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Edited Transcript of INFO earnings conference call or presentation 26-Mar-19 12:00pm GMT

Q1 2019 IHS Markit Ltd Earnings Call

London Mar 28, 2019 (Thomson StreetEvents) -- Edited Transcript of IHS Markit Ltd earnings conference call or presentation Tuesday, March 26, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eric J. Boyer

IHS Markit Ltd. - VP of IR

* Lance Uggla

IHS Markit Ltd. - Chairman & CEO

* Todd S. Hyatt

IHS Markit Ltd. - Executive VP & CFO

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Conference Call Participants

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* Alexander Kramm

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Exchanges, Ebrokers

* Andrew Charles Steinerman

JP Morgan Chase & Co, Research Division - MD

* Ashish Sabadra

Deutsche Bank AG, Research Division - Research Analyst

* Gary Elizabeth Bisbee

BofA Merrill Lynch, Research Division - Analyst

* Hamzah Mazari

Macquarie Research - Senior Analyst

* Jeffrey Marc Silber

BMO Capital Markets Equity Research - MD & Senior Equity Analyst

* Jeffrey P. Meuler

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Keen Fai Tong

Goldman Sachs Group Inc., Research Division - Research Analyst

* Manav Shiv Patnaik

Barclays Bank PLC, Research Division - Director & Lead Research Analyst

* Peter Perry Appert

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* Timothy John McHugh

William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst

* Toni Michele Kaplan

Morgan Stanley, Research Division - Senior Analyst

* William Arthur Warmington

Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q1 2019 IHS Markit Earnings Conference Call. (Operator Instructions) And as a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to Eric Boyer, Head of Investor Relations. Please go ahead.

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Eric J. Boyer, IHS Markit Ltd. - VP of IR [2]

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Good morning, and thank you for joining us for the IHS Markit Q1 2019 Earnings Conference Call. Earlier this morning, we issued our Q1 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.

IHS Markit believes non-GAAP results are useful in order to enhance the understanding of our ongoing operating performance, but they are a supplement to and should not be considered in isolation from or as a substitute for GAAP financial information.

As a reminder, this conference call is being recorded and webcast and is a copyrighted property of IHS Markit. Any rebroadcast of this information, in whole or in part, without the prior written consent of IHS Markit is prohibited.

This conference call, especially the discussion of our outlook, may contain statements about expected future events that are forward-looking and subject to risks and uncertainties. Factors that could cause actual results to differ materially from expectations can be found in IHS Markit's filings with the SEC and the IHS Markit website.

After our prepared remarks, Lance Uggla, Chairman and CEO; and Todd Hyatt, 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 Uggla. Lance?

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [3]

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Thank you, Eric. Thank you for joining us for the IHS Markit Q1 Earnings Call. We are pleased with our Q1 results as we continue to perform within expectations. We are making excellent progress on the integration of Ipreo and our post-merger strategic initiatives.

Key financial highlights of the quarter are revenue of $1.046 million, up 5% on an organic basis and 12% overall, solid growth in Transportation, Financial Services and Resources. Adjusted EBITDA of $408 million and margin of 39% with continued strong expansion. Finally, adjusted EPS of $0.60, up 13% over the prior year.

Let me now provide some segment highlights. Transportation continued to produce solid results, with organic revenue growth of 8% in the quarter, in line with our high single-digit guidance. We continue to benefit from our diversification across the auto sector's entire value chain.

The strongest growth drivers in the quarter included our auto forecasting, CARFAX used car listing and automotiveMastermind businesses. Financial Services reported strong results with 6% organic growth with strength across our information and solutions businesses in a diversified fashion. In particular, a strong quarter for pricing, managed loan services, reg and compliance; and in our software businesses, analytics and EDM performed well.

Ipreo results had strong growth in corporate services and private capital markets, offset somewhat by lower equity issuance. We have since seen a pickup in deal flow.

CMS organic revenue was minus 3%, as our TMT business was impacted by the uncertainty of a larger contract renewal. Our product design and ECR businesses performed as expected. We expect CMS organic growth to be in the low single digits for the year.

In Resources, we delivered our strongest quarter since 2015, with 6% organic growth, and we remain confident in our organic revenue growth outlook for 2019. Our view is supported by industry trends, the growth of our 12 -- trailing 12-month annual contract value, strong nonrecurring revenue pipeline and continued investment in innovation.

CERAWeek, our global energy conference, had record attendance, up 20% year-over-year, with over 5,000 attendees. This year, CERAWeek was diversified across energy markets and also across our firm, with strong plenary participation in mobility, technology and finance.

The energy industry is in the early stages of increasing its investment in advanced technologies to gain greater insights and to increase efficiency. IHS Markit is well positioned to partner with industry to help in these efforts.

Overall, we were pleased with another solid quarter of execution and financial results. And with that, I will turn the call over to Todd.

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Todd S. Hyatt, IHS Markit Ltd. - Executive VP & CFO [4]

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Thank you, Lance. As Lance discussed, our Q1 results were in line with our expectations and included revenue of $1.046 billion, organic growth of 5% and total revenue growth of 12%. Net income of $109 million and GAAP EPS of $0.27. Adjusted EBITDA of $408 million, an increase of 14% with margin of 39.0% and adjusted EPS of $0.60, an increase of $0.07 or 13%.

Relative to revenue, our Q1 organic revenue growth of 5% included stable recurring organic growth of 5% and nonrecurring organic growth of 8%.

Looking at segment performance. Transportation organic revenue growth was 8%. Organic revenue growth was comprised of 9% recurring and 4% nonrecurring. Resources organic revenue growth was 6%. Organic growth was comprised of 5% recurring and 16% nonrecurring.

Recurring and total organic growth benefited by 1 percentage point from favorable timing associated with software sales impacted by the new revenue recognition accounting standard. Our Q1 organic ACV increased $3 million, trailing 12-month organic ACV increased $26 million to $738 million, which was up 4% versus prior year.

We continue to trend at an ACV level supportive of our 2019 revenue expectation. CMS organic revenue declined 3%. Organic revenue was negatively impacted by uncertainty of a contract renewal in our TMT business. Recurring organic was flat and nonrecurring organic declined 20%, in part due to $2 million from the Boiler Code.

We expect approximately $10 million of organic revenue growth in second half of the year from the Boiler Code. We now expect CMS organic growth in the low single digits, excluding Boiler Code.

Financial Services total revenue growth was 28%, including organic revenue growth of 6%, acquisitive growth of 24% and negative 1% FX. Recurring organic growth was 4%. Nonrecurring organic increased $7 million or 37%.

Information organic revenue increased 5%, led by strength in our pricing and reference data and valuation services business. Derivative processing volumes were strong, while loan market volumes were soft, resulting in net processing organic decline of 3%.

Solutions organic revenue increased 12%. Growth was led by loan services business and analytics and EDM software. Our Ipreo business delivered $76 million of revenue and is on track to deliver to our full year adjusted EBITDA target of $115 million, but we expect revenue at the lower end of our $350 million to $370 million guidance range.

Turning now to profits and margins. Adjusted EBITDA was $408 million, up $49 million or 14% versus prior year. Our adjusted EBITDA margin was 39.0%, up 80 basis points normalized for Ipreo and FX, and up 40 basis points on a reported basis.

Regarding segment profitability, Transportation's adjusted EBITDA was $114 million, with a margin of 39.7%, down 100 basis points due to lower margin recall revenue and higher marketing spend in our CARFAX business to support forward-product initiatives.

Resources adjusted EBITDA was $93 million with a margin of 43.0%, up 160 basis points. CMS-adjusted EBITDA was $29 million, with a margin of 22.2%, down 90 basis points.

Financial Services delivered strong margin with adjusted EBITDA of $183 million, margin of 44.8%, up 290 basis points normalized for Ipreo and down 70 basis points on a reported basis.

Adjusted EPS was $0.60 per diluted share, a $0.07 or 13% improvement. Our GAAP tax rate was minus 1% and our adjusted tax rate was 18%.

Q1 free cash flow was $125 million. As expected, Q1 cash was seasonally low due to bonus payments. Our trailing 12-month free cash flow was $1.04 billion and represented a conversion rate of 65%.

Turning to the balance sheet, our quarter-end debt balance was $5.6 billion, which was down $83 million from prior year-end and represented a gross leverage ratio of approximately 3.4x on a bank-covenant basis.

Our in-quarter bank covenant leverage was impacted by lapping a prior year tax benefit from tax reform. We continue to track to our target to delever below 3x in Q3.

Finally, we closed the quarter with $133 million of cash and our year-end undrawn revolver balance was approximately $700 million. Our Q1 weighted average diluted share count was 408 million shares.

In terms of guidance, we are reaffirming our prior guidance. Full year guidance provides for: revenue of $4.425 billion to $4.5 billion with organic revenue growth of 5% to 6%, including Ipreo 4-month stub period organic contribution. Including Ipreo for 12 months would increase total organic growth to 6% to 7%.

Adjusted EBITDA of $1.75 billion to $1.78 billion, including adjusted EBITDA of $115 million from Ipreo; adjusted EBITDA margin expansion of 100 basis points normalized for FX and excluding Ipreo, an 80 basis point margin expansion, including Ipreo; adjusted EPS of $2.52 to $2.57, which represents adjusted EPS growth of 11% at guidance midpoint.

Finally, we expect cash conversion in line with our mid-60s target or more than $1.1 billion of free cash flow. In terms of capital allocation, we are focused on delevering to below 3x and resuming our share buyback. We expect to buy back $500 million of stock in the second half of the year.

And with that, I will turn the call back over to Lance.

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [5]

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Thanks, Todd. I'm pleased with our start to 2019 and believe we are well positioned to deliver upon our financial commitments for the year. The team has continued to deliver strong diversified revenue growth and margin expansion while making the right level of investment to be able to sustain strong long-term financial returns for our shareholders.

Operator, we are ready to open for the -- open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Gary Bisbee of Bank of America Merrill Lynch.

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Gary Elizabeth Bisbee, BofA Merrill Lynch, Research Division - Analyst [2]

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I guess the first question, on Ipreo, can we get any more color? Do you think the government shutdown was really the issue and that it was equity underwriting and that normalizes? Or is there anything else that leads you to think revenue for the year comes in at the lower end of the prior target?

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Todd S. Hyatt, IHS Markit Ltd. - Executive VP & CFO [3]

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No, I think we definitely saw equity market slowdown, government shutdown definitely played into that lower level of volumes and. But since we've seen pickup and the other businesses are performing as planned, and so we're confident with that $350 million to $3.70 million range and guided to the lower end of it. I think the other pieces is... we'll just answer that, operator, then we'll go to the second one, is that we've also reaffirmed -- the team has done a great job on the cost side, and we've reaffirmed the $115 million target as well.

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Operator [4]

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And our next question comes from Peter Appert of Piper Jaffray.

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Peter Perry Appert, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [5]

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So basically, Lance, things like the operating results, pretty broadly, are in line with the guidance you've laid out. So is there anything you'd call out in terms of things that are surprising you, either positive or negative, that you're seeing in the current results?

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [6]

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I think the -- and hopefully it came out loud and clear throughout the comments this morning, it's really I think a bit of a story of diversification in what I'd say is a solid quarter of results that's exactly what's written on the instruction booklet. And I guess why I say diversified in that you've seen energy at the higher end of the range, and that's come from negative growth to the top end of 0 into the top end of 2% to 4%. We've now laid out 4% to 6% and mid-single digits, and we feel really good about that. This was a solid 5% to 6% quarter and Todd called out the adjustment on the accounting rules that gave us a bit of a lift. But I feel really, really good about energy. And then followed on with a CERAWeek that had something like 5,500 people crossing right across mobility, finance, technology; big new sponsors, Amazon, Microsoft, both they're sponsoring; Google Cloud sponsoring the conferences. And it just shows that we're right at the heartbeat of data, data science, technology and the intersection into our industrial segment. So I think we -- that bodes well. CERAWeek is a good barometer for the energy markets, and I think that bodes well. So diversified in that in order for us to hit our guidance in the previous couple of years, we're always kind of pulled very fondly by automotive, no pun intended, but they kind of towed us up to the higher end. And energy was something recovering and financial markets putting in a core set of results, tended to the higher end at the end of last year. The other thing diversified within, so if you look at financial markets, even processing, it's down but the fact is, is you've got derivatives doing well in loan processing off, so it's a mixed bag. Things that have always been strong, pricing, the private capital markets business, indices, all doing well and continue to do well. And then in automotive, it was a bit of shift, Mastermind's doing well. The old core forecasting business doing well and CARFAX continuing to storm ahead. That mix is slightly different than the digital marketing mix and recall that we're seeing last year. So I think when I talk to the team, I go, solid quarter and it's really nice to see that we're not relying on single parts of the company to carry our guidance. And -- but the combination of the business is great. I think EBITDA performance across several of our businesses was stellar as well in terms of expanding margin.

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Operator [7]

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And our next question comes from Manav Patnaik of Barclays.

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Manav Shiv Patnaik, Barclays Bank PLC, Research Division - Director & Lead Research Analyst [8]

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My question was just on the energy business. So Todd, just to confirm the -- I guess the 1 point benefit this quarter, could you just talk about how we should think about that for the full year? And Lance, just on your industry trend, I was hoping if there was anything from CERAWeek specifically that you could talk to in terms of your positive outlook on energy.

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Todd S. Hyatt, IHS Markit Ltd. - Executive VP & CFO [9]

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Yes, but I think the 1 point will wash through the year, Manav, I mean, I think it will be neutral by the time we get to year-end. So when we look at the software products within energy, they're generally pretty short-term licensing, so there's a little bit of variability in the timing with the new standard. 6% is certainly 1 point ahead where we would have expected to be ahead at this time, but we still feel very good about energy solidly moving into the mid-single digits. And then I think on the nonrecurring on energy, consulting was good. And Lance talked about CERAWeek, coming off of a pretty strong CERAWeek in March, so I think we're well positioned as we move forward through the rest of the year.

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [10]

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I said -- at the time of guidance, Manav, I said that across the firm, we expected the rev rec to be neutral to $10 million drag and then we'll provide color as we go through the year. It creates a little bit of -- I think the big thing, it will create some in-quarter variability. But full year, we would expect it to generally be somewhat neutral. So on the second part of your question, I think there was 2 themes that kind of gave a interesting tone towards the upside, as I would see it from IHS Markit perspective from CERAWeek. So I think one of the first themes that's overriding the energy markets, of course, is climate, so that bodes well for a company that is well positioned to consult across up, mid and downstream energy activities. You've got -- the whole LNG markets are very interesting in terms of playing into climate change and the strong supply, and so, of course, our consulting teams, which then feed into our data products, that bodes well. Also climate driving another component that intersects well with financial markets, and that's the whole ESG and measurement of compliance by companies and the investment appetites of the investment markets and how those intersect and come together, that bodes really well for our energy market consultants coupled with the financial markets, but also our recent acquisition of Ipreo plays well into that as well. I think what was interesting is the intersection as well at CERAWeek of technology and the fact that industry participants are definitely grappling with data, more data than they've ever had before and how to manage it, how to share it, distribute it, exchange it between themselves and the vendors in a way that can provide market efficiencies but also to help them manage their businesses better and that bodes well for where we sit in the energy marketplace. So I think lots around climate plays in well to a data provider like ourselves, as people are analyzing forward policy strategy investments. And then I'd say the other one is geopolitics and just the state of the world in terms of whether it's Venezuela, sanctions in Iran, potential trade wars -- or settling of trade wars between U.S. and China, and that bodes and plays into supply-and-demand scenarios that, again, we're a world leader in providing forecast into the upstream energy markets to help decisions around exploration and production, and so I felt that as a strong underlying theme. So yes, I think that all bodes well for where we position. I wouldn't change our guidance, but I think that it helps us reaffirm our guidance and look forward throughout the year and say, this is going to be a solid performance for our teams with respect to energy.

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Operator [11]

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And our next question comes from Jeff Meuler of Baird.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [12]

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Just wanted to push a little bit more on Ipreo because you kind of took down the lower end of the range to risk adjust from the original guidance a couple of quarters ago, and now just guiding towards the low end of the maintained range. So just in that context, I understand equity issuance with macro and the government shutdown weaker in Q1. But as you observed, it's picked back up. So I guess are you -- is this just 1 quarter of lower equity origination moves the needle that much? Just anything that you could say to kind of reiterate confidence in Ipreo.

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [13]

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Well, I'll start and then I'll pass it to Todd. So I guess, I hope you got used to 3 years of a fairly conservative set of forward-looking guidance, and we do want to set the right stage. And one thing about Ipreo, it's similar to derivatives. I hate the fact that any volume-based businesses to me judge any particular quarter. What I care about is the fact that our assets, whether they are the equity muni bond markets that are driving the Ipreo results or whether they're loan processing or interest rate derivative processing or valuations of derivatives, things that are volume related that really are outside of our control, so we have to guide with our best expectations of an annual marketplace. And since we acquired Ipreo, the markets have been a little bit quieter and there's no cost adjustment with respect to the equity piece, which is very volume-oriented. And so at this point, we look at our year, we've said we're going to have a 5% to 6% organic growth year. We're reaffirming that today. We're into our second quarter. We feel -- hopefully, you can feel a sense of confidence in our guidance. We're managing costs well. But I think through you folks, you can put in $350 million, you can put in $355 million or $360 million that's in that lower part of the range. Wherever you want to put your models to. And that gives us a solid outlook on the year and one that's appropriate to give you today. Todd, you want to add to that?

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Todd S. Hyatt, IHS Markit Ltd. - Executive VP & CFO [14]

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Yes. Yes, I mean, I think that's right. I think you called out the Q1 revenue number, that was certainly impacted by quieter markets, and I guess implicit in that, we wouldn't expect to catch all of that up as we move through the year. I mean, I think there's -- the markets are certainly much more constructive now. We expect to see a notable pickup in Q2 and see the business performing well for the rest of the year. But I said at the time we gave guidance that to get to the higher end, things would fall into place well and that would signal some upside. And we protected very well at the $115 million level in terms of the margin and so we feel very confident in that number.

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [15]

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Yes. There's a lot of chatter in the marketplace in terms of tech issuance, the likes of Uber and others, all being touted and those all play well for a company like ours. But there's also trade wars and market dialogue that changes things day-to-day. What I can say, if there's issuance there, we'll be doing it and that could bode very well in the second half or if you took the last 10 years and took the lowest volumes and modeled it out, it'll probably put us at the bottom end of that range. And so I think we've given you a good guidance for today.

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Operator [16]

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And our next question comes from Bill Warmington of Wells Fargo.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [17]

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Could you talk about how the indices business is doing overall and comment on how ChinaBond, the partnership there you did in October, is doing and what you think the opportunity is longer term in China?

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [18]

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Yes. Well, our index business continues to perform well. I know in general, if you look at some of the market chatter and where overall indices are -- index volumes are amongst some of the bigger players, you'd think there would be more volatility. But actually our group -- we're 1 of the world's -- the 2 world leaders in fixed income bond indices and those volumes and levels have continued to perform well. So we are -- we haven't experienced any significant change to our business there. In terms of our ChinaBond index, I'd say that the reception has been good. I don't have the exact numbers to provide you. It's something that you could follow up with Eric on. But all I can say is that we're progressing, we've had great meetings, great reception. And given that we're the only player that's working directly with the ChinaBond as a partner, I think we have a competitive edge and that will bode well for the future.

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Operator [19]

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And our next question comes from Tim McHugh of William Blair.

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Timothy John McHugh, William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst [20]

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Yes, I just want to follow up maybe a little bit differently on the Financial Services. Can you talk about is the growth rate of the -- if we excluded the equity portion, is that consistent with what you thought and is that still kind of double-digit growth as you talked in the past?

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Todd S. Hyatt, IHS Markit Ltd. - Executive VP & CFO [21]

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No. We expect Ipreo to be double-digit growth, yes.

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [22]

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Were you referring to Ipreo or our index business?

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Timothy John McHugh, William Blair & Company L.L.C., Research Division - Partner & Global Services Analyst [23]

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Ipreo.

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [24]

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Yes. Okay. No, no, definitely our view is Ipreo will be a double-digit growth. And I think there was a -- the organic growth in general was very, very strong in the quarter across the business.

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Todd S. Hyatt, IHS Markit Ltd. - Executive VP & CFO [25]

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iLEVEL was very strong. The corporate services were strong.

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [26]

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Private capital market is strong. So I don't think there's any -- we don't have any cautionary flags whatsoever, except that we can't measure the volume and it was lower than expected.

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Operator [27]

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And our next question comes from Andrew Steinerman of JPMorgan.

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Andrew Charles Steinerman, JP Morgan Chase & Co, Research Division - MD [28]

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Todd, I had always thought in the past that the Resources ACV was a leading indicator of the IHS Resources organic revenue growth, just tell me if you agree with that. And given that the Resources organic revenue growth is now growing faster than ACV, do you expect ACV to kind of bump up to the level where Resources organic is?

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Todd S. Hyatt, IHS Markit Ltd. - Executive VP & CFO [29]

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No, I think the way you said it is the right way to think about it, Andrew. I mean, the ACV is the forward indicator. ACV growth on a trailing 12-month basis is 4%. The reported organic is ahead of that. I called out a percentage point of that was due to the new rev rec standard. Within any quarter, I say there's potential of 1 point, plus or minus just from contract renewal timing that can impact. But we have ACV right now at 4%. We see that continuing to move up and that, given I think with the context that Lance provided, give us a high level of confidence that Resources will certainly be in the mid-single digits this year.

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Operator [30]

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And our next question comes from Ashish Sabadra of Deutsche Bank.

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Ashish Sabadra, Deutsche Bank AG, Research Division - Research Analyst [31]

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Yes, my question is on the Transportation side, so continue to see some good momentum there. I was just wondering if you can talk about the traction for the conquest marketing product within automotiveMastermind as well as the myCARFAX new product launch, how is that coming along? And then just maybe quickly on the nonrecurring side, any kind of visibility that you have on the recall activity there?

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [32]

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Okay, maybe I'll start and then I'll pass it to Todd. So the first thing is, is we called out 3 areas of strong performance in the quarter, which is slightly different than maybe previous quarters. That was Mastermind and of course, the Conquest product launched in the quarter, so we've got a quarter of results and that was a strong participant. Second, it's too soon on CARFAX for Life, it was just launched in the New Year, so you're really seeing that launch play into Q2. But the team worked right through 2018 to be ready for that early this year launch, and they've got the product out and it's too early to give you any forecast, except that it's a well-developed product that will play well into the service lane and support future growth. Used car listings continues. We're a smaller -- we're one of the smaller participants, but with very high growth rates and again, I think quarter-by-quarter, CARFAX and used car listings is one of their new innovative products over the last few years continues to grow. And then just the underlying core automotive business with the whole everybody wants to know impact of EVs, what's the future of ridesharing programs, how does that affect componentry in cars, so the whole automotive forecasting becomes quite interesting and so another good performer. On the lumpier side, recall, which is lower margin, I think Todd called it out in some of the financials as well as digital marketing post-Facebook, those which had been strong growers last year coming off slightly. So the mix of products is slightly different, but solid 8% organic growth and we are very pleased.

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Todd S. Hyatt, IHS Markit Ltd. - Executive VP & CFO [33]

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Yes, recurring transport 9% and the nonrecurring a bit lower, and you see some of that variability in the nonrecurring. The recurring, we feel very good about the continued performance at that level, that very high single-digit level. There will be some variability in the nonrecurring recall, certainly introduces a level of variability but we don't see it being hugely profit impacting. So I think we're -- we continue to see very strong growth drivers throughout the Transportation segment and feel very good about the guidance we've provided on that segment.

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Operator [34]

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And our next question comes from Hamzah Mazari of Macquarie.

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Hamzah Mazari, Macquarie Research - Senior Analyst [35]

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My question is just around whether you think the portfolio can generate positive organic growth in a more significant slowdown, just any color on cyclicality of the business.

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [36]

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Yes, I think we've said before that I think that our 5% to 6% organic growth target takes us through cyclical change in the industries that we're in because a lot of our products are kind of must-haves regardless of the sentiment in the markets they're in. So for example, a large piece of the automotive market, 65% of it, is used car listings. So that's not SAARs-connected. In fact, if anything, it might be cyclical in a positive way. We don't call it out that way; but if you wanted to take the other side of that argument, you could. Forecasting, it's something that the OEMs need regardless of whether they're going to sell 1 million cars or 5 million cars, whatever the number is going to be, they still need our forecasting. Our emissions products, our regulatory and -- are needed regardless of measuring output, regardless of the market environment. You've got Mastermind, which is helping dealers sell cars. Incentives usually go up. In the challenged markets, incentives go up. The whole need for data science around customer retention, customer conquest, service lane activity, those are all positives. So automotive, I'd say in general, I believe it's well cushioned within its upper single-digit range in the cycles that we can see ahead of us in '19, '20, '21. Energy. Energy is interesting. Definitely, exploration plays into our upstream, which is the largest piece of our Resources franchise. And -- but exploration is a -- it's a long-term view and the general view is, is to replace what's needed by the world economies as well as to fulfill the kind of base demon scenarios. There's still exploration required and, therefore, I think the market has got into this equilibrium state with oil in the $55 to $65 range. I think we feel very comfortable with our upstream growth continuing. Sub-$55, definitely you could see a bit of a change in terms of forward CapEx.

I also love the shift of CapEx. Last year, we're looking at 80%, 85% of global CapEx coming out of the Permian and this year, that's shifted completely, and you have a much more -- you have much more global or international component to the CapEx and of course, our data sets are supporting those activities with all major players. So I feel that's one place where cyclicality could come in. But then, you have to look at the rest: PGCR, power, gas, renewables, liquid natural gas, U.S. exporter, replacement of coal, energy as a service, plastics, we're playing in -- our chemicals team are playing in plastics and recycling and how all the big -- just ran a big customer-driven study around plastics. And I just feel like we're in the hotbed of change with respect to climate. So I think our PGCR business has continued upward momentum regardless of the energy markets because policy and strategy is changing. And then finally, in the downstream businesses, those continue to grow at upper single digits. We've -- we made a small little chemicals pricing acquisition. We've got our OPIS activities. We're world leaders in coal. We've added data science around that in terms of pricing coal, coal transportation, supply, using some pretty advanced data science and that bodes well. So again, I think there's a mix there. Upstream definitely got a cyclical component. Mid, downstream can definitely hold its own or outperform. And then financial markets, really most of what we do in financial markets, people need regardless of volumes. Sometimes when markets are thin, volumes are higher and we're paid per trade. Again, yes, maybe in a downward cycle, we get to the lower end of that range, 3% to 5% in a really negative financial markets environment, but we're very well-diversified. And so we feel that mid- to slightly upper single digits with the current assets we have bodes well for this year and we kind of reaffirm that today. And then CMS, a bit of a mute quarter. It's a smaller division, but in any other division, we wouldn't call out a contract renewal. But when it sits right out in front of you and it's a minus 3%, we've got to explain why it is. But there's nothing really to report there, and we reaffirmed -- we took from low to mid to say low, that's probably the year's hedge. And put it all together, and we still feel really good about our 5% to 6%, our 100 basis points margin and our double-digit earnings growth. So that was a long-winded answer but covers the company.

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Operator [37]

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And our next question comes from George Tong of Goldman Sachs.

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Keen Fai Tong, Goldman Sachs Group Inc., Research Division - Research Analyst [38]

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Your Financial Services recurring fixed organic revenue growth decelerated to 4% from 7% in the prior quarter despite easier year ago comps. Can you discuss what drove the deceleration in the recurring business in Financial Services and what could drive a reacceleration?

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Todd S. Hyatt, IHS Markit Ltd. - Executive VP & CFO [39]

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I don't think anything specifically drove it, George. I mean we had very high growth last year, Q1, Q2. We've said that this was a business -- the information business is going to perform in the 4% to 6% range. We've had a few quarters where we've overperformed that. It's a healthy business, performing well and there can be some in-quarter variability, there can be some comparisons to prior years. But there wasn't a specific item that I would call out in that part of the business. I think we continue to perform very well there.

And we had a really strong nonrecurring quarter. So this sort of gets back to Lance's earlier point, you have -- you're down a little bit in one area, you're up quite a lot in other area and you put it together and it's a really strong performance by Adam and the team again.

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [40]

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Yes. No, I think there's nothing specific, but I would say if you take the last 8-or-so years, and you take that core information business, ex Ipreo, it's been 4% to 9%. That's 2 years I think we're at low 4s. And then some years, we've been 7%, 8% or 9% 3 or 4 years and the rest of the time kind of between 5% or 7%. I don't think that -- I agree with Todd, nothing to call out there. We've reaffirmed the year, and I definitely -- I feel our position in the marketplace around our growth engines, private capital markets, our position in the loan and credit markets, you've got lots of private equity moving into private credit, private debt, that bodes really well for our businesses, pricing, et cetera. Our valuations team in more challenged illiquid markets, valuations, if anything, that bodes well. Our reg and compliance products and solutions, nobody asks any questions about that anymore, but that's been consistent double-digit growing now for many quarters and that's -- that bodes well in this environment. And then the intersections in the organic growth coming from our merger still bodes well. And I think 0.75% to 1% per annum of organic growth coming from merger-related synergies is something that we can look at as a consistent player. So if we do $30 million to $50 million a year from synergies with respect to cross-sell, new product development, data science, analytics across the firm, I think that bodes really well and is in line with the merger and we continued to see that growth. So -- and that's because we have a financial markets franchise that's regarded that our -- we're able to bring our energy, automotive, aerospace and defense, economics products into our customer base. And yes, that all bodes well for where we're going to end up this year. But it is the first quarter, we've got 3 quarters to go, we've got 1 month into the second quarter and we feel confident enough to reaffirm where we're going this year. But again, we never want to get ahead of ourselves, so I think if you stick with the numbers as laid out, I hope we don't disappoint you.

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Operator [41]

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And our next question comes from Alex Kramm of UBS.

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Alexander Kramm, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Exchanges, Ebrokers [42]

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I feel like I may be asking a similar question that has been asked a few times. But I think, Lance, you just said it yourself, you still feel very, very confident about the guidance or you may even say you don't want to get ahead of yourself. But at the same time some of the updates we heard today, CMS, obviously taking down guidance, Ipreo at the lower end and in energy, you had this kind of like a benefit that seems to be a little bit onetime. So everything seems to be maybe a softer start but you're still very, very, very confident. So just want to make sure I hear that correctly because I think if you look at the run rate right now, there's a significant step-up that needs to come to make the rest of the year. Just maybe [confirm] if that's right.

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Todd S. Hyatt, IHS Markit Ltd. - Executive VP & CFO [43]

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Well, Alex, we've talked about the seasonality in the business, and I think if you go back, and you look at the cadence of the business, Q1 just is the lowest quarter for this company. Q2, Q4, 2 biggest quarters. And so the business performance that we've had to date fully supports the numbers that we've committed to on a full year basis. When you look at Q1 and you look at Q1 versus prior year, it's a good, solid quarter. And organic revenue growth of 5%. Resources, yes, we did call it out, but I think the Resources number was probably ahead of where we expected it to be because of the organic -- because of the revenue accounting change. You normalize that, it's consistent with where we expect it to be, maybe a shade ahead of where we expected it to be. So that one we called out. We -- as Lance said, I think CMS, a relatively immaterial event in the context of the company; in the context of CMS, it's a bigger number, so we called that out. Certainly don't see that being impactful to the company's full year performance. And when we look at the significant items that drive forward numbers, and we look ahead into Q2, and talk about things like some of the events that we have in Q2, Lance talked about CERAWeek and the performance that we've had there, we feel certainly happy with that performance. And then a general improvement in some of the underlying market activities, which we've called out. So I wouldn't read as -- I guess, I think you're reading too much between the lines. I think it's a solid quarter. We feel good about the start to the year and certainly have a clear path to deliver on a full year basis.

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [44]

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Yes. I guess if I added to that, and I always like to have math that works when we give guidance, and I kind of look at our 4 divisions and look at what are things that give me confidence in delivering 5% to 6% organic growth for the year, and I -- if you take energy, if you want to take the 1% away from the software, and you think energy is going to come in at 5%. You look at CMS, and you go, well, they took away mid. It's going to be 2% to 3%. If you look at financial markets, it's kind of always -- it never fell below 4%. You could even put that at the lower end. And you've got high single digits, 7% to 9%, 9% recurring this quarter. If you're at even 7% or 8%, when if you that all together, you still end up north of 5% and gives us great confidence to give a quarterly guidance at 5% to 6%. And I agree with Todd, I feel it's very solid but also, I think we also have a reputation of making sure that you're putting numbers that work into your models and ones that we're not going to let you down on and then you can make decisions accordingly.

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Operator [45]

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And our next question comes from Toni Kaplan of Morgan Stanley.

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Toni Michele Kaplan, Morgan Stanley, Research Division - Senior Analyst [46]

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I did want to ask about the TMT contract renewal. Did you ultimately sign the contract? Or if not, was -- did the customer go to a competitor or go in-house? If you did re-sign, was it on worse terms? Or was dis all just a timing thing? And do you have any other large contracts coming up for renewal this year?

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [47]

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Right. So every -- all our divisions have large contracts every single quarter, ranging from $100,000, which is small, to millions, which get larger and even $10 million, $20 million renewals. So we're dealing with large contract renewals in every one of our divisions. And this particular contract renewal wouldn't even show up on a dial in any of the other 3 divisions. It just happens that CMS has 3 components and it's a bit more transparent, and we wanted to give you a highlight to that. What I'll talk about in general is, sometimes we have customers that -- 2 customers can come together and form 1 customer. And when that happens -- and that happens across financial markets, across asset management, automotive suppliers, energy companies, our entire marketplace is filled with M&A activity that is never a smile for us. We don't get smiles when there's mergers because it means that we'll absorb in our 10% nonrenewing recurring revenue every year. We've got to work hard to rebuild that. And so we haven't lost a contract to any competitor. We have a contract delay, which may or may not come through, I couldn't tell you. But the team has done a great job to position us well if it does get renewed and it's now in our -- it's been given to you, it's in the numbers and there's nothing else unusual about anything in the firm that is worth pointing out. And it's a good question, Toni, but there's nothing unusual here except that it's in a division and a business where it is transparent. What I can say to you in TMT is that our RootMetrics team has -- ever since that acquisition some years back, it always had a handful of big customers, so it always had these single points of failure, which what I really like about the team is we've started to diversify and grow in doing technology benchmarking across cloud services, Internet of Things, where we're looking at the benchmarking of sensors or we're looking at the cloud service providers. We really have diversified our benchmarking activities and benchmarking is a great business, and we wouldn't be able to do that without the team in Seattle that are -- they're all Ph. D.s, super smart quants doing a great job. But they've got some big customers that may decide to be together and, therefore, that has a in-quarter impact.

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Operator [48]

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And our next question comes from Jeff Silber of BMO Capital Markets.

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Jeffrey Marc Silber, BMO Capital Markets Equity Research - MD & Senior Equity Analyst [49]

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Just one quick one. You had mentioned the potential impact of the government shutdown on the Ipreo business in terms of equity slowdown. Was there any other impact in any other businesses? I think last quarter, you talked about you might see some impact in your product design area.

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Todd S. Hyatt, IHS Markit Ltd. - Executive VP & CFO [50]

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Yes, I said last quarter that U.S. government and product design, there was a continuing resolution process and then once the government was funded, those contracts would be basically fully funded and released into revenue. And so we -- that is occurring and we don't have concern about any government contracts from product design.

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Lance Uggla, IHS Markit Ltd. - Chairman & CEO [51]

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I think that's our last question. So thank you, everybody and I'll turn it over to Eric.

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Eric J. Boyer, IHS Markit Ltd. - VP of IR [52]

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Yes. We thank you for your interest in IHS Markit. This call can be accessed via replay at (855) 859-2056 or international dial-in (404) 537-3406, conference ID 4198595, beginning in about 2 hours and running through April 2, 2019. In addition, the webcast will be archived for 1 year on our website at www.ihsmarkit.com. Thank you, and we appreciate your interest and time.

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Operator [53]

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