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IHS Markit Ltd. (INFO) Q4 2018 Earnings Conference Call Transcript

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IHS Markit Ltd.  (NASDAQ: INFO)
Q4 2018 Earnings Conference Call
Jan. 15, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2018 IHS Markit Earnings Conference Call. At this time, all participants are in a listen-only model. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a remainder, this conference call maybe recorded.

I would now like to introduce your host for today's conference, Mr. Eric Boyer, Head of Investor Relations. Sir, you may begin.

Eric Boyer -- Vice President, Investor Relations

Thank you. Good morning, and thank you for joining us for the IHS Markit Q4 2018 earnings conference call. Earlier this morning, we issued our Q4 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 excludes stock-based compensation, amortization of acquired intangibles and other items. IHS Markit believes non-GAAP results are useful in order to enhance understanding of our ongoing operating performance. But they are 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 filings with the SEC and on 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.

Lance Uggla -- Chairman and Chief Executive Officer

Thank you, Eric. Happy New Year, and thank you for joining us for the IHS Markit Q4 earnings call. Today, we'll review our Q4 and 2018 financial performance, reaffirm our 2019 outlook and discuss the progress we have made on our strategic initiatives.

2018 was a very successful year for IHS Markit on all fronts. Financially, we delivered strong results with organic revenue growth of 6%, adjusted EBITDA margin expansion of 100 basis points, excluding Ipreo and FX, and year-over-year adjusted EPS growth of 11%.

We also completed the acquisition of Ipreo, and made great progress on our longer-term strategic initiatives. We finished the year with a solid Q4, and we are reaffirming our 2019 financial guidance. We remain comfortable with our outlook even with increased uncertainty over global growth from when we last spoke in November.

We believe that our role as a trusted partner, our mission critical solutions, recurring business model and diversification will help us perform well through all business cycles. Operationally, we are performing with the right sense of urgency and we feel good about the momentum that we have within each of our end markets.

A few points that bode well for 2019. Energy is still consolidating growth off a low base. Automotive is well diversified and investments are bearing fruit. CMS is reorganized and positioned to grow at a steadier rate. And Financial Services will continue to have solid recurring revenue growth, while our non-recurring revenue could see go two ways (ph) their ability. We also remain focused on executing against various operating levers to help us deliver upon our adjusted EBITDA margin expansion and adjusted EPS growth targets independent of the business environment.

Over the past two years, we've also trimmed down our capital structure and significantly improved our free cash flow conversion, which positions us to increasingly return capital to shareholders. All of this gives us confidence in our ability to produce strong results in 2019 and the years to come.

So, now onto the financial highlights for Q4. Revenue of $1.068 billion, up 5% year-over-year on an organic basis. Adjusted EBITDA of $417 million and margin of 39.1%. Margin expansion was 100 basis points, excluding Ipreo and FX. And adjusted EPS of $0.57 a share, up 10% over the prior year. In terms of core industry verticals, I'll provide some Q4 and full-year 2018 highlights and forward-looking commentary.

First, our Transportation segment continues to produce very strong results, with organic revenue growth of 10% in the quarter and 11% for the year. Growth across the segment continues to drive a strong result. In 2018, we made significant strides in leveraging IHS Markit advanced analytics capabilities to extend the value of our core data assets. We launched a new freight rate forecasting service, and developed a number of successful proof-of-concepts around commodity tracking, security events and automotive forecasting.

We also successfully integrated Mastermind into our portfolio, and develop the Conquest marketing product that helps OEMs and dealers better target new customers, which is increasingly important. In 2019, we expect high single-digit organic revenue growth within Transportation, anchored by a diversified set of growth drivers across the segment.

Our used car business will continue to see strength from used car listings, banking and insurance products, and our core vehicle history report business. In the new car market, we are focused on delivering ever more granular production and technology forecasts and analytics to the entire automotive supply chain. Demand is driven by stringent emissions and fuel economy regulatory policies, as well as the adoption of autonomous driving technologies and new forms of mobility.

Also in Transportation, there's growth from our maritime and trade, and aerospace and defense businesses. They will accelerate somewhat as we introduce new offerings, leveraging expanded data sets and analytics driven insights to our customers.

Resources organic growth was 4% in Q4, and for the full year also 4%. We also ended the year with annual contract value in line with our expectations, which supports our forward view for 2019. In 2018, we launched several new product capabilities around sustainability, mobility and LNG analytics.

We had a record CERAWeek, with increased participation from the broader IHS Markit areas of expertise. We also formed a new financial capital markets team to control (ph) business with financial and capital markets across all of our Resource businesses.

In 2019, we expect organic revenue growth of 4% to 6%. We expect CapEx spending to continue to improve in '19, but for the industry to remain disciplined with regards to spending and financial returns. We're seeing good renewal rates, which supports our view that our upstream business should continue to gradually improve. Within our mid and downstream businesses which comprises 35% of our Resources revenue, we expect continued solid performance.

Within Resources, we'll look toward an accelerated amount of product innovation around analytics and visualization to enhance existing data sets and to create entirely new solutions for our customers. Financial Services organic growth was 4% in Q4 and finished the year at 6%, which was another strong year. We accomplished a lot in 2018, including the acquisition and integration of Ipreo. Cost synergies are tracking in line with expectations, as are the revenue synergies, with multiple transactions already closed.

We continue to see growth from investments and innovation within our derivatives pricing and valuations businesses. We also advanced partnerships, develop key new relationships to provide best-in-class solutions in the areas of liquidity analytics, collateral management and initial margin calculations.

In 2019, we expect organic growth within Financial Services in the 4% to 6% range or 6% to 8%, when including Ipreo for a full 12 months. We expect our pricing and reference data, valuation services and index businesses to continue to attract new customers, given the high quality and broad coverage of our products.

Within solutions, our regulatory and compliance businesses will continue to benefit for investments in products that help our customers meet regulatory challenges and reduce operating costs. And we expect another solid year from our portfolio management and EDM businesses. We see improving trends in derivative markets, while loan markets remain cautious in light of market volatility.

And finally, we expect Ipreo to deliver low-to-mid teens organic growth, driven by continued market share gains and product expansion within its capital markets, corporate solutions and private capital markets businesses. Finally, CMS organic revenue growth was flat in the quarter. For the full year, revenue growth was 3%, normalized for the boiler code.

In 2018, within product design, we saw a rebound in standards, fundamentals within its oil and gas customer base. Within TMT, we expanded our performance benchmarking capabilities to include a broader range of electronics, including semiconductor chipsets, gaming platforms and the Internet of Things networks.

And finally, within ECR, we experienced strong demand to help customers understand the implications of new tariffs on trade. In 2019, within CMS, we expect to deliver low-to-mid single digit organic growth, normalized for the boiler code.

Moving on to our IHS market merger synergies. We completed our cost energy program and surpassed our $125 million target. We incrementally invested additional synergies in our four strategic areas of investment; people, technology, product and customers.

We are already starting to reap the rewards of these incremental investments, such as increased product innovation through data science, which will help us deliver to our longer-term financial commitments in the years to come. In terms of revenue synergies, in 2018, we met our $35 million run rate goal and expect continued momentum in 2019.

In closing, we achieved a lot in 2018 , and are focused on delivering to our forward commitments to create value for our shareholders. This will include consistent delivery of organic revenue growth, including Ipreo of 5% to 7%, 100 basis points of annual adjusted EBITDA margin expansion as we move to our mid-40s margin target and double-digit earnings growth.

And now, I'll turn it over to Todd.

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Thank you, Lance. Before we get started, as a reminder, we closed Ipreo on August 2nd and as a result, our Q4 results include a full quarter of Ipreo and our year-to-date results include four months of Ipreo. On a year-to-date basis, Ipreo contributed in line with our expectations with $102 million of revenue and $27 million of adjusted EBITDA.

Now for the Q4 results. Revenue was $1.068 billion, an increase of 13% and organic growth of 5%. GAAP net income was $81 million and GAAP EPS was $0.20. Adjusted EBITDA was $417 million, an increase of 14%, with margin of 39.1%, and adjusted EPS was $0.57, an increase of $0.05 or 10%.

We were pleased with the finish to the year and the strong revenue and profit performance we delivered throughout 2018. Relative to revenue, our Q4 organic revenue growth of 5% included stable recurring organic growth of 6% and non-recurring organic growth of 1%.

Looking at segment performance. Transportation revenue growth was 11%, including 10% organic, 2% acquisitive and negative 1% FX. Organic revenue growth was comprised of 10% recurring and 9% non-recurring. Resources revenue increased 3%, including 4% organic and negative 1% FX. The organic revenue increase was comprised of 4% recurring and 1% non-recurring.

Our Q4 ACV increased $5 million and our full-year ACV increased $22 million. We ended the year with ACV of $732 million, which was up 3% versus prior year. We continue to trend at an ACV level in line with our 2019 revenue expectation.

CMS revenue declined 1%, including flat organic revenue growth and negative 1% FX. Organic revenue was negatively impacted by 1 percentage point from prior year boiler code. CMS recurring organic growth was 2% and non-recurring declined 11% or $2 million, primarily due to prior year boiler code.

Financial Services revenue growth was 27%, including organic revenue of 4%, acquisitive growth of 24% and negative 1% FX impact. Recurring fixed organic growth was 7%, in line with our full-year growth trends and recurring variable organic growth was 3%. Non-recurring organic declined $3 million or 12% versus the prior year.

Our information business increased 2%, including 3% organic growth, led by strength in our pricing and reference data and valuation services business. Processing declined 6%, including 5% organic decline and solutions increased 10%, including 10% organic growth. Solutions growth was led by our loan services business.

Turning now to profits and margins. Adjusted EBITDA was $417 milllion, up 14% versus prior year. Our adjusted EBITDA margin was 39.1%, up 100 basis points, normalized for Ipreo and FX and up 40 basis points on a reported basis.

Regarding segment profitability, Transportation's adjusted EBITDA was $117 million with margin of 39.3%, down 210 basis points versus prior year due to lower-margin recall revenue and higher marketing spend in our CARFAX business to support forward product initiatives.

Resources adjusted EBITDA was $99 million with margin of 44.4%, up 180 basis points. CMS adjusted EBITDA was $35 million with margin of 25.5%, up 210 basis points. Financial services adjusted EBITDA was $179 million with margin of 43.9%, up 180 basis points normalized for Ipreo and down 210 points on a reported basis.

Adjusted EPS was $0.57 per diluted share, a $0.05 or 10% improvement over the prior year. Q4 free cash flow was $303 million. Our full-year free cash flow was $1.067 billion and represented a conversion rate of 68%.

Turning to the balance sheet. Our year-end debt balance was $5.7 billion, which represented a gross leverage ratio of approximately 3.2 times on a bank covenant basis. We closed the quarter with $120 million of cash and our year-end undrawn revolver balance was approximately $892 million.

Our Q4 and full-year weighted average diluted share count was 406.7 million and 406.9 million shares, respectively. Our full-year share purchases were approximately $768 million or 16.2 million shares, an average price of $47.40.

Moving to full-year financial results. Total full-year revenue was $4.009 billion, which represented growth of 11%, including 6% organic, 5% acquisitive and 1% FX. Revenue growth for the Transportation segment was 17%, including 11% organic.

Resources revenue growth was 4%, including 4% organic. CMS revenue growth was 3%, including 2% organic. CMS organic growth normalized for boiler code was 3%. Financial Services revenue growth was 15%, including 6% organic. Within Financial Services, organic growth was 7% for information, 9% for solutions and negative 1% for processing.

Turning now to reported profits. GAAP net income was $539 million with GAAP EPS of $1.33. Adjusted EBITDA total $1.565 billion, up 13% versus a year ago, and up 11%, excluding Ipreo. Adjusted EBITDA margin was 39%, with a 100 basis points margin expansion, excluding Ipreo and FX, and reported margin expansion of 40 basis points. And adjusted EPS was $2.29 per diluted share, an increase of $0.22 or 11%.

In terms of guidance, we are reaffirming our 2019 guidance, which we provided on our November 8 guidance call. This guidance provides for revenue of $4.425 billion to $4.5 billion, with organic revenue growth of 5% to 6%, including Ipreo four 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 $150 million from Ipreo.

Adjusted EBITDA margin expansion of 100 basis points, excluding Ipreo, and normalized for FX, and 80 basis point margin expansion, including Ipreo. Adjusted EPS of $2.52 to $2.57, which represents adjusted EPS growth of 11% at guidance mid-point.

In terms of the cadence of quarterly profitability, we expect the progression to be more back half loaded in 2019 as a result of the impact of Ipreo and new product initiatives launching in the first half.

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 three times and resuming our share buyback.

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

Lance Uggla -- Chairman and Chief Executive Officer

Okay. Thanks, Todd. We had a strong 2018, and have good operational momentum entering 2019. I want to thank our colleagues around the world for their hard work in delivering for our customers and our shareholders.

Operator, we're ready to open the lines for Q&A.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Gary Bisbee from Bank of America Merrill Lynch. Your line is open.

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

Hey guys. Good morning. Lance, ever since the merger of IHS Markit, you've talked about increasing reinvestment in product development and in people and analytics and all these things, I guess. Can you, a couple of years in, just give us a sense of how impactful that is today and into either incrementally driving revenue or how much investment there is that might be impacting margin? Just trying to get a sense how that's going and how important it is today versus a couple of years in the future? Thank you.

Lance Uggla -- Chairman and Chief Executive Officer

Okay. Okay. Good. Well, on the revenue side, I think the impact is increasing innovation through analytics and data science in terms of improving existing products or incrementally improving existing offers with a positive revenue impact. And some of the revenue synergies that are being driven are coming from the application of advanced analytics now.

We also have invested in technology and platforms, and those are our merger expenses, but have made us more efficient and therefore, bode well for our continued margin expansion as we look forward. Learning and development was an area that showed up early on. In terms of training and developing our management teams and with 15,000 people globally and those located in more than 100 offices around the world, leadership plays a big part in both getting your efficiencies, as well as getting your products out the door.

So, I feel really positive about the vitality of the firm, the sense of urgency, the quality of people, the investments in platforms, and seeing the brand of IHS Markit to continue to develop with the application of data science and analytics. And that bodes well. And I hope that at least 10% to 15% of our overall organic growth, as we look forward can be attributed to the investments that we've been making.

Next question?

Operator

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

Peter Appert -- Piper Jaffray -- Analyst

Thank you. Good morning.

Lance Uggla -- Chairman and Chief Executive Officer

Hi, Peter.

Peter Appert -- Piper Jaffray -- Analyst

So, Todd or Lance, the margin performance, obviously, been pretty impressive here in the last few years. Can you talk about the pathway to getting to the mid-40% margin? I'm asking this in the context of this -- you're already there with regard to the financial side. Does it have to come disproportionately from CMS? How broad based can the margin improvement be?

Lance Uggla -- Chairman and Chief Executive Officer

Maybe I can just start. So, our view on our mid-40s is supported by our location strategy one. So, we see a clear path through organizational design to use location as a continued expansion of margin. And that bodes very well for us. We have expensive locations, we have mid-cost locations, and we have better cost locations globally, but the quality of our people in each center is very similar.

And so therefore, through organizational design and looking at forward attrition and investment, we feel very confident that we have continued margin expansion until we get into the mid-40s and it's across all our businesses. It's not focusing on the businesses that have lower margins and trying to get more. It's just a constant across the whole firm and leveraging our operational footprint.

Some of our higher cost businesses are actually where we're producing non-recurring revenue, where we have consulting or professional services. And those tend to be three handles in terms of margins and we're not going to probably change much of that, but that's a small piece of our revenue. Core businesses have room for efficiencies and technology and location, and we're attacking both of those and we'll continue to do so.

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Yeah. As Lance said, we have a number of operational levers that we will execute against in the coming years to drive forward margin progression. When you look at it at the segment level, certainly with financials, resources and transport, those are segments that we see can move well up into the high-40s. We've invested quite a lot in transport. We've driven a lot of growth there, but certainly opportunity for significant forward margin progression there.

Resources, with the downturn, we were able to manage through stable margins. But I've always said, I think resources probably the most -- the most heavy classic information business in the portfolio with a lot of operating leverage. Financials has always done a good job on margin. But we do see forward progression there.

You asked about CMS. Yeah, I think CMS, there are the structural realities within CMS with the royalty bearing part of the business, certainly an area that we have invested in our underlying product platform within product design and we think we can move margin up there. But it will perform at a much lower margin than the other segments.

Lance Uggla -- Chairman and Chief Executive Officer

So, thanks. Thanks, Peter. Next question?

Operator

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

Ryan Leonard -- Barclays -- Analyst

Hi. This is Ryan calling in for Manav. Just a question, I mean, obviously the highly subscription business, but during periods of volatility, like we saw with oil prices again kind of moving at the end of the year and in the financial piece and just the equity markets, especially now with Ipreo in the mix. Can you walk us through how to think about your client conversations during these periods of volatility and how that kind of flows into the subscription offering?

Lance Uggla -- Chairman and Chief Executive Officer

Right. Well, decisions that are made within the energy markets and where CapEx is being deployed, those are decisions that are being made based on our current state with a forward look at energy prices. And when the CapEx is committed, our services come into play on a subscription basis and they're long term in line with the CapEx.

And I think the really good thing for us that gives us significant confidence around our Resources plan of 4% to 6% is the fact that we're still consolidating off of a low base and therefore, we've got good visibility and insight into the building book of business. Our mid, downstream businesses have performed right through over the past several years with high single digits overall, when you add the OPIS franchise into that mix; chemicals, power and gas. We really have a strong team that's done well on a recurring basis right through the last period and we don't see that changing.

So, I'd say, with respect to your question, in Resources, we feel very good about our plan against the current environment and our expectations of supply and demand forward as it impacts and creates changes to CapEx. We also have seen a bit of -- a large proportion of CapEx we saw, focused into North America and we've seen that CapEx distribution spread more broadly globally. And that also bodes well for our subscription-based businesses.

When you look into automotive, I think the comment there is our confidence in high single digits come from the diversification of our businesses. We're highly diversified, we've made investments, we've made acquisitions, we cover a higher percentage of the used car market than the new, but the new car market even with a slight decline in SAAR's needs advertising, investments around incentives to promote car purchases and exchange, and that bodes well for IHS Markit.

Other parts of our business, our subscription based, based on the OEM and suppliers' needs, that are tied to the absolute outcome of the marketplace. And then there's global growth in automotive in India, in China and changes in demands and knowledge needed in the economist vehicle and different parts of mobility, so bodes well.

Financial markets, high subscription-based, most of our services are needed regardless of the absolute level of financial markets, whether it's a busy fixed income or equities marketplace. But we do have parts of our revenue and we call that out. So, our non-recurring revenue is tied to derivatives processing, loan processing, issuance, part of the issuance in the capital markets and therefore, we will be buoyed positively or negatively in terms of volatility in the market.

But sometimes volatility in the market attracts a positive for us because there's more transactions and they're smaller in size. And so recently in the press, you may have seen articles around credit derivatives, for example, a market that we've been seeing decline month after month, after month since 2008.

And there were some recent articles in the press that referred to volumes approaching to highest levels in many years. And that's because the instrument becomes valuable for hedging and view in the lack of underlying lack of liquidity in the credit markets. So, there are a bunch of pluses and minuses, but we've applied those to our businesses and we looked at our guidance. We have adjusted our mindset to a tougher year, and we reaffirmed that 5% to 6% with confidence.

Next question?

Operator

Thank you. Our next question comes from Jeff Meuler from Baird. Your line is open.

Jeff Meuler -- Robert W. Baird & Co. -- Analyst

Yeah. Thank you. So, when you gave the guidance in November for 2019, you kind of widened out the Ipreo range and I think that gave you some protection to the downside. But just, the issuance in December and certain financial instruments seemed to really freeze up. So, I guess what conditions could put the Ipreo guidance at risk? And given the December freeze, is that, in order of magnitude, that's enough that we need to consider it in our Q1 modeling?

And then, Todd, maybe if you could just go into a bit more detail. You had a call it (ph) in your prepared remarks about, I think Ipreo and the ramp of new products that the second half should be stronger than the first. But just want to make sure that we get expectations aligned appropriately to incorporate your comment. Thanks.

Lance Uggla -- Chairman and Chief Executive Officer

Okay. So, I'll do the first one. When you think about Ipreo in terms of capital market issuance, divided into three or three or four, really four, divided into our municipals, fixed income, equities, private capital markets and think about those areas and how they can impact in different market environments.

So to me, highs and lows on munis, it's a market that has to finance, deals get done, they may be lumpy in different quarters with views, et cetera. But highly -- the expectations in that within a range are highly moderate level. And the team has done a good job reviewing that. In fixed income, very much subscription basis, so the incremental up or down there is small.

And then in equities, there is a component that flows with the market. And you are right that that is the component of the Ipreo side that I can't forecast what the equity new issuance volumes will look like. But I can look at the least number of deals done in the last 15 years, including '08, and I can get a good flavor of what does that look like. And therefore, I can give guidance and give it with confidence, when I look at our overall business. And I feel very confident with our 5% to 6%, our 100 basis points margin and the double-digit earnings. That's what I feel confident with, the mix of that. What's great about IHS Markit is we're well diversified across all of our businesses and that bodes well for our delivery.

Todd, do you want to get the second part?

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Yeah. I mean relative to Ipreo, the products that are being deployed are private companies product to our private companies, to basically model their underlying financial positions. And really it's tied into the PCM business, the private capital markets business.

We're also -- we've launched investor access. We see take rates moving up on that through the year, and then we have some onboarding of new companies through the year that will drive forward growth. I think in the rest of the portfolio, probably the most notable items that we've talked about are Conquest and AMM. We see that progressing through the year.

CARFAX, we have our CARFAX for Life product targeted in the service market being launched. And then we have some energy upstream analytic offering. So, I think we have a good pipeline of products and products that we have a reasonable level of confidence that will have some level of success in the marketplace.

Lance Uggla -- Chairman and Chief Executive Officer

Yeah. Good. Thanks. Thanks Todd. And we do -- when we did refer to early wins in our Ipreo merger, early revenue wins, multiple wins coming in that private capital market space, we see that as a continued strong growth area as that marketplace looks to develop independent data set benchmarks mid and back office tools. We love the space. It was part of the core component of the acquisition and we don't see that with anything.

We see those players needing more of those services as we look forward regardless of the market environment, as that will help them manage their businesses and give them an opportunity to be more efficient as well. So, we're very pleased with that.

Net-net, as Todd and I have been saying, what's most important to us is deliver what we say we're going to do. And that combination across the divisions is something that we're very happy with.

Next question?

Operator

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

Bill Warmington -- Wells Fargo Securities -- Analyst

Good morning, everyone.

Lance Uggla -- Chairman and Chief Executive Officer

Good morning.

Bill Warmington -- Wells Fargo Securities -- Analyst

So a question --

Lance Uggla -- Chairman and Chief Executive Officer

You guys beat -- you beat your expectations today as well.

Bill Warmington -- Wells Fargo Securities -- Analyst

Excellent. Thank you.

Lance Uggla -- Chairman and Chief Executive Officer

Yeah. That's the reason we produced great earnings this morning.

Bill Warmington -- Wells Fargo Securities -- Analyst

On CMS, any additional portfolio rationalization plan there that might help organic growth and/or margins going forward?

Lance Uggla -- Chairman and Chief Executive Officer

Yeah, I think, I actually -- we've got three pieces to CMS, ECR, TMT and product design. We've given low-to-mid single digits. Last year we gave low. This is -- at the time of merger, you had TMT suffering within that RootMetrics space, where it's just a lack of diversification across the client base globally and therefore, any consolidation of clients or exit of clients is expensive. And that happens to lots of small businesses that are heavy and not that well diversified across their client base. You can have consolidations of two competitors and have the revenue across those two.

So, TMT suffered from that. We've been through that. TMT does a lot more than that. They're benchmarking, they've expanded the benchmarking from mobile phone coverage into the Internet of Things, cloud-based services. There are a variety of semiconductor-based benchmarking. And really the team has done a good job to diversify and start to grow. And for TMT, we see strong growth within CMS. So, therefore that bodes well.

Second thing, product design. Product design faces the pressure of standard setting bodies that pay royalties and less royalties is always better and that exists within that base, and our team has done a great job to reorganize, extract margin. And I believe we're in a good position there to go into 2019, and look for a continued positive growth moving up, gradually is what we say.

And then ECR, we've participated there, some growth. In terms of our acquisition of Macroeconomic Advisers, hit its plan completely, bodes well looking forward into '19. Global trade wars, volatile economic environment, geopolitical risks, volatile interest rates, economists love that stuff. That's a good thing for ECR. And not that I think you're going to see any double-digit growth there. But -- Zbyszko's team, they're doing a good job of consolidating at the low single digits and we believe we're doing a good job to manage that group.

We really see the whole conversation of anything around acquisitions or divestitures to be very mute in 2019 from IHS Markit. We'll look at things, small bolt-ons, extremely small. We're very focused on the delevering and return of capital. And I don't see any real big change within CMS in terms of that business.

I don't know, Todd, if you have anything.

Todd Hyatt -- Executive Vice President and Chief Financial Officer

No. That's it.

Lance Uggla -- Chairman and Chief Executive Officer

Okay. Next question?

Operator

And our next question comes from Tim McHugh from William Blair. Your line is open.

Tim McHugh -- William Blair & Company -- Analyst

Thank you. I just wondered if you could elaborate a little bit on the information services part of Financial Services segment. And you didn't mention index, I think, as part of the performance there. So, I guess, how did that impacted? But just more broadly, it was a little slower growth. So, what were the pros and cons, I guess, of this quarter?

Lance Uggla -- Chairman and Chief Executive Officer

Yeah. Well, information services, we have strong offerings in pricing and reference data. We have strong offerings in valuations and independent valuations. That's derivatives, that's loans, that's fixed income securities, so tough to manage type valuations, which become increasingly in demand in volatile markets where there's not a lot of liquidity in trading and therefore, the independent mark is a very very important part of a process.

And then our index business, it's growing globally. It's grown every single quarter for the last many years. And we can see the build up of new offerings, regional offerings. That bodes well for continued growth.

Now, do I think -- coming from financial markets, top financial markets, interest rates rising, fixed income EPS, volumes declining a bit, I think our mix of business there will be slightly different through 2019 but not slightly different. That means a lack of positive growth.

And within the 4% to 6% for information services growth, again, I have to say it's now 10 years that we've been overall 4% to 9% (ph). And that -- I don't see that range being breached in 2019. And I really probably couldn't tell you whether four, five or six is the number. But pretty confident with our base level and opportunity to outperform the four.

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Yeah. The other thing I would add, Tim, I mean I would always be careful about reading a lot into a single quarter. Last year, we were 10% in Q4 in information. It was a really strong quarter. Sequentially, information is in line with the same revenue level as Q3. So, performing like we would expect and I think I feel good about the 4% to 6% range on a forward basis for information.

Lance Uggla -- Chairman and Chief Executive Officer

Good point, Todd. Next question?

Operator

Thank you. Our next question comes from Andrew Steinerman from J.P. Morgan. Your line is open.

Andrew Steinerman -- J.P. Morgan -- Analyst

Good morning. Two questions. The first one, could you give us a mix of revenues by Ipreo, by asset classes, the asset classes you listed before munis, fixed income equities and private capital.

My second question is, could you bridge the plus 3% that you shared with us on Resources ACV today at the end of 2018, with the fiscal '19 organic revenue growth for Resources targeted at 4% to 6%? The things I'm thinking about is, does ACV have to pick up to get there or you counting on non-subs growing faster than subs in '19?

Lance Uggla -- Chairman and Chief Executive Officer

I'll do the first one and Todd can do the second one. So the first one answer is no. But what I would say, given J.P. Morgan's breadth of businesses across our sectors, I imagine the percentages would mirror that.

Todd, do you want to do the second question?

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Yeah. I mean, we do see the sub base moving up in 2019. I mean, that's certainly embedded in our forward view. And yeah, when we talk about a mid single digit grower for Resources, we would expect to see that in both the recurring and the non-recurring. We -- Lance called this out in his script.

We had a -- we were pleased with the renewal performance in year-end through January. It's, I think, a market that will continue to grind it out and continue to see the sub base move up through the year. But we certainly do see, Andrew, ability to take the 3% that we drove in 2018 and grow on that, and move it up into the mid single digit percent.

Lance Uggla -- Chairman and Chief Executive Officer

Thank you, Todd. Next question?

Operator

Thank you. Our next question comes from Andrew Jeffrey from SunTrust. Your line is open.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Hi, guys. Good morning. Thanks for taking the question and Happy New Year.

Lance Uggla -- Chairman and Chief Executive Officer

Thanks, Andy.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

I wonder, you've -- lots of time talking about new solutions and obviously the organic revenue growth reflects some of the success you're having. Could you just expand a little bit on specific initiatives internally to drive maybe faster time to market and/or comment generally on sales cycles? Can we see newer products come to market more quickly, things like Conquest, I guess, notwithstanding? And can that support faster growth over time?

Lance Uggla -- Chairman and Chief Executive Officer

Yeah. So, our view at the time of merger was, investments in product were about vitality and innovation and investments in technology were about improvement in the tech stack to improve product and development life cycle, use of advanced analytics so you can put it under data science, if it feels like it gives more spring to it. But the fact is that's two years ago. So, we are two years in, we put all our technology, data science and analytics now under Yaacov at the end of last year. So, we've consolidated that into a single team.

We had more than 20 proof-of-concepts, more than 10 pilots, and more than five new product offerings come out of the innovation of analytics and data science with faster rapid use of technology in the cloud and the delivery to deliver some new products. Where have those been? They've been within asset valuation in the energy space. They've been with the tracking of security events, which was highlighted in the script today where we are using natural language processing to more rapidly analyze our economic and country risk, coupled with our aerospace and defense security events. So, use of more technology, enhancing what our people can do and then offering incrementally more. That's been a good use of new data science.

We also have launched something called commodities sea ph], which is taking our maritime and trade with our knowledge of energy production, satellite imagery of energy storage and produced a much better view of trade flows, which plays well into our aerospace and defense and description of trade flows at sea are energy related, as well as our ability to better predict supply and demand.

And so we feel really good, Andrew, about our investments in incrementally adding to our existing products, which is both defensive, but also allows for price increase and incremental service increase. Then there's complete new products, where we're stepping back and saying, we've got a large customer base and we are great leveragers of content. How can we apply analytics and data science to create an all new product, a new benchmark that could be used in our index team, a new product offering that we could offer our customers in maritime and trade?

A new -- a completely new solution, where we're benchmarking new things like the Internet of Things. And you mentioned automotiveMastermind, Conquest, which is a marriage of automotive with our acquisition, our assets dealer footprint, and equally, we've had many innovations of complete new products in CARFAX, and CARFAX for Life is being launched in the next week or two. And it's one of our most innovative product launches within the CARFAX suite, and Dick Raines and his team are extremely excited about those prospects.

So, this firm, post merger, coming out of tough changes in regulations around processing tough energy markets, use the merger to create dollars to invest and those are boding well for us to protect our guidance range and the revenues that we're forecasting. And that vitality is something that we measure, we look at. And I think I've said before, when we get confidence in the consistency of how we report that, we hope that we're one of those firms that can report fatality out to you with confidence so you can put that into your view of our guidance as well. So that's it.

I think we've got a conservative strong 5% to 6% year, and we've got lots of good things that can help us on the revenue side. But you guys are concerned about revenue, but you're invested in the firm that also knows how to deliver margin. So, I think you've got protection both ways.

Next question?

Operator

And our next question comes from Hamzah Mazari from Macquarie. Your line is open.

Hamzah Mazari -- Macquarie -- Analyst

Good morning. Thank you. My question is around just the transaction business or the non-recurring fees. Just any thoughts as to what extent you think the transaction side is a lead indicator to use the subscription side and maybe what you've seen across the verticals in past cycles around sort of transaction leading subscription or that's not the right way to look at it? Thank you.

Lance Uggla -- Chairman and Chief Executive Officer

No, I think that's -- so when you say transaction, if you're referring to processing, we process a whole bunch of different assets. We process credit derivatives, interest rate derivatives, equity derivatives, FX and loans. So, those are the things we process. So, rates rising generally means a slowdown for a period of the rise, the volatility in the loan markets. So, that will lower the output of our process and we get paid per trade.

So, we don't care about the size of the volume, we just care about the number of transactions and that's quite a nice business model because in the next part of the financial markets is the interest rate derivative market, where we are the biggest player in the marketplace globally covering every single market. And what's interesting in tough times, interest rate derivatives, volatility means lots of small trades and that bodes well. So post '08, actually saw positive strong increases.

So, I look at interest rates in a volatile market, Brexit, trade wars, rising interest rates, building walls, whatever we're doing. The fact is, is that interest rate derivatives can have higher volume. Lack of liquidity in the credit markets bodes well for CDX as a hedge, which is our main index. We partner with ICE. It's a non-exchange contract and we have a full JV with ICE, and that bodes well in this environment.

Equity derivatives, smaller business, it is probably insignificant in the analysis. And then FX has actually been a growth business for us because we're a new player coming in. We're hooking up pre and post trade flows for tier two banks and that bode well in terms of revenue growth and volatility clearly helps FX markets.

So, that's why I said today, really when you judge us this year in Financial Services, take a close look at recurring revenue and see if we're hitting our goals on recurring or non-recurring, your guess is as good as mine. I think plus 2%, minus 2% could be an equal guess. And it's a 170 million out of 1.5 billion to 1.6 billion in Financial Services, and so therefore, it's not going to really drive the 4% to 6% or 6% to 8% with Ipreo in Financial Services.

I have to focus also going back to Andrew Steinerman's question which was the right one. How is your capital market Ipreo business going to be impacted? Well, there the trends action component is in the equity space and it's very subscriptions oriented, that business. So it's not -- it doesn't have a high kind of plus minus range, but it has a plus minus range. And if you model it off of the -- the lease deal was done since 2008 year, we can accept that and we can see the overall picture fitting in within our guidance. So, that's how I view, if you're talking about transactions in the financial markets. Thank you.

Next question?

Operator

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

George Tong -- Goldman Sachs -- Analyst

Hi. Thanks. Good morning. You've reiterated your expectations of low to mid teens Ipreo revenue growth for the full year. Understanding there's a range of possible outcomes, can you discuss whether your non-recurring revenue expectations for Ipreo have been overall tempered in light of a moderation in capital market volumes? And if so, what offsetting factors you see in your subscription-based business?

Lance Uggla -- Chairman and Chief Executive Officer

Yeah. It was really -- the pool meaning (ph) of low means less transactions, are keeping in the range and still feeling low to mid is continued growth in private capital market. Those are your two levers. The private capital market growth is the race car. The transactions and market, that's the kind of steamship and it can be slower or faster. And the combination of those two, we are happy with low to mid and we're happy with how that feeds into our overall firm guidance. Because at the end of the day, you invest in us for our capabilities of running our four divisions and the diversity across them.

And so, what I have real strength in today is the 5% to 6% guidance for the firm. And I have -- I always take my worst case scenario across all the divisions and make sure that it can add up into the circa 5% number. And that's how I look at it, George, and I feel confident in reaffirming that today.

Next question?

Operator

And our next question comes from Alex Kramm from UBS. Your line is open.

Alex Kramm -- UBS -- Analyst

Yeah. Hey. Good morning, everyone. Just wanted to circle back on Financial Services. Lance and Todd, both of you guys highlighted loans in your prepared remarks, both in terms of, I think, more challenges from you, Lance, which I think is broadly the view out there. And then I think, Todd, you said solutions was driven by loans.

So, I guess given some of these uncertainties, I went back and I think Markit at one point said that in 2013, loans made up 20% of market. I assume that's grown faster than the average for Markit since then. So, maybe you can give us an update how big the loan business has become? And then if there are more challenges, maybe just outline where those challenges could hit? Because I mean, I get it on the processing side, but clearly on information and solutions, there's a lot of stuff you do for a lot of different players. Thanks.

Lance Uggla -- Chairman and Chief Executive Officer

I can start. You can bring in the financial piece. I'll give you the MarkitSERV (ph). So first of all, Todd didn't say solutions was driven by loans. But there's a piecing out -- piece of our loan business that is services and that's generally -- that's offered out of our WSO product. It had great -- can I say strong growth last year? And it's kind of AUM driven, CLO issuance, there's a whole bunch of things.

And so within your own banks, you can look at the CLO space. It's still fairly buoyant and our loan business is diversified across pricing, processing, data, reference data, managed services which is a big growth area, that's us managing the accounting and back office. And then, of course, our installed customers as well. So, loans is a strong piece of our franchise and of course, a much lower percentage of financial markets today than back in the Markit days when we were consolidating all through acquisition a lot of those pieces.

So, I see solutions growth, which is the word that we talk about circa 10% growth. If you look back to the day, we always called solutions a double-digit grower, expecting 10% to 15% growth with opportunity for that to happen on a recurring basis.

Through a period, we slipped to a single-digit growth. And what I've been most impressed with is the growth back to double digits and the amount of the financial markets, both sell-side and buy-side that are looking at using service providers more readily to deal with tax, to deal with reg and compliance, KYC, KY3P, outsourcing data management, outsourcing portfolio management, outsourcing the management of corporate actions and hence, all of a sudden, solutions are right back invoked.

In '08, they were invoked because people had to cut costs. As banks got profitable again, some of them lost a bit of the view on the cost efficiencies. But where I see all our growth coming in the future is the asset managers actually now needing to get a handle on their costs, and so a lot of these solutions that we offer are coming into play.

So, I think that bodes well for the double-digit solutions growth. So, it's a mix, and -- but the mix with the hand on my heart best experience of the last 10 years was 4% to 9% and we're saying 4% to 6%. So, I -- and we just did six. Is that right, six? Yeah. So, we just did six this year. And so, what I -- I think four to six feels really good. That gives us a lot of scope and a chance to outperform probably a small percentage chance to be out of the top end.

Good percentage to be in the middle and a small percentage chance to miss. And that's a great place for us to be able to start the year. We are seeing ourselves get started. Todd's cautioned, to make sure, as you're distributing revenues across the year, that you distribute them accordingly and that you build up a bit, as we build up our new initiatives in private capital markets into the back end of the year. And I think we're going to do great. And we definitely will keep outperforming our peers with our diversified business and how we're managing it.

And Todd, do you want to add anything?

Todd Hyatt -- Executive Vice President and Chief Financial Officer

The only color I would add to this, three buckets Lance talked about, the loan pricing, think of that as a subscription business, generally very predictable and stable. Does the loan services -- the WSO business has actually been -- we're really servicing mid office, back office loan activities, hence cannot be impacted by volumes. And then the loan settlement is really the processing piece. And there we have settlement of both primary and secondary. So, I think that's certainly the area that would have the highest variability.

Eric Boyer -- Vice President, Investor Relations

Good. Thank you. Next question?

Operator

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

Toni Kaplan -- Morgan Stanley -- Analyst

Hi. Good morning. I did also want to ask about processing. So, could you just talk about what's the primary drivers of the decline was this quarter or was it the slowdown in loan issuance? And was that in line with your expectation? And are you still confident that processing will be positive in '19? Thank you.

Todd Hyatt -- Executive Vice President and Chief Financial Officer

As Lance said, there's some variability in processing that we're not going to precisely predict. Processing revenue was $63 million in Q4. It was $64 million in Q3. And when we say it was down, it was down a few million dollars versus prior year.

Lance talked about the dynamics in terms of market volatility that actually are net positive in derivative processing. I think in loan processing, you really look at the primary market activities, I think are certainly down over the last couple of months. Secondary activities is probably generally up. But I think that's really the dynamic in the processing business.

Lance Uggla -- Chairman and Chief Executive Officer

And really, Tony, it was, I think it's $3 million with the shift from Q4 last year, Q4 this year. So, we had a bit better volume quarter in Q4, giving you a 5% decline into this year. So it really -- it really -- processing is a really insignificant lever in terms of us delivering our 4% to 6%. It's a sticky consistent business and it's top to bottom range. If it's up 5% or down 5%, you're talking a total of --

Todd Hyatt -- Executive Vice President and Chief Financial Officer

$12 million.

Lance Uggla -- Chairman and Chief Executive Officer

$12 million?

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Yeah.

Lance Uggla -- Chairman and Chief Executive Officer

$12 million or 5% across the group. It just -- so, I really just don't have a -- but I mean, it's been across the division. It's insignificant. (Multiple Speakers)

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Have I affirmed (ph)?

Lance Uggla -- Chairman and Chief Executive Officer

Even more insignificant. So, do I believe processing will be down 5% or up 5%? Don't know. Would I think it could be down 10%, up 10%? I'd say highly unlikely. So, even when I put those numbers on it, it's kind of, it's 1% of the division and it's negligible in a firm. So, that's my view.

But we are the most sticky, consistent global player with great customer base, a great team and a good business. It just doesn't have a lot of growth expectations to it. But we always smile when it does grow at 5% to 10%. We know that's kind of winding our sales that we didn't know and most of it goes to the bottom line if not all of it. So, that's how I look at next year.

Next question?

Operator

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

Jeff Silber -- BMO Capital Markets -- Analyst

Thanks so much. I know it's late. So, I have just one quick question. There's a lot of, I guess, uncertainty regarding the government shutdown. Can you just remind us, do you have any direct exposure to federal government revenues and in which segment it is? And from an indirect perspective, do you see that having any impact on your business? Thanks.

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Yeah, the biggest area would be product design, where we have -- provide service to the army, navy. Typically, the contracting process is a continuing resolution process. So ultimately, the funding does need to come in, but there's a continuation of services and ability to recover the full revenue, assuming that ultimately we do get funded. And it's -- off the top of my head, I don't know the percent, but I would say within product design, probably less than 10% to 15%.

Lance Uggla -- Chairman and Chief Executive Officer

Okay. Thanks, Todd. Next question?

Operator

Our next question comes from Ashish Sabadra from Deutsche Bank. Your line is open.

Ashish Sabadra -- Deutsche Bank -- Analyst

Thanks. Solid results and pretty good margin expansion in the quarter. My question was just on the Transportation margins. You called out the recall and marketing spend for CARFAX, and there are a number of products getting launched. Just wondering if you can talk about the margin profile in that business going forward.

Lance Uggla -- Chairman and Chief Executive Officer

I talked about this earlier. I mean, transport, we have invested at some level. We do have the ability to drive forward margin growth. It is an area that will continue to balance the level of investment with margin delivery.

In the quarter, we did have some outsized investment activities that I talked about earlier and a little bit heavier on the recall, which tends to be lower margin. But there certainly wasn't anything in the margin within transport that caused us concern in the quarter.

Next question?

Operator

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

Joseph Foresi -- Cantor Fitzgerald & Co. -- Analyst

Hi. I know it's late. So, I guess I'll ask the choking (ph) capital allocation question. I know you suspended the share buyback. What does the debt pay down schedule look like this year? What's available on the acquisition side? And any thoughts about that share buyback? Thanks.

Lance Uggla -- Chairman and Chief Executive Officer

We see ourselves getting below the three times in Q3. We talked about that at the time of the Ipreo acquisition. We made good progress on cash and we see below three times by the time we exit Q3.

Todd Hyatt -- Executive Vice President and Chief Financial Officer

I think relative to acquisition activity, Lance talked about this earlier, continue to do very small bolt-ons, but in terms of capital allocation for this year, it will be directed primarily at the buyback and delivering to the $500 million full-year commitment that we talked about in November.

Lance Uggla -- Chairman and Chief Executive Officer

Next question?

Operator

Thank you. And I am showing no further questions from the phone lines. And now, I'd like to turn the conference back over to Eric Boyer for any closing remarks.

Eric Boyer -- Vice President, Investor Relations

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, 3997854, beginning in about two hours and running through January 22, 2018. In addition, the webcast will be archived for one year on our website at www.ihsmarkit.com. Thank you. And we appreciate your interest and time.

Operator

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

Duration: 76 minutes

Call participants:

Eric Boyer -- Vice President, Investor Relations

Lance Uggla -- Chairman and Chief Executive Officer

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

Peter Appert -- Piper Jaffray -- Analyst

Ryan Leonard -- Barclays -- Analyst

Jeff Meuler -- Robert W. Baird & Co. -- Analyst

Bill Warmington -- Wells Fargo Securities -- Analyst

Tim McHugh -- William Blair & Company -- Analyst

Andrew Steinerman -- J.P. Morgan -- Analyst

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Hamzah Mazari -- Macquarie -- Analyst

George Tong -- Goldman Sachs -- Analyst

Alex Kramm -- UBS -- Analyst

Toni Kaplan -- Morgan Stanley -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Ashish Sabadra -- Deutsche Bank -- Analyst

Joseph Foresi -- Cantor Fitzgerald & Co. -- Analyst

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