen a corresponding increase in the volume of activity at contacts in particular in the new car markets. Once they have been business off the spot and we.
Second in June we do expect H. due to continued to be challenged and we see total sales in the U.S. of new vehicles.
At $13.2 million.
In 2 billion units, yes, that's down 23%, so we still see a challenging environment in the new called mounted on and in particular as an inventory challenges through Q3. So two stories yet you saw that new caused them, but we have seen can you just coming back on nine.
And strong levels of activity on your second question.
You all rights that if that's been one significant shifts in the market in the last few months. It has been a move online retailing by either they have aggressively embraced online retailing and we are supporting them in a number of ways. We have some great digital marketing assets with which we support automotive dealers them.
And then on most of mine business units with its sales and marketing platform has been helping dealers who work in online drive leads to thus dogs, who were working remotely I think thats ends we are participating in this shift to online retailing as much as we can.
Excellent. Thanks had weren't next question.
Our next question comes from Manav Patnaik with Barclays. Your line is open.
Hi, Good morning, guys time on loans I just wanted to understand your.
Yes, your guidance for the floor upsides to send in 2021.
Resumption beyond that if I know that correctly means basically simulate shutdowns and what we experienced this year and so I was just curious why.
Many reasons, so much stronger than just the easier comps or how should we think about how you thought through that.
Yes, well if I look at if I look at next year at 7% to 9% and putting.
Black Swan scenario at 5%, it's at least 2% below the range, which is a you know about 90 million a revenue. So it's quite a quite substantially and that would more than offset what we've seen in this global shut.
Down here around our automotive business. So my view is that.
That's a a solid planning tool that I use with my teams in terms of budgeting and looking up on a forward basis and I felt that instead of just sharing with you the seven to nine.
And waiting for the question, what if theres another wave well to me what how I challenged our numbers is if there was a substantives quarterly or several months shutdown globally again, what would that look like.
My personal view as we plan is that there will be some second and third waves like we've just seen in Beijing, but I believe communities governments.
Hospitals, a whole bunch of therapeutics and other things are starting to emerge and the management of the waves will be more contained and the return to business and resumption to business will be faster. So I do think the 5% floor is a solid floor and one.
On that.
Provides.
Our shareholders with the peak to how we think.
In terms of a second wave.
Really our confidence is in the 7% to 9% and actually performing a you know the businesses that we run that we know how to run and returning to a more normalized approach to running are running our business. Jonathan do you want to add anything else to that.
I think another well less than any of this just mathematically might have it kind of goes back to your point is the year on year comp what kind of help us from that point, but I think the keeping his last said, we now have a clear line of sight to our own customers about how they would behave in a similar type shut down the impact Atlanta said would be primarily in automotive and we haven't view both on.
How the customers will react and also how we can react and support customers even be provide commerce, even in a semi shutdown situation.
Thanks, Jonathan next question.
Our next question comes from Bill Warmington with Wells Fargo Your line.
Good morning, everyone.
Hi, so quite a question for you on on the cost cuts and maybe you could talk little bit about the the cuts that you have been making on the permanent basis, those that you've been making on a.
Variable basis, so far you hinted at the potential for doing some additional ones going forward.
And then I'm asking this in the context, what gives you confidence that those cost reductions I'm not going to harmed revenue growth potential the business going forward.
Right, Yes, no I think that those are fair fair points and.
I think since merger I think we've been consistent in our approach to margin expansion heading to the mid forties, and we probably would have thought we'd be there and another.
Couple of years not now.
But the pandemic for us.
We had a call to action in terms of my leadership team.
Early in the year and we took the appropriate measures to protect our long term earnings growth and also to protect 2020 against the potential for and even longer period of locked down and so I think the team.
James did a good job now a big piece of the cuts in 20 came around compensation cuts.
Those will return and start to resume probably for some of the.
Not necessarily my direct reports, but potentially their direct reports I'll look at a return to normal salary levels at the appropriate time in the second half of this year.
For my my reports and myself I think the prudent thing is to see most of this year pass and look at a return and resumption into next year, depending on on the second half performance.
We have a large cash bonus pool that.
Gave us some short term.
Over a period for 20, but as we perform at those levels in 21, it'll need to come back in.
We took action on a early on some leases that were coming up and on some smaller offices, where we said we'll have a change footprint going forward. So those are more permanent cuts that required a little bit of restructuring we executed those very rapidly.
With a Swat team.
We have.
The automotive cuts actually are mainly around the marketing costs and so when the revenue declined of course, those cost came into play but as revenue grows.
They'll come back in together in parallel so no no harm done there and then I think the biggest thing that I'm really proud for my team is the cuts that they made around.
A large portion of our staff.
That was.
Being hired on a contract basis, which in a lot of times is an expensive a way to staff, but sometimes accelerates initiatives and it's easy also to manage them.
I really worked hard with my teams to put into place a replacement units. So take the contractor savings, but then immediately permission the restructuring into somewhere a better cost stuff footprints and the teams done a great job those are permanent cost changes won't come back but.
No no challenge on our initiatives, we cut a few underperforming initiatives that maybe only do when there is a pandemic, but we actually made some tough calls and so net net I.
I don't see any issues with any of our forward initiatives.
I'm pleased with the performance to support our current products.
And I feel we've got the appropriate staff levels to support our ongoing business and the appropriate investments.
I still believe though build that there's margin expansion to continue from the mid Fortys.
To the you know upwards from 44 to say 47 over the next few years as we continue to manage this much more adjustable footprint.
And we've been doing a lot of surveying a lot of studying a lot of managing with our teams and I do see substantives savings forward for.
No the redevelopment of our footprint as leases expire and we look forward into the.
The coming years, so that's where we stand so the business is strong the teams are motivated.
I think the Glints the scores we have for employee satisfaction in the firm have been the highest since our merger and.
Matt.
They are at levels that I thought only Google and.
And.
Tech companies could achieve but here. We go we've got a really satisfied workforce that's delivering great results next question.
Our next question comes from Jeff Miller with Baird. Your line is open.
Yes. Thank you so I guess follow up on transport or auto and the question is and the answer maybe in your new car SAR forecast, which it looks like you still have down pretty materially but.
It looks like you're kind of lopping high end of the guidance down for 2020.
But at the 2021 outlook looks looks good and kind of a good two year CAGR. So I guess just any more detail on what are you seeing that leading goals to kind of taking the top end off the guidance range for transport and 20, and then more importantly at this stage, what's giving you the confidence in that re acceleration.
About magnitude 21 thanks.
And where do you want to take that.
Great. Thanks for the question. So what were seeing has been in industry, which broadly speaking isn't that better condition today than it was going into 2008 2010 recession and so we'll just signals I guess and promote customers I'll talk knows the Oems and supplies.
Ill pushing basket discretionary expenditure that holding onto cash them, but they see the market recovering in 2021 and beyond that and they believe into growth of the industry. So what were seeing from our standpoint is that a lot of that discretionary spending which would result in one time revenues this year.
Pushed out into Q4 and into 2021, that's why do you see a moderate outlook for the second half the year, especially driven by the new car business. Some would we feel good about the recovery outlook in 2021.
Thanks Edward.
Nothing to add I'll go to the next question.
Our next question comes from Kevin Mcveigh with Credit Suisse. Your line is open.
Great. Thank you Hey.
Mr., Jonathan it's the way different because theres really been kind of a targeted hunger face what's emerging exchanges.
Given some of the cost savings feels like it's a little bit more structural.
It's still that 100 basis points, and you're able to reinvest more in the business just kind of accelerate growth or should we expect a structural higher level of margin expansion as a result to some of the you know the expenses.
You really leverage is results code.
Yeah, maybe I'll start and then I'll pass it to Jonathan So I have a personal view that.
That.
Since merger that shifting from a high thirtys, 40% margin and heading towards a 50% margin that was a task that was in hand for us to do and that over the next five to seven years, we executed.
And.
So here, we sit at a 44% margin looking forward into 2000 and.
And 21, and my my personal view understanding all our cost levers.
Technology and how it can.
Save us money forward.
Through use of the cloud cloud based services and.
Supporting a work from home and more flexible.
Infrastructure that can support a more flexible work footprint.
Means that we have opportunities to do two things one to change our footprint can take costs out overtime without being disruptive and two through general attrition be able to continue to build our staff into better cost locations and to be better cost locations are Raleigh versus New York.
Our Manchester versus London are.
Gore Gal verses.
My land or its a.
No.
Good dance Converse is Frankfurt, so we have and even our carfax team has built up great. You know office across the border in Windsor, Ontario, and achieved substantial cost savings in their forward planet. So when I when I look at our footprint. Kevin My view is is Intel.
I say stop it's a 100 basis points, a year and we have to be able and at 5% or better top line growth with 3% general wage inflation.
We're able to generate the appropriate amount of investments for our type of business and we will continue to do so and I think the teams.
The team and ourselves, it's our fourth year post merger I think we've got a great cadence at executing and.
We havent missed yet and I don't think will be missing going forward Jonathan.
Yes, just said a couple of points last I think you hit the major ones is the first tell US has less said the easiest way to margin expansion is through a topline organic growth and what made this year. So unusual as we managed to deliver over 200 basis points or will deliver expansion.
Despite the fact of a challenging environment and to me, it's really the actions by our teams across the world in addressing costs and the in Q2 here, particularly the the permanent cost as Lance mentioned earlier on we actually overshot the target that we had and it over shooting at it gave US obviously first comp business years number.
But equally it gave us ability to invest more right now as we're doing the second half into initiatives, which are going to drive growth and drive margin in future years. So that really has has given us more flexibility than than we normally have but I think as Lance said I think I think our focus is on as we continue to grow but would that nature of our business model.
That does drive through the margin expansion and we'll keep driving it until we think we've.
I would tell you otherwise.
Thanks, Jonathan next question.
Our next question comes from Andrew Steinerman with JP Morgan Your line is open.
Hi, Andrew Good morning, Good morning, it Andrew in terms of the second half fiscal 2020 organic revenue growth recovery. That's embedded in the fiscal 2020 guide could you just give a sense of.
How much revenue lift is already.
Underway in the current quarter, so I'm talking about a third quarter.
Jonathan you want to grab that.
Yeah, I'll go have talked with Andrew So I mean thats. The biggest as you look to the lift to the biggest changes the biggest change it obviously in transportation and the.
This is Keith had no which Edward covered there is really the recovery of the used car market and the if you recall that we had this call.
90 days ago, we talked about the uncertainty about the lock ins, what we would would lock as lift or not and also when they did lift what consumer behavior be like and I think we've answered the second part of that question the consumer behavior in the U.S. around used car purchases is actually was pentabde. So we're seeing this this research has come back.
So thats driving a lot of confidence we have particularly around the used car portion of our transportation business and add but also said I think we've built in the appropriate amount of moderation around the new cars as Ed Oh. We have is has kind of build backup bill backup inventory and then be yet as we shouldn't lose sight financial.
Services had a very very strong Q2 as they had a very strong Q1, and we continue to see the built into it and the third element within resources.
Yes weve.
Brian of the team I think I've done a incredible job of working closely with their customers, particularly in upstream I understand the risk we have in our portfolio there working directly with our clients and as a result are at a very detailed level. We have line of sight as to the revenue Buildout second half of the year or so so I think at this point Andrew is as an audit in a year.
There were arguably the most uncertainty I actually feel very very good right now in terms of our revenue and margin for the rest of year.
Good thanks.
Jonathan next question.
Our next question comes from Andrew Jeffrey with Suntrust. Your line is open.
Hi, Good morning appreciate you taking the question.
Mike My questions around.
Connectors business and I.
In particular.
Lance I Wonder if you can give us an update on your thinking of thinking around your positioning alternatives and how that's driving structural growth Fry pergo and sort of a and add on can you just comment specifically on and apparently surgeon.
Market and how much that factors into your pretty Sanquin outlook for financial services in the back half and into next year.
Yes, Okay and Adams also with me on the call. So I'll ask him to add to what I have to say so first off apps say the.
Trio.
Assets.
Have all performed very well through this period.
The one piece that hasnt had the opportunity to perform well, but it's definitely.
Having it's it's a increasing share of activities is the equities portion.
The I prioleau.
Revenues, but when you get to alternatives and private markets.
The private markets piece.
I Prioleau is growing in the 25% to 30% range.
And when I look at our valuations business that saw pinned against that is growing in the 50% plus range and so I really think that our move into alternatives. Our team have really taken a leadership role and we're one of a couple of assets out there that will continue.
Benefit.
In that growth in alternatives as well as the need for the independents around reporting and valuations and the tools that the other market places that are more well developed have established.
Adam maybe you want to talk a little bit above muni debt.
Equity issuance.
And then the Investor services business, and how they're performing and the prospects looking forward.
Sure. Thanks, Lance I think you described that well I think I think the way to think about the overall set of businesses is to think about the balance across asset classes. So strong IPO markets, obviously desirable because you have a lot of new issuers coming into the market and that gives us opportunity to provide a range of services.
But when IPO markets are slow on the current period, what we've seen is a significant uptick in fixed income municipal issuance.
Global activity in markets has actually been quite strong post the initial shock of the covert shutdowns.
Even into the early.
Periods of June late May we're starting to see the IPO market, even start to tick back up with a lot of activity in the last few weeks. So then the numbers in our view of the businesses with asset classes largely offsetting each other a resumption of normal levels of issuance in the IPO market, which helped drive some other businesses, but then you will see a.
Maybe moderation in highly active fixed income markets that we've seen over the last few weeks when you when you roll. It all together you kind of a balanced portfolio that through the year, we think things that the growth that we've seen.
Good thanks.
Thanks, Adam.
Next question.
Our next question comes from has in Missouri with Jefferies. Your line.
Good good morning.
My question is just on capital allocation.
Touched on buybacks you are good your first transaction very small software deal this year.
Has the outlook on M&A changed in terms of doing more tuck ins as as youre seeing sort of more visibility into our recovery.
Correct on or cost margin profile is up.
Any thoughts if youre ready to do more transactions.
Okay, well I think I sit in the last quarter's call that I felt.
Investments in some of our key organic growth admit initiatives looking forward.
We are anchored around two or three key things across all our businesses. So continued diversification of resources, we're very flow focused on climate and energy transition. We see it is a big Tam a growth market and one that we've been investing in and those specific asset.
It had been growing north of 10%.
In our current resources Division so were.
Very keen to continue to invest there we invested through an acquisition into agriculture, and our agribusiness. We also expect a forward high single digits to double digit growth there as we've invested in the business.
We staffed and Brian working with the team to set it on a.
Correct path going forward, so thats organic and that's a large can that we're focused on we don't see us needing to acquire further although that could be small tuck ins associated to energy transition and climate related activities. When we go into automotive here Edwards very focused.
With the carfax and them teams on automotive.
OEM mastermind, which is looking at those digital marketing dollars and the spend you look at the amount for the first time ever I think digital marketing spend has now surpassed everything else I rented and I think it was a financial times or or one of the U.S. papers yesterday, and we're very well.
Position to pull our assets together organically to drive OEM targeting of incentives and marketing dollars and again Edwards very focused on that organically.
The continue continuation.
In.
In financial markets with asset managers looking to cut costs, we've been working on I mentioned in Q2.
Asset management platform to draw together, a key market participants in the design host and build a new solutions for asset managers. That's all organic so when I look at that I go I'd go back.
And we continued to invest and we have substantive organic complementary growth to our existing business, we don't really need a lot acquisitions. So therefore, I can see capital resuming at the upper end up our range in terms of share buybacks for.
Word and keeping our leverage below three times and going to the maximum on that and.
That's something Jonathan and the team grant.
Working for him that runs treasury there on top of that they manage Ed and.
View is.
Use our use any excess capital for share buybacks.
I don't see a big acquisition slew needed to support our long term growth initiatives.
Jonathan do you want to add anything else or.
No I think you captured Atlanta, and just emphasize what you said, we remain committed to our capital policy remaining at a three times that that's very very important to us and.
And as we spent less on M&A, you had of deploying more on buybacks and kind of where the where the cash goes.
Thank you next question.
Our next question comes from Seth Weber with RBC capital markets. Your line is open.
Hi, guys. Good morning, Thanks for taking the question.
Just I think I just wanted to go back to the transport segment for a second I just wanted to make sure I'm understanding the message and can you just have the dealer price concessions continued.
Did they continue I guess into June and is that the expectation that that could still bleed into the third quarter I'm just trying to understand really you know whether transportation margins.
Can turn positive.
A year over year basis in the back half the year. Thank you.
At work mice, we'll keep going on this one.
Yes, sure. So we have already removed the vast majority about pricing concessions and we still have a few in place to support some segments of the market. These would've been say that completely by the month of August.
Did that answer the question.
Yes, thank you advertise on mute thanks.
Next question.
Our next question comes from Alex Kramm DBS. Your line is open.
Hey, good morning, everyone.
On the prepared remarks, you talked about.
Some cancellations I think it was primarily on resources I think when you get the ACB as well, but can you just talk about cancellation will broadly what you saw in the second quarter across the business I mean anything that you would describe as customers are using this time to look at their spend and seeing some things that may not be as mission critical as they thought or.
As it has it been fairly limited and any color would be great. Thanks.
I'm going to start and then let Brian add in here in a moment I would I was referring I referred to actually in the written script I referred to I think was within automotive.
Small cancellations and.
I don't think any anything.
Significant to to discuss but in the energy space and really across the firm.
Took a stance with the team in beginning of Q2 that look this is an opportunity I just market we've got a great.
Reputation to work with our customers, we're going to have some troubled customers.
And I want us to be up upfront.
In price concessions.
And wherever we can increase the price concessions for longer term contracts and I think the team.
Did really well and.
Where there was opportunities.
For us to execute longer term contracts and help our customers through at a tough year I think the team did that and so it's going to have a an impact within.
20, but also what I said in in our energy minus two plus two I'm going to have that now dragging through into 21 with the benefit coming back and 20 to 23 24, because the contract extensions were in general for 357 years or long.
And.
So I think the team did a great job and it's exactly what a good from should do.
In this environment, but I don't actually see any long term.
Challenges beyond what we've modeled now within the Permian and that lack of Capex lower energy prices private equity and lenders looking for higher hurdle rates on their returns I think theres a continued challenge and therefore, we modeled that.
Challenge into our numbers and Brian maybe you want to.
Top up that commentary that I, just gave with some of your specifics on how you're you're viewing the.
The energy.
Recovery in some of the moves we've made through this tough period.
No less I mean, you hit it on the head I think.
It's largely a north America.
Thank you.
You have your production costs that are higher than the price crude you've seen bankruptcies go up but what we're doing is we're working with customers on price.
So that we keep them and we get growth longer term contracts.
You know and again in the in our international business. For example, that's actually growing in the upstream. So I think the real focus for US it's been trying to take care of those North America customers that are under a lot of pressure right now.
Thanks, Brian next question.
Our next question comes from Shlomo Rosenbaum with Stifel. Your line is open.
Thank you for taking my question.
Yeah, I mean, there Gary I got you, Okay I got yet.
Just want to sneak in one John.
Just back on the transport just to make sure to 10% and the recurring Robert revenue declined the quarter that was all just from the dealer concessions there wasn't anything else that was really.
Significant in terms of that that's just being phased out.
According to.
Yes, Thats correct.
Okay. Thank you.
Thanks, Sloma next question.
Our next question comes from George Tong with Goldman Sachs. Your line is open.
Hi, Thanks, good morning.
You are expecting resources organic growth could be down 2%, 2% in fiscal 2021 with downstream strength offset by weakness in upstream due to lower 2020 bookings being fully reflected in revenues can you describe how OPEC discussions and oil prices need to evolve over the next year for you to achieve this target.
Yeah, I'll start and again, Brian you can add if they don't have it all covered so I guess the minus two to plus remember I've given you a what isn't normally done by a company.
In Q2, we gave you the scenarios.
Previously we gave you the scenarios for 2020 now what I'm doing is giving you my forecasting tools that I'm doing throughout this July August period, so that I'm ready for our December one start and currently.
6% to 8% financial services, you know mid teens in transportation recovering off of that low.
Comp.
Which really is high single digits.
Energy is a bit different so energy.
The whole supply demand equation that went completely out of whack.
Really caused some structural issues in that upstream market place in you know, we have about 300 million, which used to be 400 plus million.
Pre merger upstream data revenues that are very important to our customers and very sticky, but the customers not there.
They're not buying any data and the fact is is.
Some of those structural supply demand shifts.
In our view.
I will cause some customers to disappear, but also some of our larger customers, we gate price concessions to.
Price concessions cost us in 20.
Because they're not for full year, we get full year impact in 21, so that continues to cost us.
And then we built in.
Growth.
Going forward on our contracts.
From years, two through years seven in even longer.
So I think the teams done a good job for that and that gives us a real nice certainty on the way forward and as you get your data revenues in upstream.
Become about 250 million of a have a billion dollar business and about four and a half a billion dollar company. It starts to become an issue of.
Small challenges, but in 2021, the minus two to plus two reflects.
The rolling out of that those revenue.
Concessions that were made some customers disappearing.
And our Capex down 30% on other hand, the rest of the business has opportunities to grow at you know.
7% to 11% and in the planning period I can't tell you, whether you know I'm going to be precise too.
Seven 910% what I can tell you that right at the moment the combination of all I know about our resources business would have us no worse than negative too.
And likely know better than plus two in less we in less the 400 million. Other revenues grew a closer to double digits and you know in planning that's not how a plan and how I manage the firm with the division heads I I managed for certainty.
For reasonableness of error.
For a.
Strong customer pipeline and renewal renewals with our customers and that's what Brian and his team are doing Brian do you want to add anything to that.
Yeah. The only thing I'd mention is there's a swing in events if we have events.
Or we don't have events, that's going to definitely impact the range as well.
No that's it sorry, Brian I missed that yes, so right now in our forecast we quit.
We haven't put events returning at the 2019 level.
And honestly, what there's there's some people.
You know if I guess, if I was the U.S. president full events in for 2021.
But in fact, my personal view is that.
In analysis with my team.
We see some virtual events definitely and some smaller events potentially to come together.
But we havent put that back in and if you really remember right at the time of.
Last quarter, what I disclose some at the the challenges with events you're talking a.
40, 40 million dollar number that's 4% of growth in that division.
Or 4% of the Rev revenue potential coming back in that division and I don't think its right to put that back in.
Jonathan do you want to add to that just to make sure I Didnt bogglingly numbers there.
No no you havent right after that I mean as call out what Brian said it on the high in the range, we assume events coming back strong and on the low end, we would assume of as coming back in a very moderate fashion. So that is a swing item in that range.
Right and would you in our top range would we see events, returning to 2019 level or or or a little less or a little more.
It's a little less a little less than the 19 levels. We assumed yeah. Yeah. Okay. So that's that's always good okay. Perfect. Thank you next question.
Our next question comes from Toni Kaplan with Morgan Stanley. Your line is open.
Thank you. Good morning, I can you talk about the sales cycle within solutions I assume that pipeline strong, but just trying to get a sense of if there's any improvement in sales conversions at this point sounded like from your comments that that coal that implementation delays are over but just want.
You can understand about customers willingness to pull the trigger on news house.
Okay. No. Good question I'll start Adam if you can ready to to follow up here. So.
Yes solution sales for us have to say, even though the numbers not.
Reflecting it in this quarter actually if you normalize the year over year on.
Last year's Big.
Q2, I think normalized silver.
It or 10 quarters were probably running at 910%. So it's at my view is normalized solution still very strong.
The pipeline.
He is also at an all time high. So therefore, there's lots of interest in the pipeline and we.
We generally.
Field that will return slowly for the rest of this year and better into next year.
Those customers closing that pipeline and putting it into production and so I think if I look forward I view solutions as a strong growth contributor to financial services back to pre call good levels.
Adam do you want to add some of the highlights low like some of the challenges and just your forecast of how we look at 21.
Yes, I think you sum that up well Lance the interesting thing I think from coal that experience is a lot of our customer base has looked at the solutions. They used to maintain most efficient and risk risk management tools.
And it's actually accelerated some of their decision, making in implementing a lot of the type solutions that we offer and that's that's been the biggest driver of the growth in pipeline coupled with about a six month to a year ago, we really formalize the bringing together of a lot of our solutions and looking at.
Larger packages of services for our customers, where our solutions can work with each other and give customers.
Large larger overall opportunity for efficiency.
So I think through this period, it's been a little bit of an accelerant there'll be a little delay in that because these are larger deals that take a little bit more time to close.
Customers are quite interested in doing that.
What you saw us through the early part of Q2 is larger software implementations as customers were adjusting to work from home environment. Our markets have largely stayed open financial markets have been active and operating through this period, but in adjusting to working from home some of the larger software implementations.
Maybe got delayed by four to six weeks all of which have basically restarted at this point that gives you a little bit of an insight into what that little low might have looked like and why we're pretty optimistic about the forward path.
Good thanks, Thanks, Adam.
Next question.
Our next question comes from Ashish Sabadra with Deutsche Bank. Your line is open.
Thanks for taking my question I, just wanted to drill down for debt on the automotive mastermind watching your keep the company launched M M CTO and use Kobe correctly well here. This year. So my question is just what is the current penetration off mm.
Existing dealership using cloud of facts and is it possible to quantify the cross sell an upsell opportunity looks like new classes and if that you've got field.
Just a follow up to that question mm was growing I believe CODI push since the crisis and 10 of them growth to be accelerate the strong double digit going forward as you come out of the crisis. Thanks.
Good Thanks Edward.
Right. So I'll start with the end of your question Ashish, which is the growth of most of mine that so we actually saw accelerating growth in the past few quarters until Q1, you may remember in Q1 must have been delivered 36% organic growth year on year, So really really strong acceleration and now I'll pick up on your first.
Which is what is driving that growth than it is actually the synergies that we've been building between must demand and other parts of the automotive organization. So to give you a few examples on.
We we now the conquest capability in most annoying that he's built used in audience data that we had we not automotive business than we have a service to say capability in most of mine that he's built using constant trends you didn't data.
And that you just said we are launching in July.
We own kind of used car capability, which is perfect timing for the market because that is the activity that would support admitted he lives in the second have the yet and again we used this use we launched this use capability leveraging assets, we have within other parts of the automotive kind of portfolio. So month to month is the growth story, which is anchored on.
Our automotive data as a foundation and we expect that broke through with you and quickly as the market opens up towards the end of this year.
Thanks, Edward next question.
Our next question comes from Andrew Nicolas William Blair. Your line is open.
Hi, good morning.
In terms of the events business.
She touched on the range of potential outcomes, you've embedded in 2021 guidance earlier, but I'm just curious how you're thinking about the longer term impact.
The pandemic and clients willingness to travel to attend conferences.
It's a business you think you know is permanently impaired or is it something that we'll just take some time to ramp back up in your view since.
Yeah, No I guess I have a personal view and I imagine if we pulled everybody on the phone.
We all have slightly different views.
One I'd been quite pleased with the virtual dialogue going on in high Hs market with our customers. So we have no issue with support supporting our products and our services our research our datasets our data science.
And therefore, I feel we're really lucky to be so resilient.
Against coded.
Our revenue globally.
From a.
From a events is probably about 1% of what we do.
So therefore it it's you know we've taken that impact.
It's in the numbers and so to put it back into the numbers at any reasonable scenario my view is that.
There's got to be a vaccine to support that.
Otherwise I think there's going to be a mixed bag of people wanting to fly want be one subways wanting to be on crowded in crowded rooms.
Speakers wanting to be in crowded rooms themselves as.
No. They help companies side, you know provide thought leadership.
So my own my own view is that we should expect at our 9% scenario something a little less than 19 as Jonathan said so.
45, you know maybe it's 35 to 40, maybe it's 30, but it's it's not as high and at our low end of the scenario little to no events.
And in our Black Swan at 5% growth My view it would.
Definitely be none so as I look forward and sculpt our business I'm very careful with the teams.
To be not looking at substantives I want to maintain our flagship big Sarah week Chem week TPM.
Those are three flagship events were also leaders now at around the climate dialog, we got to support that.
We'll be world class virtually.
We'll have small meetings and small events, where our customers I want us to.
And if there is a.
Vaccine or a trend back to bigger gatherings, we'll be prepared to go.
But it's not something I put a lot of faith in for 2021, but a lot of that's more personal than it is a total view of I'd just market, but you will get in our forecast numbers you should know that.
Events will be a tempered revenue that is never going to be the reason for us to hit numbers.
Jonathan.
Yes, I just had one point you said last is.
In Q2, when we announced the best cancellation, we talked about nine cents bps impact that was the result of losing all the revenue while still having all the costs and as Lance said I think the events, particularly those three flagships important to us for branding reasons thought leadership and this has got to almost community within the industries, we serve but financially.
Divest themselves are betting not that important to our profitability at the end of the day.
Good Thanks, Jonathan and.
All as I can say is for our teams that lead those events. There now focused on leading virtual events and Ive to say just go online and catch that Sarah we conversations and.
It's everybody from a you know.
You know world leaders to.
Key energy markets thought leaders.
Dan the Oregon, who.
Along with Jamie Rosenfeld or founders of Sarah week, they've just done an outstanding job to make sure we're supporting our customers in the right dialogues.
But they are having to do it virtually and.
That at a minimum will be world class sat and let's see what happens next question.
Thank you and I'm showing no further questions at this time I turn the call back over to Eric Boyer for any closing remarks.
Thank you for your goal a Eric Eric just before you go I just want to say one one last word the first thing I'd like to say thank you.
For the support our shareholders have given us. These are tough times I never thought I could have experienced anything like this in my life.
And I have to say that having a strong team around you strong shareholders and.
Great great people throughout the firm globally.
Working with our customers, we've been able to navigate and I know for many companies, they're not that not haven't been as fortunate so I feel very lucky to.
To be able to do what we've been able to do but I couldn't have done that with all the teams and I know our shares have been well supported by our investors and I just want to say.
Thank you for that and.
I hope the transparency that we're providing you will allow us to returned to pre coded levels. Once we get through this but up through that point I feel that.
We want to show market leadership.
In our reporting to help you navigate the challenging waters that we're navigating ourselves and Fortunately also performing well and so thank you very much also thanks to all the employees and.
I want to close that the.
Some of the challenges that we're dealing in communities around us and particularly.
Where it out to all our black colleagues in the U.S.
I'm appreciating all of their support.
Through us setting strategy forward fried chest market and once again, we want to be affirm that action oriented wear out front, we're making change happening and I appreciate.
All of the support from.
Those colleagues in the from that have been help me. So thank you Eric you want to close.
Yeah, Great. We thank you for your interest and I just market. This call can be accessed via replay 5559 to 056 or international dial in for your four or five through 734 is there a sex conference I'd 1089, 105, beginning in about two hours running through June Thirtyth 2020. In addition, the webcast will be archived for one year on our website.
Thank you and we appreciate your interest in time.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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