Q3 2021 IHS Markit Ltd Earnings Call
[music].
Good day and thank you for standing by welcome to the IHS Markit third quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there will be a question and answer session.
Ask a question during this session you will need to press star one of your telephone.
Please be advised that today's conference is being recorded if you quantify further assistance. Please press star zero.
I'd now like to hand, the conference over to your Speaker today, Eric Boyer head of Investor Relations. Please go ahead.
Good morning, and thank you for joining us for the IHS Markit Q3, 2021 earnings Conference call earlier. This morning, we issued our Q3 earnings press release and posted supplemental materials Digest Markit Investor Relations website, our discussion on the quarter are based on non-GAAP measures or adjusted numbers, which exclude stock based compensation amortization of acquired intangibles and other items I just <unk>.
<unk> believes non-GAAP results are useful in order to enhance understanding of our ongoing operating performance, but they are a supplement to and should not be considered in isolation from or as a substitute for GAAP financial information. As a reminder, this conference call is being recorded and webcast and is copyrighted property of IHS Markit any rebroadcast of this information or in part without prior written.
<unk> of IHS Markit is prohibited this conference call, especially the discussion of our outlook may contain statements about expected future events are forward looking and subject to risks uncertainties and factors that could cause actual results to differ materially from expectations can be found in IHS markit filings with SEC and on the IHS Markit website. After our prepared remarks, Lance Uggla chairman and CEO.
And Jonathan gear, EVP, and Chief Financial Officer will be available to take your questions with that it's my pleasure to turn the call over to Lance.
Sure.
Okay. Thank you Eric and thank you for joining us for the IHS Markit Q3 earnings call.
We had another very strong quarter Q3 revenue was $9.0 billion with organic growth of 9%.
Adjusted EBITDA of 516 billion with margin of 43, 7% puts us on track for the full year margin expansion of 100 basis points excluding FX.
Adjusted EPS of <unk> 85.
It will be up 10% over the prior year.
Overall, we are very happy with our Q3 and year to date results and we are raising our full year underlying revenue and adjusted EPS guidance.
In terms of industry verticals, let me first start with our financial services segment, which had another strong quarter with 8% organic growth in Q3.
Within financial services information performed well with organic growth of 6%.
And the main price. The main contributors of this included pricing valuations equities regulatory reporting and trading analytics platforms, and our issuer solutions products due to strong IPO market and the momentum in ESG initiatives.
Solutions also had a strong quarter.
With 9% organic growth and similar trends, which we saw in Q2 due to the strong market activity in equities and loans as well as the continued broad based rebound of the investments being made by our customers and solutions.
This strength was accelerated by our new offerings and enhancements across our solutions portfolio.
Finally, our processing business grew 12% organically with strengths and loans and derivatives performance as expected.
For the full year, we still expect financial services.
To be in the 7% to 8% organic growth range.
Let's move on to transportation, which had organic revenue growth of 15% in Q3.
Youll recall that the basis for comparison, the third quarter of 2020, what's depressed by significant pricing concessions that we granted our customers at the height of the Covid related lockdowns.
But like Q2. This quarter's performance also reflected strong underlying growth across the transportation businesses.
Our renewal performance was strong across the board demonstrating the must have nature of our products in the current challenging market environments.
For example, carfax for life has now established itself as a critical and innovative service loyalty solutions for dealers.
At a time when driving higher levels of service Lane activity is key to offsetting the lower levels of new car sales.
Another example is the strong performance of our forecasting solutions as the industry grapples with the largest supply chain shock.
It has ever experienced.
However over the past two months, we have also seen the escalating supply chain crisis lead to further production cuts and as a result of shortage of cars on dealer lots, we're seeing a temporary slowdown in sales of products that support OEM and dealer and sales marketing sales and marketing.
We remain very confident in the outlook for these products as inventory levels begin to recover but overall another great quarter for our auto businesses, which demonstrates the importance of our services to the industries.
Our maritime and trade business continued to perform well driven by momentum of our innovative risk and compliance solutions and by our growing footprint in the financial sector.
I am very pleased to see our new product investments over the past several years continuing to pay off.
For the full year, we expect transportation organic growth to be in the 14% to 16% range. This represents a healthy underlying high single digit growth rate, excluding the favorable year over year comparisons due to the pandemic.
Let's move on to resources, where organic decline was a modest 1% in Q3 and as expected.
Recurring revenue improved sequentially across our businesses and nonrecurring revenue benefited from increased demand for consulting services and our software businesses.
As expected our ACB experienced continued positive growth in Q3, which we believe should continue in Q4, providing a strong foundation for our 2022 recurring revenue.
Our downstream organic revenue growth was very strong in the quarter and we expect this to continue into Q4 as we help our customers navigate the global supply chain disruptions in many markets.
In 2021, we continue to expect organic revenue results within resources to improve compared to 2020.
And to be down year over year in the low single digits.
The upstream improves and strong growth in downstream continues.
Finally, CMS organic revenue growth.
With strong at 11%.
And 5% normalized for the PVC.
And particularly.
ECR was very strong and is benefiting from increased consulting services as a result of uncertainty due to global supply chain disruptions.
The full year, we still expect CMS to deliver mid single digit organic growth.
There were two strategic initiatives announced in the quarter.
We completed the formation of the OS struck JV, which includes our market served and Cme's optimization businesses.
We also signed a purchase agreement for the divestiture of Opus commensurate with the close of the merger with S&P Global.
And now I will turn the call over to Jonathan.
Great. Thank you Lance Q3 highlights included revenue organic growth of 9%, which is 8% normalized BPC.
Adjusted EBITDA growth of 6% GAAP net income declined 2% EPA.
EPS declined 2%, while adjusted EPS growth of 10% year over year.
Regarding revenue our Q3 revenue was $9.0 billion with total growth of 10% organic growth in the quarter was 9%, which included recurring organic growth of 7% and non recurring organic growth of 20%.
Normalized for BBC total company organic growth was 8% and nonrecurring is 14%.
This increase was driven by continued strong underlying growth in financial services and transportation.
As well as benefiting from favorable year over year comparisons due to the impact of Covid, primarily in our dealer facing transportation businesses.
Moving on to segment performance, our financial services segment drove organic growth of 8%.
<unk>, 7% recurring in the quarter.
Overall strength was anchored by strong market activities in equities loans and the continued rebound of investment by our customers salute.
Solutions had strong organic growth performance, delivering 9% information grew 6% and processing grew 12%.
Our transportation segment delivered organic growth of 15% in the quarter. This included growth of 17% recurring as Q3 continued to have strong growth within our car facts and automotive mastermind businesses and accelerating growth within our maritime and trade business.
Non recurring revenue increased by 8%, primarily driven by strong performance in car fast consumer and dealer transactions.
In our core automotive insights.
Our resources segment declined by 1%, which is comprised of a 4% recurrent declined 30% nonrecurring increase Q3 organic HEB increased by $7 million in the quarter and our trailing 12 month organic ACB is down 3%.
However, we are seeing strong underlying trends in our upstream pipeline, especially in North America as we expect capex spend to begin to rebound in 2022.
We continue to see strong demand in our downstream businesses, particularly in our products and services that support energy transition and energy market supply chains.
Our CMS segment had 11% organic growth, including 5% recurring and an increase of 76% nonrecurring.
Normalized for BPC total CMS organic growth is 5%, which includes nonrecurring organic growth of 14%.
Moving now to profits and margins adjusted EBITDA was $516 million up $29 million versus prior year.
Adjusted EBITDA grew 6% with a margin of $43, 7% down 150 basis points and down 110 basis points FX adjusted.
As a reminder.
The margin percentages for the full company and segments were impacted because 2020 margins benefited significantly due to temporary COVID-19 related cost actions move.
Moving to our segments financial services adjusted EBITDA margin of 49, 2% down 90 basis points FX adjusted.
Expectations adjusted EBITDA margin of 48, 1% down 280 basis points FX suggested.
Resources, adjusted EBITDA margin of 42%.
Increase of 100 basis points FX adjusted and.
CMS adjusted EBITDA margin of 27, 7% up 240 basis points FX adjusted.
Moving now to net income and EPS net income was $161 million and GAAP EPS was <unk> 40.
Adjusted EPS was <unk> 85, an increase of 10% over prior year, our GAAP tax rate was 30% and our adjusted tax rate was 16%.
Q3 free cash flow was $344 million and our trailing 12 month free cash flow conversion is 56%.
Turning to the balance sheet, our Q3, ending debt balance was $13.0 billion and represented a gross leverage ratio of approximately $2 five times on a bank covenant basis and $2 three times net of cash we closed the quarter with $338 million of cash and our Q3 Undrawn revolver balance.
With approximately $1 billion.
Our Q3 weighted average diluted share count was $404.0 billion shares as we mentioned in Q4, the merger agreement with S&P Global restricts our ability to purchase our shares and therefore, our share repurchase program is currently suspended other than for the repurchase of shares associated.
The tax withholding requirements for share based compensation.
Moving onto guidance based on our performance through the first three quarters of the year, we are positioned to deliver strong full year results and providing the following improvements to revenue and EPS guidance for FY 'twenty one.
On revenue, we are providing three updates to our guidance.
Based on this strong performance and a full review of our business, we are raising the operational outlook for revenue by $20 million at the midpoint.
Second we are adjusting our revenue for the year due to the accounting treatment of the market serve joint venture.
Under this 50.50 joint venture, we will no longer consolidate revenue.
This will remove $45 million from our Q4 revenue guidance. It should be noted that we will receive 50% of the JV is earning in our reported earnings and thus there will be no impact of this structure to either EBITDA or EPS.
Finally, we are lowering revenue for the year by $10 million due to the FX impact in the second half the net of these adjustments as our new range of $4 six one to $65.0 billion, which represents a 7% to 8% organic growth rate.
Adjusted EBITDA is being maintained at 202 to $5.0 billion with adjusted EBITA margin expansion of approximately 100 basis points adjusted for FX.
And adjusted EPS is being increased by <unk> <unk> to.
To three dot 108 to $3 two zero per share.
We do expect cash conversion in the upper fifties due primarily to the onetime impact of the market share of joint venture and would also with S&P global deal related merger costs and with that I'll turn the call back over to Lance.
Okay. Thanks, Jonathan.
We had another strong quarter and our results to date set us up to have a great year due to improving end markets and very strong execution by our teams.
As this may be our last earnings call as IHS Markit.
I want to thank our many investors over the years for their support.
And say that I'm very excited to be a future shareholder of S&P global as they integrate IHS markit to create even greater value in the years to come.
Operator, we are now ready to open the lines for Q&A.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
We ask that you please limit yourself to one question. Please standby, while we compile the Q&A roster.
Our first question comes from Kevin Mcveigh with Credit Suisse. Your line is open.
Thank you and congratulations to all you folks. If this is the last calls you have been an amazing management team and it's been a pleasure to work with you folks so hey.
You talked about kind of supply chain disruption a lot and obviously the business is thriving within the context of that.
How much of that is obviously theres a lot of shock in the system, but.
Just trying to understand how much of that is that and maybe just reassuring as structural changes in business is post COVID-19. So I guess is there any kind of nuances between just structural re shoring as opposed to near term just supply shock.
Yes, I think most all of our supply chain.
Disruption.
Is it short term related.
I think some of it with respect to China and longer term.
Geopolitics.
We will bode well for us.
We saw very positive.
<unk> chain impacts in terms of upward revenue.
Chemicals pricing businesses are economic and country risk services.
Supply chain product built into them.
And.
Our consulting services as well so you know.
I think in an information business volatility.
Always bodes well.
Across the whole portfolio and there are pluses and minuses.
Our automotive business is expecting.
As car sales.
Wayne through the.
The supply chain shortages that are unprecedented coupled with less used cars available those can have temporary negative impacts, but net net when we look across the whole firm.
And we look at our revenue for the year.
And our expectations as we start next year.
It's a short term set of pluses and minuses that.
Provided the same guidance as we expected at the beginning of the year.
Next question.
Our next question comes from Gary Bisbee.
Securities Your line is open.
Hey, guys. Good morning, I'll add my congratulations on a terrific run.
I just wanted to ask about the impact of the markets or joint venture on a full year basis.
The business does it make sense to effectively.
Quadruple that Q4 revenue hit and are there other things, we should think about how it impacts margins pull at pulling that business out and any other any other color would be helpful. Thank you.
Okay. Thanks, Gary.
Thanks, Kevin as well for the <unk>.
<unk> complements appreciate that why don't I pass it over to Jonathan and if he wants to add Adam to that on the <unk>.
Impacts they can do so Jonathan.
Sure, we'll do it to Gary I would say because it's very simple math I would take the <unk> 45, we just spoke about for Q4, roughly four times that would be a full year impact of removing the market serve revenue from from our reported results as I mentioned in my in my comments earlier, we will still report profit through earnings.
And so there will be no impact on EBITDA, and EPS and an absolute basis of course, when you take out the revenues between the earnings that will be a lift on a margin percentage.
And Adam anything you want to add to that.
Got it.
Adam.
No sorry.
Yes, no nothing to add obviously and then the benefits of the JV commercially we're quite excited about.
As our customers.
Okay next question.
Our next question comes from Jeff Mueller with Baird. Your line is open.
Yes. Thanks.
Hoping you can provide some more detail on the auto comments. So I think you said it impacts the solutions that support OEM and dealer to sales and marketing. So is this automotive mastermind digital marketing and maybe car facts used car listings because I think.
You said <unk> was strong in Q3, so trying to understand to what extent.
Something like digital marketing is already impacting nonrecurring revenue or if you're saying like automotive mastermind bookings are softening and we should expect deceleration in coming quarters.
In recurring in tears and best wishes from me Thanks, guys.
Edward do you want to go.
Go a bit deeper on that.
Yes sure. Thank you Lance.
Thanks, Jeff for the question. So I've long said all of this.
Disruption increased multiple impacts across our business some of headwinds the most headwinds so at the upper end of the supply chain. When there's disruption, we do more business with suppliers and actually we've never had close to a closer relationship with many of our supplying customers in today on.
On the new car sales Youll rights right now, we're seeing a temporary softening of bookings in a couple of areas you named them rise Master mind and digital marketing.
And we expect these to be a bit softer than they usually are unto inventory starts to recover on the used car side, we're not seeing that but if you think about the used car market in the service market actually the combination of low inventory with high prices means that market is pretty hot and that impact is neutral to positive on our business. So.
All in all I would say the impact is not material in the Grand scheme of things. It does not change our outlook for the business, but we do want to flag is because we recently revised our forecast downwards for the industry across the board and you will see quite a few suppliers and comic is referring to the forecast in the coming weeks as they.
Talk about the Q3 earnings.
Thanks, Edward next question.
Our next question comes from Alex Kramm with UBS. Your line is open.
Hey, everyone.
Just on the on the energy side, hoping now that the fiscal year's over could you just can just give US a reminder of all the multiyear contracts you locked in I guess, what I'm asking is you know.
This this comment that Capex is expected to be up next year, but if it doesn't I guess, how much growth do you have built in because of some of those multiyear contracts on those pricing escalators will be great to just get a reminder, where we stand on those.
Okay, I'll start and then I'll pass it to Brad.
Ian for some more detail so we expect.
As we said before our recovery on revenue to be.
Mid single digits for energy.
Next year for resources coming from that recovery those contracts rolling through and continued strength in all of the downstream products we have.
We.
<unk>.
Stated that earlier as we did those price cuts and I think Brian may want to add some color on exactly how those numbers will unfold, Brian yeah yeah.
Basically two multi year agreements with price cuts on 50% of the upstream business, we're starting to see those come in now.
Which is nice and when you coupled out with $70 crude.
You mentioned Capex, we think capex is going to be pretty strong next year, 24%.
So.
Definitely the U S.
Energy Horizon has turned around Congress and we're feeling pretty good about the next few quarters.
Thanks, Brent next question.
Our next question comes from Hamzah <unk> with Jefferies. Your line is open.
Okay.
Good morning. Thank you. My question is just around the upcoming merger with where that should be maybe if you could just talk about timing wise.
Next steps.
Job closing Q4, barring any anything you can share on preplanning integration work Youre doing that gives you sort of confidence on the revenue synergies highlighted.
And again, congrats on building a great company and all the work you've done there. Thank you.
Okay. Thank you very much well the work on the merger by the teams at S&P and IHS.
Substantive given that we originally expected at July close we've had.
Several extra months through the summer and here in the fall to really.
Ready ourselves for the opportunities set of this merger both on the revenue cost take out organization and of course.
Building.
Pausing the share buybacks and both companies is provided for.
That.
That opportunity set.
To be launched.
As we look forward.
On timing, we have said the.
Our expectation.
Was calendar the calendar year Q4, which.
We're rapidly on top up here as we approach October one.
We haven't changed our forecast on that but I always say to my team are when people asked me that question at.
If if it rolled into the new year into the <unk>.
January.
Wouldn't surprise me so.
We're on track everything the teams are doing a great job, they're doing all the work that's needed to get the deal closed and.
We're we're rapidly approaching the end of the year.
I hope we can I hope, we can complete in that schedule, but wouldn't surprise me. If it was 30 days later.
I don't have that information to share.
Next question.
Our next question comes from George Tong with Goldman Sachs. Your line is open.
Hi, Thanks, Good morning, I'd also like to say congrats and thanks for the partnership over the years.
You're raising your operating outlook for revenue by $20 million for the full year can you elaborate on where the upside is coming from.
It really.
I have to say, it's coming from all across the firm George So pleased I'd love to brag a bit about all the work that the CMS team has done since the merger of IHS with market.
We've rebuilt the platform.
<unk> built out a whole digital product suite.
I was really pleased to show that mid single digit Xb, PVC revenue and congratulations to Ken and hardware often their team because real good job ECR has been a.
A slow low single digit grower.
They built out these new supply chain products, the world and geopolitics is driving demand into their product base. So net net.
The teams there.
Been additive or accretive to the.
The overall growth compared to where they used to be and that makes everybody's job easier.
The motive strong recovery expected to continue.
The underlying core of automotive at high single digits is right, where we've always talked about it being and we don't see that changing.
That's off of really too Matt.
A mastermind team.
That acquisition has turned out to be very very important forward component I know many of our shareholders.
<unk> that's on that acquisition is not being as accretive as we wanted to do early on.
The team's stock stuck with it in terms of the build out of the enterprise mastermind products those have been rolled out to two major dealers and lots more to come new products.
Carfax for life taken hold.
<expletive>.
And the team are really excellent execution.
You get into financial services, the IPO acquisition again, our last two acquisitions. These are real.
Fruits of those acquisitions are showing.
The private equity markets around the <unk> level.
Substantive Lee building recovery of investments and solutions.
No.
Really really.
Excellent acquisition, that's turning into strong organic growth now.
And then in energy, where you know.
Hey, who would've thought it youre $70 oil price heading towards 100.
Yes.
A.
Capex recovery.
You've got.
The world recover.
And.
Midstream mid mid.
Look across resort next year, coupled with the recovered CMS strong financial services and automotive.
Have you is we're at the top end of our long term, 5% to 7%.
Guidance that we provided.
Boats that bodes well for the firm so very mixed.
Strong.
Revenue growth organically.
Looking to achieve the 100 basis points of course is our our normal expected take out with the rest going into investing in new products.
New opportunity sets so great job, it's probably my last chance publicly.
Congratulate the teams, but I have to say, whether it was through market or post the IHS markit merger.
Teams have stayed focused on incremental organic growth incremental margin expansion.
<unk> investments in our organic strategy and where we have to make sure we get the best out of that and the follow through to earnings has been excellent and I don't expect that to change I think with S&P global there is a whole new set of revenue opportunities and of course substantive cost synergies.
And share buybacks ahead, so lots to look forward to and.
It's been a really exciting journey, but the excitement doesn't stop here next.
Next question.
Our last question comes from Toni Kaplan with Morgan Stanley. Your line is open.
Perfect. Thank you and Lance and Jonathan and always a pleasure speaking with you.
One topic that has been coming up a lot with investors recently has been the area of fixed income indices as it relates to the deal with S&P I was hoping you could talk a little bit more about what areas of synergies healed generate within the combined entity would imagine the main areas are creating products in multi asset class.
S G, but if there's any others or if you're able to expand on what you're most excited about there with the combined products that'd be really helpful. Thanks.
Okay, Thanks, Tony and thanks for your support.
Youre getting our last question. So I'll start and then I'm going to hand, it to Adam.
I think the most exciting thing about the fixed income indices is the combination.
With S&P global but not so much from product creation I think product creation. Both groups are highly product oriented they're both innovative they both liked to create.
If you look over the years, whether it was S&P global MSCI FTSE et cetera. They all wanted to build a fixed income franchises and.
Really in the early days, you really needed a bank partnership to build strong.
Fixed income indices, because you really needed to align the underlying prices with the OTC marketplaces, and that's shifted over time, but.
Today, the combination is really about a huge footprint and marketing platform that S&P global has for their index franchise and getting to overlay that across the fixed income franchises is going to be really a great.
Uplift in terms of sales and opportunity there.
Second thing of course is what you had mentioned is opportunities to create new indices, and maybe I'll, let Adam talk a little bit about some of the synergistic revenues that may expect to get out of the combination and.
We.
We'll pass that.
<unk> said over to Adam now, but thank you for your question Adam.
Yeah, great. Thank you.
Very excited about that combination we're proud of what we built in fixed income indices and I know with the scale that S&P indices will bring all of the things Lance highlighted.
We'll give that franchise a much broader reach than it's ever had I think key areas to think about in the combined businesses multi asset classes, you mentioned, but also in private markets and ESG.
The fixed income indices into that arena I think that that's the area of new products that I think will continue to see substantial growth and I think combined with the kinds of data sets that S&P.
S&P and IHS Markit together, we will have the possibility for new indices, whether it's in carbon crypto ESG.
All across the fixed income.
World.
Globally, I think the opportunity set for us is pretty pretty robust.
Thanks, Adam with that we'll complete the questions and we'll turn it back to Eric.
Thanks, operator.
Thanks Lance we thank you for your interest in IHS Markit. This call can be accessed via replay 8585920 to 56 or International 404, 537, 3406 conference I'd 446 for $100.0, beginning in about two hours and running through October 2021. In addition, the webcast will be archived for one year on our web site.
Right. Thank you and we appreciate your interest and time.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
[music].
[music].
[music].
Good day and thank you for standing by welcome to the IHS Markit third quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there will be a question and answer session.
To ask a question. During this session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
Kearney further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Eric Boyer head of Investor Relations. Please go ahead.
Good morning, and thank you for joining us for the IHS Markit Q3, 2021 earnings Conference call. Early this morning, we issued our Q3 earnings press release and posted supplemental materials to the IHS Markit Investor Relations website.
Our discussion on the quarter are based on non-GAAP measures or 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 of our ongoing operating performance, but they are a supplement to and should not be considered in isolation from or as a substitute for GAAP financial information as a reminder.
Minder. This conference call is being recorded and webcast and is copyrighted property of IHS Markit any rebroadcast of this information or in part without prior written consent of IHS Markit is prohibited this conference call, especially the discussion of our outlook may contain statements about expected future events are forward looking and subject to risks uncertainties and factors that could cause actual results to differ materially.
So a patient can be found in IHS markit filings with SEC and on the IHS Markit website. After our prepared remarks, Lance will go a chairman and CEO and Jonathan gear, EVP and Chief Financial Officer will be available to take your questions with that it's my pleasure to turn the call over to Lance.
Thank you Eric and thank you for joining us for the IHS Markit Q3 earnings call.
We had another very strong quarter Q3 revenue was $1, one 8 billion with organic growth of 90%.
EBITDA.
Grid, and 16 million with margin of 43, 7% puts us on track for the full year margin expansion of 100 basis points, excluding FX adjusted.
EPS of <unk> 85.
We'll be up 10% over the prior year.
Overall, we are very happy with our Q3 and year to date results and we are raising our full year underlying revenue and adjusted EPS guidance.
Okay.
In terms of industry verticals, let me first start with our financial services segment, which had another strong quarter with 8% organic growth in Q3.
Within financial services information performed well with organic growth of 6%.
And the main price. The main contributors of this included pricing valuations equities regulatory reporting and trading analytics platforms, and our issuer solutions products due to strong IPO market and the momentum in ESG initiatives.
Solutions also had a strong quarter.
With 9% organic growth and similar trends, which we saw in Q2 due to the strong market activity in equities and loans as well as the continued broad based rebound of the investments being made by our customers and solutions.
This strength was accelerated by our new offerings and enhancements across our solutions portfolio.
Finally, our processing business grew 12% organically with strengths and loans and derivatives performance as expected.
For the full year, we still expect financial services to be in the 7% to 8% organic growth range.
Let's move on to transportation, which had organic revenue growth of 15% in Q3.
Youll recall that the basis for comparison, the third quarter of 2020, what's depressed by significant pricing concessions that we granted our customers at the height of the Covid related lockdowns, but like Q2. This quarter's performance also reflected strong underlying growth across.
The transportation businesses.
Our renewal performance was strong across the board demonstrating the must have nature of our products in the current challenging market environments.
For example, carfax for life has now established itself as a critical and innovative service loyalty solutions for dealers.
At a time when driving higher levels of service Lane activity is key to offsetting the lower levels of new car sales.
Another example is the strong performance of our forecasting solutions as the industry grapples with the largest supply chain shock.
As ever experienced.
However over the past two months, we have also seen the escalating supply chain crisis lead to further production cuts and as a result of shortage of cars on dealer lots. We are seeing a temporary slowdown in sales of products that support OEM and dealer and sales marketing sales and marketing.
We remain very confident in the outlook for these products as inventory levels begin to recover but overall another great quarter for our auto businesses, which demonstrates the importance of our services to the industries.
Our maritime and trade business continued to perform well driven by momentum of our innovative risk and compliance solutions and by our growing footprint in the financial sector.
I'm very pleased to see our new product investments over the past several years continuing to pay off.
For the full year, we expect transportation organic growth to be in the 14% to 16% range. This represents a healthy underlying high single digit growth rate, excluding the favorable year over year comparisons due to the pandemic.
Let's move on to resources, where organic decline was a modest 1% in Q3 and as expected.
Recurring revenue improved sequentially across our businesses and nonrecurring revenue benefited from increased demand for consulting services and our software businesses.
As expected our ACB experienced continued positive growth in Q3, which we believe should continue in Q4, providing a strong foundation for our 2022 recurring revenue.
Our downstream organic revenue growth was very strong in the quarter and we expect this to continue into Q4 as we help our customers navigate global supply chain disruptions in many markets.
In 2021, we continue to expect organic revenue results within resources to improve compared to 2020.
And to be down year over year in the low single digits.
The upstream improves and strong growth in downstream continuous.
Finally, CMS organic revenue growth.
With strong at 11%.
And 5% normalized for the <unk> PVC.
And particularly.
ECR was very strong and is benefiting from increased consulting services as a result of uncertainty due to the global supply chain disruptions.
For the full year, we still expect CMS to deliver mid single digit organic growth.
There were two strategic initiatives announced in the quarter.
We completed the formation of the OS struck JV, which includes our market served and Cme's optimization businesses.
We also signed a purchase agreement for the divestiture of Opus commensurate with the close of the merger with S&P Global.
And now I will turn the call over to Jonathan.
Great. Thank you Lance Q3 highlights included revenue organic growth of 9%, which is 8% normalized BPC.
Adjusted EBITDA growth of 6% GAAP net income declined 2%.
EPS declined 2%, while adjusted EPS growth of 10% year over year.
Regarding revenue our Q3 revenue was $1, one 8 billion with total growth of 10% organic growth in the quarter was 9%, which included recurring organic growth of 7% and non recurring organic growth of 20%.
Normalized for BP BP total company organic growth was 8% and nonrecurring is 14%.
This increase was driven by continued strong underlying growth in financial services and transportation as.
As well as benefiting from favorable year over year comparisons due to the impact of Covid, primarily in our dealer facing transportation businesses.
Moving on to segment performance, our financial services segment broke organic growth of 8%, including 7% recurring in the quarter.
Overall strength was anchored by strong market activities in equities loans and the continued rebound of investment by our customers.
Solutions had strong organic growth performance, delivering 9% information grew 6% and processing grew 12%.
Our transportation segment delivered organic growth of 15% in the quarter.
Included growth of 17% recurring as Q3 continue to have strong growth within our car facts and automotive mastermind businesses and accelerating growth within our maritime and trade business.
Nonrecurring revenue increased by 8%, primarily driven by strong performance in car fast consumer and dealer transactions and within our core automotive insights.
Our resources segment declined by 1%, which is comprised of a 4% recurrent declined 30% nonrecurring increase Q3 organic HEB increased by $7 million in the quarter and our trailing 12 month organic <unk> is down 3%.
However, we are seeing strong underlying trends in our upstream pipeline, especially in North America as we expect capex spend to begin to rebound in 2022.
We continue to see strong demand in our downstream businesses, particularly in our products and services that support energy transition and energy market supply chains are.
<unk> segment had 11% organic growth, including 5% recurring and an increase of 76% nonrecurring.
Normalized for BPC total CMS organic growth is 5%, which includes nonrecurring organic growth of 14%.
Moving now to profits and margins adjusted EBITDA was $516 million up $29 million versus prior year.
Adjusted EBITDA grew 6% with a margin of $43, 7% down 150 basis points and down 110 basis points FX adjusted.
As a reminder.
The margin percentages for the full company and segments were impacted because 2020 margins benefited significantly due to temporary COVID-19 related cost actions move.
Moving to our segments financial services adjusted EBITDA margin of 49, 2% down 90 basis points FX adjusted.
Expectations adjusted EBITDA margin of 48, 1% down 280 basis points FX adjusted.
Resources, adjusted EBITDA margin of 42%.
Increase of 100 basis points FX adjusted.
And CMS adjusted EBITDA margin of 27, 7% up 240 basis points FX adjusted.
Moving now to net income and EPS net income was $161 million and GAAP EPS was <unk> 40.
Adjusted EPS was <unk> 85, an increase of 10% over prior year, our GAAP tax rate was 30% and our adjusted tax rate was 16%.
Q3 free cash flow was $344 million and our trailing 12 month free cash flow conversion is 56%.
Turning to the balance sheet, our Q3, ending debt balance was $13.0 billion and represented a gross leverage ratio of approximately $2 five times on a bank covenant basis.
<unk> three times net of cash we closed the quarter with $338 million of cash and our Q3 Undrawn revolver balance was approximately $1 billion.
Our Q3 weighted average diluted share count was $404.0 billion shares as we mentioned in Q4, the merger agreement with S&P Global restricts our ability to purchase our shares and therefore, our share repurchase program is currently suspended other than for the repurchase of shares associated.
The tax withholding requirements.
Share based compensation.
Moving onto guidance based on our performance through the first three quarters of the year, we are positioned to deliver strong full year results and providing the following improvements to revenue and EPS guidance for FY 'twenty one.
On revenue, we are providing three updates to our guidance.
First based on this strong performance and a full review of our business. We are raising the operational outlook for revenue by $20 million at the midpoint.
Second we are adjusting our revenue for the year due to the accounting treatment of the market share of joint venture.
Under this 50.50 joint venture, we will no longer consolidate revenue.
This will remove $45 million from our Q4 revenue guidance. It should be noted that we will receive 50% of the JV is earning in our reported earnings and thus there will be no impact at this structure to either EBITDA or EPS.
Finally, we are lowering revenue for the year by $10 million due to the FX impact in the second half the net of these adjustments as our new range of $4 six one to $65.0 billion, which represents a 7% to 8% organic growth rate.
Adjusted EBITDA is being maintained at $2 <unk> to $5.0 billion with adjusted EBITDA margin expansion of approximately 100 basis points adjusted for FX.
And adjusted EPS is being increased by three to.
<unk> Dot 108 to $3 two zero per share.
We do expect cash conversion in the upper fifties due primarily to the onetime impact of the market share of joint venture and would also with S&P global deal related merger costs and with that I'll turn the call back over to Lance.
Thanks, Jonathan.
We had another strong quarter and our results to date set us up to have a great year due to improving end markets and very strong execution by our teams.
As this may be our last earnings call as IHS Markit.
I want to thank our many investors over the years for their support.
And say that I'm very excited to be a future shareholder of S&P global as they integrate IHS markit to create even greater value in the years to come.
Operator, we are now ready to open the lines for Q&A.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
We ask that you please limit yourself to one question. Please standby, while we compile the Q&A roster.
Our first question comes from Kevin Mcveigh with Credit Suisse. Your line is open.
Thank you and congratulations to all of you folks. If this is the last call <unk> been an amazing management team and it's been a pleasure to work with you folks so hey.
You talked about kind of supply chain disruption a lot and obviously the business is thriving within the context of that.
How much of that is obviously theres a lot of shock in the system, but.
Just trying to understand how much of that is that and maybe just reassuring as structural changes in businesses post COVID-19. So I guess is there any kind of nuances between just structural re shoring as opposed to near term just supply shock.
Yes, I think most all of our supply chain.
Disruption.
Is it short term related.
I think some of it with respect to China and longer term.
Politics.
We will bode well for us.
We saw very positive.
<unk> chain impacts in terms of upward revenue in our chemicals pricing businesses are economic and country risk services.
Supply chain product built into them.
And our consulting.
<unk> services as well so.
I think in an information business.
<unk>.
Always bodes well.
Across the whole portfolio and there are pluses and minuses as.
You know our automotive business is expecting.
<unk> sales.
Wayne through.
<unk>.
The supply chain shortages that are unprecedented coupled with less used cars available those can have temporary negative impacts, but net net when we look across the whole firm.
And we look at our revenue for the year.
And our expectations as we start next year.
It's it's a short term set of pluses and minuses that.
Provided the same guidance as we expected at the beginning of the year.
Next question.
Our next question comes from Gary Bisbee.
Securities Your line is open.
Hey, guys. Good morning, I'll add my congratulations on a terrific run.
I guess I just wanted to ask about the impact of the markets or joint venture on a full year basis.
For the business does it make sense to effectively.
Quadruple that Q4 revenue hit and are there other things, we should think about how it impacts margins Polk pulling that business out and any other any other color would be helpful. Thank you.
Okay, Thanks, Gary and thanks, Kevin as well for the the complements appreciate that why don't I pass it over to Jonathan and if he wants to add Adam to that on the <unk>.
Impacts they can do so Jonathan.
Sure will do yes, Gary I would think this is very simple math I would take the 45, we just spoke about for Q4, roughly four times that will be a full year impact of removing the market share of revenue from from our reported results as I mentioned in my in my comments earlier, we will still report profit through <unk>.
Earnings and so there will be no impact on EBITDA, and EPS and an absolute basis of course, when you take out the revenue you obtain the earnings there will be a lift on a margin percentage.
And Adam anything you want to add to that.
Got it Adam.
Oh, sorry, yes.
No nothing to add obviously and then the benefits of the JV commercially well, we're quite excited about.
As our customers.
Okay next question.
Our next question comes from Jeff Mueller with Baird. Your line is open.
Yes. Thanks.
Hoping you can provide some more detail on the auto comments. So I think you said it impacts the solutions that support OEM and dealer sales and marketing. So is this automotive mastermind digital marketing and maybe car facts used car listings.
I think you said <unk> was strong in Q3, so trying to understand to what extent.
Something like digital marketing is already impacting nonrecurring revenue or if you are saying like automotive mastermind bookings are softening and we should expect deceleration in coming quarters.
Recurring in tears and best wishes from me Thanks, guys.
And where do you want to.
Go a bit deeper on that.
Yes sure. Thank you Lance.
Thanks, Jeff for the question. So I've long said all of this.
Disruption increased multiple impacts across our business some of headwinds the most headwinds so at the upper end of the supply chain. When there's disruption, we do more business with suppliers and actually we've never had close to a closer relationship with many of our supply customers in today on.
On the new car sales Youll rights right now, we're seeing a temporary softening of bookings in a couple of areas you named them rise Master mind and digital marketing.
And we expect these to be a bit softer than they usually are unsealed inventory starts to recover on the used car side, we're not seeing that but if you think about the used car market in the service market actually the combination of low inventory and high prices means that market is pretty hot and that impact is neutral to positive in our business. So all.
All in all I would say the impact is not material in the Grand scheme of things. It does not change our outlook for the business, but we do want to flag, it's because we recently revised our forecast downwards for the industry across the board and you will see quite a few suppliers and comment because we're selling to these new forecast in the coming weeks as they.
Talk about the Q3 earnings.
Thanks, Edward next question.
Our next question comes from Alex Kramm with UBS. Your line is open.
Hey, everyone.
Just on the on the energy side, hoping now that the fiscal year is over did you. Just can you just give US a reminder of all of the multiyear contracts you locked in I guess, what I'm asking is you.
This this comment that Capex is expected to be up next year, but.
If it doesn't I guess, how much growth do you have built in because of some of those multiyear contracts on those pricing escalators would be would be great to just get a reminder, what we stand on those thanks.
Okay, I'll start and then I'll pass it to Brad.
Ryan for some more detail so we expect.
As we said before our recovery on revenue to be.
Mid single digits for energy.
Next year for resources coming from that recovery those contracts rolling through and continued strength in all of the downstream products we have.
We.
We've done that.
Stated that earlier as we did those price cuts and I think Brian may want to add some color on exactly how those numbers will unfold right yeah yeah.
Basically two multiyear agreements with price cuts owns 50% of the upstream business, we're starting to see those come in now.
Which is nice and when you coupled out with $70 crude.
You mentioned Capex, we think capex is going to be pretty strong next year, 24%.
So.
Definitely the U S.
Energy Horizon has turned around and we're feeling pretty good about the next few quarters.
Thanks, Brent next question.
Our next question comes from Hamzah <unk> with Jefferies. Your line is open.
Okay.
Good morning. Thank you. My question is just around the upcoming merger with where that shouldn't be maybe if you could just talk about timing wise.
Steps.
Job closing in Q4, but any anything you can share on preplanning integration work Youre doing that gives you sort of confidence on the revenue synergies highlighted.
And again, congrats on building a great company and all the work you've done here. Thank you.
Okay. Thank you very much well you know the work on the <unk>.
Merger by the teams that S&P NIH has been substantive given that we originally expected at July close.
Pad.
Several extra months through the summer and here in the fall to really.
Ready ourselves for the opportunities set of this merger bolt on the revenue cost takeout organization and of course <unk>.
Building.
Pausing the share buybacks and both companies has provided for that that opportunity set to.
To be launched.
As we look forward.
On timing, we have said the.
Our expectation was calendar the calendar year Q4, which.
We're rapidly on top up here as we approach October one.
We haven't changed our forecast on that but I always say to my team are when people asked me that question at.
<unk>.
If it rolled into the new year into the <unk>.
January.
Wouldn't surprise me so.
We're on track everything the teams are doing a great job, they're doing all the work that's needed to get the deal closed and.
We're we're rapidly approaching the end of the year and I hope we can I hope we can complete in that schedule, but wouldn't surprise me. If it was 30 days later.
I don't have that information to share.
Next question.
Our next question comes from George Tong with Goldman Sachs. Your line is open.
Hi, Thanks, Good morning, I'd also like to say congrats and thanks for the partnership over the years.
You're raising your operating outlook to revenue by $20 million for the full year can you elaborate on where the upside is coming from.
It really.
I have to say, it's coming from all across the firm George So pleased I'd love to brag a bit about all the work that the CMS team has done since the merger of IHS with market.
We've rebuilt the platform.
<unk> built out a whole digital product suite.
I was really pleased to show that mid single digit X P. PVC revenue and congratulations to Kevin hardware often their team because real good job.
<unk> has been a.
You know a slow low single digit grower.
These new supply chain products at the World and geopolitics is driving demand into their product base. So net net.
The teams there.
<unk> been additive or accretive to the.
The overall growth compared to where they used to be and that makes everybody's job easier.
The motive strong recovery expected to continue.
The underlying core of automotive at high single digits is right, where we've always talked about it being and we don't see that changing.
That's off really to the.
A mastermind team.
That acquisition has turned out to be very very important forward component I know many of our shareholders.
<unk> that's on that acquisition is not being as accretive as we wanted to do early on.
The team's stock stuck with it in terms of the build out of the enterprise mastermind products those have been rolled out to two major dealers and lots more to come new products.
Carfax for life taken hold.
<expletive>.
And the team are really excellent execution.
You get into financial services, the IPO acquisition again, our last two acquisitions. These are real.
Fruits of those acquisitions are showing.
The private equity markets around the <unk> level.
Substantive Lee building recovery of investments and solutions.
No.
Really really.
Excellent acquisition, that's turning into strong organic growth now.
And then in energy.
Hey, who would've thought it you're at $70 oil price heading towards 100.
Yes.
A.
Capex recovery.
<unk> got.
The world recover.
<unk>.
Midstream mid mid.
Look across resort next year, coupled with the recovered CMS strong financial services and automotive.
You as well.
At the top end of our long term.
5% to 7%.
Guidance that we provided.
Boats that bodes well for the firm so very mixed.
Strong.
Revenue growth organically.
Looking to achieve the 100 basis points of course is our our normal expected takeout with the rest going into investing in new products.
New opportunity sets so great job, it's probably my last chance publicly that <unk>.
Congratulate the teams, but I have to say, whether it was through market or post the IHS markit.
Sure.
Teams have stayed focus on incremental organic growth incremental margin expansion steady investments.
In our organic strategy and where we have to make sure we get the best out of that and I'll go through the earnings has been excellent and I don't expect that to change I think with S&P global Theres, a whole new set of revenue opportunities and of course substantive cost synergies and share buybacks ahead. So.
Lots to look forward to and.
It's been a really exciting journey, but the excitement doesn't stop here.
Next question.
Our last question comes from Toni Kaplan with Morgan Stanley. Your line is open.
Perfect. Thank you and Lance and Jonathan and always a pleasure speaking with you.
One topic that has been coming up a lot with investors recently has been the area of fixed income indices as it relates to their deal with S&P I was hoping you could talk a little bit more about what areas of synergies healed generate within the combined entity would imagine the main areas are creating products in multi asset class.
S G, but if there's any others or if you're able to expand on what you're most excited about there with the combined products that'd be really helpful. Thanks.
Okay, Thanks, Tony and thanks for your support.
Youre getting our last debt question. So I'll start and then I'm going to hand, it to Adam.
I think the most exciting thing about the fixed income indices is the combination.
With S&P global but not so much from product creation I think product creation. Both groups are highly product oriented they're both they both liked to create.
If you look over the years, whether it was S&P global MSCI FTSE et cetera. They all wanted to build a fixed income franchises.
<unk>.
Really in the early days, you really needed a bank partnership to build strong.
No.
Fixed income indices, because you really needed to align the underlying prices with the OTC marketplaces, and that's shifted over time, but.
Today, the combination is really about huge footprint and marketing platform that S&P global has for their index franchise and getting to overlay that across the fixed income franchises is going to be really.
Great Upper.
Uplift in terms of sales and opportunity. The second thing of course is what you'd mentioned is opportunities to create new indices, and maybe I'll, let Adam talk a little bit about some of the synergistic revenues that we expect to get out of the combination and.
Will.
I'll pass that.
Pass that over to Adam now, but thank you for your question Adam.
Yeah, great. Thank you.
Very excited about that combination we're proud of what we built in fixed income indices and I know with the scale that S&P indices will bring all of the things Lance highlighted.
We will give we will give that franchise a much broader reach than it's ever had I think key areas to think about in the combined businesses multi asset classes, you mentioned, but also in private markets and ESG.
And bringing the fixed income indices into that arena I think that that's the area of new products that I think will continue to see substantial growth and I think combined with the kinds of data sets that.
S&P and IHS Markit together, we will have the possibility for new indices, whether it's in carbon crypto ESG.
All across the fixed income.
World.
Globally, I think the opportunity set for us is pretty pretty robust.
Thanks, Adam with that we'll complete the questions and we'll turn it back to Eric.
Thanks, operator.
Thanks Lance we thank you for your interest in IHS Markit. This call can be accessed via replay 8585920 to 56 or International 404, 537, 3406 conference I'd 446 for $100.0, beginning in about two hours and running through October 2021. In addition, the webcast will be archived for one year on our web site.
Right. Thank you and we appreciate your interest and time.
This concludes today's conference call. Thank you for participating you may now disconnect.