S&P Global Inc. (SPGI) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q2 2013 IHS Inc. Earnings Conference Call. My name is Perita, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now, I would like to turn the call over to Andy Schulz, the Vice President of Investor Relations. Please proceed, sir.

Thank you, Perita. Good morning, and thank you for joining us for the IHS Second Quarter 2013 Earnings Conference Call. We issued an acquisition release and our second quarter earnings release earlier this morning. If you do not have a copy of either of these releases, they are available on our website at ihs.com. Some of our comments and discussions on the quarter are based on non-GAAP measures. Our non-GAAP or adjusted numbers exclude stock-based compensation and other noncash charges and other items. Our earnings release includes both our GAAP-based income statement and statement of cash flows and reconciliations to the non-GAAP measures discussed during this call. These reconciliation schedules can also be found on our website. The non-GAAP results are a supplement to the GAAP financial statements. IHS believes this non-GAAP presentation and the exclusion of these items is useful in order to focus on what we deem to be a more reliable indicator of ongoing operating performance. As a reminder, this conference call is being recorded and webcast and is the copyrighted property of IHS. Any rebroadcast of this information, in whole or in part, without the prior written consent of IHS is prohibited. Please keep in mind that 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 and vary materially from expectations can be found in IHS' filings with the SEC and on the IHS website. The agenda for today's call is as follows: after opening remarks by Jerre Stead, Executive Chairman, Scott Key, President and CEO, will provide some color on our Q2 results and our outlook for the second half of the year and discuss the acquisitions we've just announced; Rich Walker, EVP of Global Finance, will then discuss the financial details of the quarter and update our guidance; Rich and Scott will then be joined by Todd Hyatt, Chief Financial Officer and IT Officer, for Q&A. With that, it is my pleasure to turn the call over to Jerre Stead, IHS Executive Chairman. Jerre?

Thank you, Andy. Good morning, and welcome to all of our investors and to my IHS colleagues. I'd also like to extend a warm welcome to our new colleagues from PFC Energy and our soon-to-be colleagues from R.L. Polk. It is a pleasure to be with you this morning to share our results from the second quarter and to talk about what we see for the second half of this year. As this will be my last earnings call, I'd also like to take a moment to say thank you and to tell you what an absolute honor it has been to lead this great company. More importantly, it's been such fun to drive the tremendous value we've created for our customers, our colleagues, our shareholders and our communities. When I got involved with IHS in late 2000, I saw that this was a company with a valuable and unique set of assets that was not being leveraged to its full potential. I'm very proud of what we have accomplished together since then, often hitting the targets of my much-talked-about banners earlier than we said we would. However, what I'm proudest of is what's ahead, the potential and the opportunity that has been created for the future. I've been blessed to lead the most outstanding group of colleagues with whom I've ever had the pleasure of working. I have often said that everything begins and ends with people, and in Scott Key and his leadership team, I am very confident that we have the right people to capture the value that lies in front of IHS and to drive long-term sustainable, profitable growth well into the future. As Executive Chairman, I'll still be involved with the company, but I'll also plan to spend more time with my real boss and coach, my wife, Mary Joy, supporting and growing the impact of the many nonprofits with which we're already involved. With that, let me cover some of the financial results for the quarter. Revenue was up 8% in the second quarter. Adjusted EBITDA increased by 8%. Adjusted EPS increased by 7%. And free cash flow was a solid $106 million or 82% of adjusted EBITDA. Q2 proved to be another quarter where IHS delivered positive growth, organic and all-in, while continuing to face the same headwinds and uncertainty in this economy that our customers and the rest of the world are facing. Scott will discuss this in more detail in a few moments. But as we look towards the second half of this year, we see a continuation of the dynamics that we've consistently discussed since our 2013 guidance call last December. Once the R.L. Polk transaction closes in the coming weeks, we will come back to you with more detailed guidance for the full year, although I do want to make a few comments about the guidance ranges we are providing today. We built a company with a solid foundation and with tremendous potential that will continue to deliver at above-market rates of organic growth. Eight quarters ago, we said we were entering the most intense set of changes in our company's history. I am really proud of the great work done by our colleagues during this time. My own belief is that the massive changes cost us 1.5 to 2 points of organic growth in the last few quarters. Our economists are projecting 2.5% global growth for this year, flat from 2012, down from earlier expectations. They are seeing slowing in the Asian and emerging market growth, in China, India, Brazil and Japan, where our economists have just downgraded their growth outlooks for the year. Europe GDP continues to be negative and is expected to be so for the remainder of 2013 and potentially longer. U.S. now appears to be facing a full year of the sequester, which will impact growth by up to 1% as slow government spending lingers. We see broad evidence that companies are being significantly affected by far-reaching market conditions. On our last earnings call, we noted that negative first quarter earnings pre-announcements issued by S&P 500 corporations were outpacing positive announcements by 4:1, the highest level since 2001. By the time the Q1 reporting period closed for the S&P 500, average revenue growth was less than 1%. And the ratio of negative pre-announcements rose to 7:1, the highest ever recorded, as corporations clearly indicated no sense of second half improvement. Many of these companies are our customers. When we set guidance last December, we included the widest range of guidance we've ever used to ensure that we reflected the economic uncertainty. The upper ends of our ranges anticipated improving market conditions in the second half of fiscal 2013. The lower ends of our ranges contemplated increasing global economic pressure and an extended U.S. sequester. All of this sums up to the fact that corporations are seeing increased headwinds in our forecasting slowing growth in the second half. This has us trending lower in some of our guidance ranges. Despite the stressed economic environment, IHS continues to post positive growth in key financial metrics and continues to invest in our people, our processes, our platforms and our products, which enable continued strong cash flow and revenue growth well above the market trends. After years of cornerstone infrastructure work, we built the foundation to significantly scale this company. This forms the basis for the largest and most exciting acquisition in our history, the acquisition of R.L. Polk. I am more confident today than ever before in the ongoing success and very bright future of IHS. As I wrap up my comments, let me say thank you again for the privilege of being at the helm of IHS. This has been the most fun I've ever had in leading a company. It's because of the collaboration and relationships with all of you. As I like to say, we're just getting warmed up. With that, it's my pleasure to turn the call over to Scott.

Thank you, Jerre, and let me start by recognizing and thanking you. IHS would simply not be where it is today without Jerre's vision and leadership. He has driven a culture of focusing on customers first, ensuring that colleagues are valued and engaged, and demanding that one of our key priorities is creating tremendous value for shareholders in every decision we make and action we take. And most importantly, doing this with the highest levels of integrity, transparency and respect. Jerre, you are leaving the daily operations of a company that could not be better positioned for the future as a result of your leadership. And we look forward to being able to continue to leverage your guidance and advice, as well as that of a great Board of Directors. Now let's turn to our results. Jerre provided some context on the current economic headwinds and corporate spend environment. In addition, at an adverse FX situation and other discrete items, which I will talk about, that negatively impacted revenue and adjusted EBITDA in the period. But all-in, we continue to make good progress on key strategic initiatives and remain focused on delivering long-term profitable growth. For the second quarter, subscription organic growth was 6% and within our organic subscription guidance range for 2013 of 6% to 8%. Looking at organic subscription growth performance by region, Americas was consistent with our solid Q1 performance. EMEA delivered positive and relatively strong organic subscription growth given the negative economic growth environment and deep recession. APAC also delivered positive organic growth with modest slowing from Q1 as we see slowing economic growth rates in the region. Further, new business formation across all regions remains muted. As we look to the second half of 2013, and based on market trends we now see, we expect our second half 2013 subscription organic performance to remain at current levels and at the lower end of our 6% to 8% organic guidance range for subscriptions. Rich will provide further details on regional revenue growth in a moment. Now, let's turn to nonsubscription organic revenue growth, which decreased 6% in second quarter, roughly in line with the decrease we saw in Q1. The decrease in nonsubscription revenue represented a $6 million organic reduction versus the prior year and reflected a mix of some underperforming nonstrategic assets, continued weakness in customers' discretionary spend globally, and notably, impact from the sequester as we indicated on the Q1 call. However, we saw solid improvement in our consulting services, with positive momentum in pipelines and a building backlog in the period. This is particularly notable given the 17% organic growth in consulting in the prior year. Overall, the nonsubscription part of our business continues to be an area of focus for us, and we made modest improvement relative to Q1. Total reported nonsubscription growth would have been better, had it not been for the sequester in the U.S. and the strong comparison from the prior year. Furthermore, based on product release schedules and our sales pipelines, our full year expectation for the nonsubscription business is to see improvement in organic growth in the second half of 2013. Summarizing our second half 2013 organic growth expectations, we expect subscription organic growth to remain consistent with current levels. We also expect our second half 2013 nonsubscription organic growth to improve from first half levels. The combination of the 2 is expected to result in the elevation of our overall organic growth rate from the 4% we posted in the first half of 2013 to the lower end of our overall organic revenue guidance range of 5% to 7% for the full year 2013. Now let me turn to expense and margins. We had a couple of discrete onetime items in the period that impacted our reported adjusted EBITDA and margins. I would like to spend a moment outlining each. As we have all seen in the press in recent months, we have an escalating business information and IT security challenge, impacting corporations and governments globally. As we listened to and engaged IT experts, government security organizations and the many global corporations that are our customers, each indicate a material escalation in the pace and sophistication of the ongoing cyber threats. We have elected to take very proactive steps to accelerate the data center consolidation program we had in place and to meaningfully upgrade IT security at all levels across IHS ahead of previous plans. We believe this is a prudent investment in our future and in our customers. And we began this effort in earnest in Q2, elevating the level of internal resources and activities, as well as engaging recognized experts in the execution of our IT strategy. We expect a continued elevation of both expense and modest new capital in this area for the remainder of this year as we complete key steps in the execution of our IT infrastructure and information management strategy that will position us for success in the near term and long term. We are also now completing the final implementations of our Vanguard Program, marking a major milestone in building a common global infrastructure in finance, sales and customer support and establishing the foundation for our future growth. We feel good about where we are as we now enter a new phase in optimizing these systems and our operational processes to create new efficiency and operational excellence across IHS as an enabler of growth. During the period, we continued to invest to realize these important milestones and also continued to make key investments in new customer workflow platforms that are both important to growth in 2014 and beyond. Further, as we face a lower growth macroeconomic environment, we are differentially investing in high-growth markets like energy, chemicals and autos; and in high-growth emerging markets like APAC, Latin America, the Middle East and Russia, as we maximize our growth potential in the near term and the long term. Collectively, these discrete onetime items and accelerated 2013 investments involving cyber security, infrastructure, commercial platforms and high-growth markets will likely move us towards the lower end of our adjusted EBITDA guidance range. Now turning to margins. For the first half of the year, we expanded margins 30 basis points despite the lower organic growth environment, the discrete items and accelerated 2013 investments and a modest drag from recent acquisitions. We expect rising margins through Q4 and this level of margin expansion to continue for the remainder of the year. As always, we are continuing to manage our cost base and remain committed to delivering annual margin expansion, just as we have done very successfully over the past 8 years. Importantly, we are making consistent progress in developing and rolling out our common commercial platforms so vital to the future growth prospects of IHS. We are executing to our 12-quarter commercial plan outlined at Investor Day, which provides a clear path building to higher levels of organic growth from our current levels today. Now, let me briefly provide an overview of the acquisition of strategic energy asset we announced earlier today. For over 25 years, PFC Energy has provided integrated information, insight and analytical products and services to a blue chip client base, including more than 150 leading oil and gas, financial and national oil companies and government organizations. Its product offerings set, geographical footprint and customer relationships are highly complementary to IHS and build on a long track record of strategic expansion of our energy capability in this high-growth global market. PFC is a growing company with a recurring revenue base model and a strong focus on upstream and downstream energy information, research and analysis. As outlined in our release earlier today, this acquisition brings greater depth and breadth in key areas of the IHS energy solutions set and will create new value for customers while extending and expanding our geographic footprint. We are excited to have a great set of PFC colleagues, who bring substantial expertise and knowledge in joining IHS. Further, on the acquisition front, as we announced last week, we intend to acquire R.L. Polk, the leading provider of information and insight to the automotive industry. This company, which generates roughly $400 million in annual revenue, complements our business, immediately scaling our high potential in high-growth IHS automotive vertical, similar to the way we've scaled our IHS energy vertical. It's a company that we have followed and respected for many years. Importantly, there is an excellent cultural fit between the 2 companies. The colleagues at R.L. Polk have deep domain expertise, are highly engaged and are passionate about creating significant value for their customers by providing the critical information and insight that allows their customers to make better and faster business decisions. As I mentioned last week, after many years of doing the foundational work at IHS that would allow a significant scaling of our company, this was an ideal time to do a transaction of this type. We will come back to you after closing with the complete update to our guidance to reflect this material transaction. As we've stated last week, excluding the amortization of purchase price, we believe this is a highly accretive transaction that will create substantial additional value for IHS shareholders. What you can expect as we close, in addition to the positive earnings accretion in 2014, are positive additions to 2013 revenue and profit as a result of this important strategic acquisition for IHS. Before I turn the call over to Rich, let me wrap up by saying our enthusiasm and our bullishness on the future growth and performance prospects for our business have not changed. We have delivered above market growth consistently over the last 8 years organically and in total, while substantially growing profits, margins and free cash flow. At the same time, we have diligently and successfully laid the groundwork and built the foundation, enabling continued growth at above-market rates regardless of a sluggish macroeconomic climate just as we have done through every phase of the economic downturn since 2008. We have uniquely built the infrastructure, instilled the culture and focus on customers, assembled the management team and compiled the capabilities to allow us to scale and grow for a decade to come in attractive growing global markets. IHS has become the scaled business information, research and analytics partner for our customers in a very connected set of high-growth industry sectors. We have built the presence and infrastructure to capture future growth in the emerging markets that will lead the global economy for many years to come. The foundation of this is a solid and stable business model, a recurring revenue that is an impressive cash flow generating machine, which should achieve a $500 million annual run rate within the next 6 quarters. We are focused on customers first, and we have a clear commercial path to deliver outstanding shareholder returns for years to come. Many thanks to my colleagues for their focus and commitment during this time of immense change management, amid challenging external conditions. And with that, I'll turn the call over to Rich, who will take you through the details of our Q2 financial performance.

Thank you, Scott. I'll provide an overview of our results and an update of our 2013 annual guidance ranges. Let's start with revenue. Second quarter 2013 revenue increased 8% to $418 million. The growth in revenue includes 3% organic growth and 7% growth from acquisitions. As we discussed previously and as evidenced in our regional revenue performance, FX rates have moved adversely since we began the second quarter and impacted revenue 1% in the second quarter. This continued dynamic is now embedded in our guidance, which I will update in a moment. Subscriptions represented 75% of revenue and grew organically 6% in the second quarter against a strong Q2 2012 comparison, and as Scott stated earlier, within our organic subscription guidance range of 6% to 8%. Our nonsubscription businesses declined 6% organically or approximately $6 million after the negative impact of the sequester and versus the strong Q2 2012 comparison. Looking at regional performance. Americas' overall revenue increased 12%. Organic growth continued at 3%, and acquisitions added 9%. EMEA's overall revenue growth was a negative 1%, driven by a 2% drag from FX. Organic revenue growth was also a negative 1%, and acquisitions added 3%. Despite the recessionary environment, EMEA subscriptions grew at a positive 4% rate organically. APAC's overall growth was 10%. Organic growth was also 10% led by strong nonsubscription organic growth. Acquisitions contributed nearly 2%, which was largely offset by adverse FX impacts. Turning now to profit and margins. Q2 adjusted EBITDA totaled $130 million, up 8% versus a year ago. Our adjusted EBITDA margin improved to 31.1% in the second quarter. This is a 10-basis-point increase over the second quarter last year. And as Scott outlined, we had solid expansion in the core business despite the current lower-growth environment, a modest drag from recent acquisitions and the adverse impact of the discrete items and accelerated 2013 investment already discussed. Moving down the P&L. Adjusted EPS increased to $1.04 per diluted share in the second quarter, a $0.07 and 7% improvement over the prior year. Regarding segment profitability, America's adjusted EBITDA increased 17% to $108 million. EMEA's adjusted EBITDA was down 15% to $27 million due primarily to negative foreign currency impacts, slowing growth in Europe and investment in Russia and the Middle East. And APAC's adjusted EBITDA decreased 8% to $11 million, primarily due to the timing of certain renewals, adverse foreign currency impacts and our continuing investment in the region's infrastructure to support future growth. The reported GAAP tax rate for the second quarter was 23%. Looking at the balance sheet. We ended the quarter with $267 million of cash and $1 billion of debt. Deferred revenue at the end of the second quarter was $600 million, an increase of 10% on a year-over-year basis, the same rate as in the first quarter. Turning to cash flow. We had a strong quarter as expected. We generated $106 million in the second quarter and almost $220 million year-to-date. Our cash flow performance is a strong value-creation story for IHS. It represents the strength of our business model and reflects our focus on cash flow as we now have a portion of IHS incentive programs tied directly to free cash flow growth for the first time in 2013. Moving to 2013 guidance. Our guidance is on an all-in basis and assumes no further acquisitions, currency movements, pension mark-to-market adjustments or unanticipated events. Please also know that these 2013 guidance ranges exclude any expected impact from the previously announced R.L. Polk transaction. Due to the scale of the R.L. Polk transaction, we will provide a more detailed update of our full year 2013 guidance after we receive the necessary regulatory approval and close the transaction. For 2013, we expect all-in revenue in the range of $1.66 billion to $1.73 billion, including an overall organic growth rate expected to be between 5% to 7% at the midpoint. All-in adjusted EBITDA in a range of $540 million to $582 million and adjusted EPS between $4.23 and $4.43 per diluted share. In summary, we see revenue trending to the lower end of our total organic growth ranges of 5% to 7% overall and 6% to 8% for the subscription business. The net impact of these organic growth trends, combined with recent acquisitions and FX, has us trending near the midpoint of our revenue guidance range. As outlined, we have discrete onetime expense and 2013 investment items impacting adjusted EBITDA. Collectively, these items will likely move us to the lower end of our adjusted EBITDA guidance range. We expanded margins 30 basis points through the first half of the year despite the lower organic growth environment, the discrete items and accelerated 2013 investments and modest drag from recent acquisitions. And we expect to see rising margins in the second half of 2013, delivering a full year margin expansion at the first half level. On our last call and at Investor Day, we indicated that we would provide an update to you at the close of the second quarter with regard to the negative forward impact of FX and sequester. These impacts on revenue and EBITDA will be roughly offset by the announced acquisition of PFC Energy, therefore resulting in no change to our guidance ranges as indicated. Having said all of that, we continue to grow revenue, profit and free cash flow as we enhance the margins of the strategic assets we have acquired and in the core business, despite economic headwind and a slower-growth environment. We also continue to invest for future growth, complete key infrastructure projects and manage our cost base. With that, let me turn the call back over to Scott.

Thank you, Rich. We have a great business and a clear path to capture the opportunity in front of us. We continue to make the right strategic choices to enable our growth and to put the infrastructure in place that is now allowing us to scale effectively as we combine market-leading capabilities on new product platforms. Each of these elements will enhance our performance and growth potential over the next 12 quarters and beyond. Rich and Todd and I are ready to answer your questions, so let's start the Q&A. [Operator Instructions].

[Operator Instructions] Your first question comes from the line of Eric Boyer from Wells Fargo.

Just to clarify, you expect all-in organic growth for the second half to be around 5%. And that would include, I think, 6% for subscription business, and then for the nonsubscription business to improve upon the first half results. And then could you just give us some confidence for the subscription piece of the business having bottomed here at 6%?

Yes, thanks, Eric. So you listened really well. So as you indicated, we see nonsubscription growth rising in the back half of the year, and this will elevate our overall organic growth into the 5% to 7% range. We started the year talking about 6% to 8% subscription organic growth and are delivering that right now. Remember in Q1, we had slightly, a slightly elevated rate due to in-period items. So we're tracking pretty steady and pretty stable on the subspace. And we believe that's going to continue for the full year. So we see a solid consistent in performance despite what's going on in the world around us.

Could you -- and then just give us the deferred organic revenue growth as well?

Right in line with what it was in Q1. So the deferred balance, we don't believe it's the best, the best measure. And we're going to give you some better ones as we get SFA up and running, but it was right in line at 10% in total and the organic level's right in line with Q1 and right in line with our subspace. So we feel good about how the deferred's building and our subspace going forward.

The next question comes from the line of Suzi Stein from Morgan Stanley.

Can you guys be a little more specific about the PFC acquisition? I guess you're not giving too much in terms of detail, but any sense of the size of the acquisition or the financial profile of the company? I didn't see anything in the release.

Yes, we tend to -- Suzi, thanks for the question. It's actually a great asset and a great history. We're very careful about giving details on purchase price and that level of detail because, of course, it tends to come back to bite us as we look to acquire great assets going forward. But what you can derive from it is first, if you look at both the sequester that we talked about and FX headwinds in the remaining stub period for PFC, it's kind of right in line on revenue and profit. It's a roughly 20s margin company. It's in our core space. It expands. They have a great presence in Asia, a great presence in the Middle East. It really gives us, as we said, greater breadth and depth subscription base. So it's really going to build our energy business into a market-leading capability that, of course, we've been building for many years.

Your next question comes from the line of Gary Bisbee from Barclays.

And I'm going to sneak in 2 questions if I can. The first one, I just wondered if you could quantify the incremental IT and data center investments and discrete items? And what exactly are the discrete items? Is it the stuff you already exclude or from the adjusted earnings or something else? And the second question, just on the energy business in general, how is the business positioned to support customers with the growth of unconventional production sources like shale, oil sands, ultra deepwater versus the conventional stuff? And I ask just because it's pretty clear that, that's where all the growth is coming from or projected to come from in the next few years and is the business well positioned for these very small, but rapidly growing areas of energy?

Okay, thanks Gary, enough. So in terms of the incremental IT and data spending, we've laid out a plan for the next couple of years to consolidate our data centers. A portion of it is capital, and the other portion of it flows through our expense and impacts adjusted EBITDA, so there's nothing here that's excluded. So when we talk about the discrete items, what we're talking about is some increased expense. And we began that increased expense in Q2. And if you think about each of these items that we talked about, we're in the range of 20 basis points plus of impact on adjusted EBITDA, around that range as we think about the full year. So we are moving quickly. I think it's a prudent move, and it's what we see our customers and corporations around the world doing in this IT cyber-threat environment we find ourselves in, but we feel good about it. Your second -- the second part, energy. It's a great question because, of course, we are the leading provider of information, insight and research energy globally all the way down to the well level. And of course, as you indicated, unconventionals is just core to that. It's a big area for growth for us. We are well ahead of it, and we're leading the market in providing detailed information on a very complex unconventional environment. We've released a great set of information database and research across every market, so the U.S., Latin America, China and Europe on unconventionals' potential. We deliver information every day. Of course, the deepwater, Arctic, these other less conventional, oil sands, that's core to what we do. And we're way ahead of those in delivering custom information, research and analytics to customers every day across the globe and have been. So these changes are great sources of growth for us, and it's exciting to see the U.S. in such a strong position in terms of energy prices and energy production.

The next question comes from the line of Peter Appert from Piper Jaffray.

Scott, the -- so just to paraphrase what I think I've heard. Operating trend's a bit more challenging. You're stepping up investment spending, so I'm wondering how this impacts your thinking or your preliminary thinking about '14? Do some of these things bleed into next year? Should we be a little bit more cautious in terms of our expectations for next year in terms of, maybe a little more conservative on the margin side and the revenue growth side?

Yes, thanks, Peter. So just to clarify, so if you look at the first half, we delivered about 30 basis points of margin expansion in a 4% organic growth environment. Now you have to realize that as we said, about 20 bps or so, a drag due to these discrete items in the period. And then over the last 3 quarters or so, we've made some great acquisitions of IMS, GlobalSpec, Invention Machine, Fekete. Kind of 20s range margin companies that we are working really well and right on target and over 4 to 6 quarters to make accretive in margin; but at present and in the current period, about 60 bps of drag. So we've talked about consistently delivering 100 basis points of margin expansion. And as you can see, if you add those items up, we actually operationally did that in the first half. We believe the discrete items that we talked about, Peter, are constrained to this year. We have -- we are, as we said, just completing in Q2, the implementation of all of our infrastructure, SFA and SAP. As we've indicated, through the back half of this year we'll be realizing the efficiencies from those systems and really start to see momentum in 2014. So we feel great about the 100 bps of pretty consistent margin expansion that we've committed to for the long run.

Just a follow-up, Scott, the -- it might sound like x Polk, that we could potentially see even a little bit more margin expansion in '14 then as you sort of normalize some of the things that have weighed on the results recently?

That's a good point, Peter, and there's potential for that. We are always mindful of driving growth. And so we're going to see accelerating organic growth in the back half of this year. As we've told you, we've got a lot of things coming into place as we start 2014 to continue to drive that forward. So we'll always balance the opportunity to go above that 100 basis points with accelerating growth, particularly in this environment. Thanks, Peter.

The next question comes from the line of Andrew Steinerman from JPMorgan. Molly R. McGarrett - JP Morgan Chase & Co, Research Division: This is Molly McGarrett for Andrew. So it looks like your Boiler Pressure Vessel Code product is going to come up for sale in the current August quarter. What kind of a revenue contribution would you be looking for from that, and would that fall under subs or non-subs?

Yes, great question. So a couple of things happening. It is nonrecurring, nonsubscription, so a couple of things we've said. We see strengthening in our consulting pipeline that we're building, in the backlog building, through the first quarter. So we have a lot of strong and positive momentum in nonrecurring from a range of items across the business that are going to accelerate our nonsubscription organic growth rates in the second half. And of course, this will elevate our overall organic growth rates in the second half, along with a steady and consistent subscription growth rate as we talked about. So thanks very much.

Your next question comes from the line of Brandon Dobell from William Blair. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Is it fair to assume that in the non-sub piece of the business that the strength you see just in the consulting part of it is driving the confidence and the improvement in the back half of the year? Or I guess asked differently, is there anything else going on that would make the improvement in growth rates there sustainable just beyond kind of the next 1 or maybe 2 quarters, should we see a longer duration on improvement?

Yes, it's a great question, Brandon, thanks. So if you look historically, of course, the back half of the year is always strong for us because of product release schedules and a range of things: reports, research, services. So all of those tend to drive elevated nonsubscription organic growth through the year. Q1 always tends to be our lowest quarter in the nonsubscription organic growth, and it elevates through the year. We're seeing positive signs in backlog in our core markets, so automotive, energy, chemicals on the nonsubscription side. We've got some reports and other product releases through Q3 and Q4. All of those give us confidence in rising nonsubscription and improving nonsubscription organic growth rate, and of course, stability, Brandon. On the subspace, really rock solid where we are now. So that will elevate our overall organic growth rate, but those are the drivers. So broad based, a number of product releases, research, insights and then services.

Your next question comes from the line of Andrew Jeffrey from SunTrust.

Could you talk about, Scott, sort of broadly, and I guess, qualitatively, how you think about IHS's exposure cyclically? In other words, you seem to be performing well, certainly relative to a depressed global economic backdrop, growth backdrop. Should we see one-for-one improvement in your business should global demand pick up? And conversely, if we are in a protracted global commodities complex slowdown or recession, is there anything that structurally changes at IHS in terms of how you invest and view your business? Or are you kind of looking right through the macro environment as you think out longer term strategically?

Yes, it's really, Andrew, a really great question and insightful. So if you look -- because you've really thought about it. If you look at where we're at, we're always, and I'll say this generically, 5 points or so above overall macroeconomic growth rates regardless of the market. Europe's negative. Our subspace is growing at 4. China, we're 4, 5 clicks above what the market's now growing at, same in the U.S. If you look back historically, even in the depths of 2008, 2009, our subspace organically always was growing kind of above 4% and 5%, 6% despite kind of all that tumult, so you have it right. We always -- through economic times, people come to IHS because we give insights around what's happening in their core markets, help them make business decisions. So those, the kind of the volatility uncertainty is a great thing for our business, and it will lift us. I mean we've said we can grow above the current level. We laid out a 12-quarter plan to grow 4 to 5 points above the current levels of growth. So we're planning for this maybe being the new normal. But you're right, that growth that we see starting to pick up in 2014 would accelerate if we saw markets in general rising. We do see very little correlation to the cyclicity, commodity or other elements in markets. It's more around volatility, which tends to be positive for us. So great, great question, and thanks for the thoughtful reflection on our business and how it functions.

And if I might just with a quick follow-up, could you give us an update on some of your workflow integration progress? And do you still feel like, irrespective of the macro environment as we look to '14 and then further out to '15, that you're on track to drive better growth by pulling levers you control explicitly?

Yes, it's a great question. So as we said, we are on track, in fact, despite the lower-growth environment. We're still expanding margins while we invest in those platforms. We had a major release in energy. The next version of Connect, and we saw a really solid move of users onto that platform. We're excited about that because at the end of the year, we'll retire the old systems and take those costs out. And then we'll realign sales around the platform, and you'll see that in every platform. So what that does is: we release, get in the market, we migrate customers, we take costs out, we align sales, and then we can drive this upsell and cross-sell engine in the following year. So good progress on all of them. If you look back at Investor Day, we had our quarterly milestones for the next 12 quarters, and we are on track to those. So we continue to invest to ensure that we deliver this long-term organic growth elevation and enhancement. So we feel good about it, we're on track.

Your next question comes from the line of Paul Ginocchio from Deutsche Bank.

This is actually Ato Garrett on for Paul Ginocchio. I wanted to circle back to the PFC Energy acquisition. Earlier, you gave a little bit of insight on the margins. I was wondering if you guys would be comfortable giving us kind of a range or just the way to think about the revenue size of the acquisition?

Yes. So as I said, first of all, a great company, great colleagues. And they're running a great company that's kind of in the low 20s type of margin, high teens today. And of course, we'll bring that onto our global infrastructure and enable them globally. As you think about the revenue side, not significant revenues here. We've kind of scaled it around the level of both the sequester impact and our FX impact for the year. And you can think about that sequester. We talked about $2 million to $3 million of impact in the second quarter and kind of a quarterly rate there and in similar levels with regard to FX. So it's not a huge asset, but it's strategically significant and important to us.

Okay, great. And one just quick follow-up, if I could. I saw that you mentioned that there were some adverse effect of renewal timings in APAC. And I was wondering, when would you expect to see a corresponding offset for when those renewals are coming in, if they're coming in later than you initially anticipated?

Yes, great and thoughtful question, Ato. So we manage those very closely. That's a great thing about having our new SFA system. We can track globally very, very well, by region, by product. And the teams have very clear plans in the pipeline to close those in Q3, great progress on many of them already. So we'll see those close in the coming period here and are making good progress towards them.

The last question will come from Jeff Meuler from Baird. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: I was wondering if you could go into a bit of detail. Where are you seeing incremental headwinds, because it sounds like your subscription organic growth is a little bit lower than it's been over the last 2.5 years or so, and it sounds like your economists are forecasting similar growth in 2013 to what there was in 2012, albeit tepid growth. And I know that Vanguard's only part of it. But Jerre, you said the massive changes, you think, has cost you guys about 1.5 to 2 points of organic growth. So now that we're coming to the end of the Vanguard implementation and with similar GDP growth, it seems like you should have some potential to start seeing some acceleration. So just wondering if you could help reconcile that for me.

Yes, great question, Jeff, and several points here, so let's just start with the macro. So as we're watching China's industrial production, lowest level almost in a year now. PMI is less than 50 so it's contracting. You look at FedEx's announcements, and others, shipments into China slowing out, slowing. So this is, of course, going to keep EMEA negative, several points of growth in China coming down. So those are the constraints. So if we look at our performance, I'll give you some color by industry. So a solid and a single digit to double-digit subscription growth across Q1 and Q2, in energy, chemicals, automotive, autos, super solid total organic, high single to double digits across Q1 and Q2. Where we're seeing headwinds, and actually, you saw this in the FedEx announcement yesterday, is electronics. So that's a market continues to see headwinds. A&D and Maritime, and then certainly, regionally in EMEA. So those things are constraining the market and spend. But of course, we're driving solid above-market growth. Your other point is a really good one. So imagine, as you put new sales systems in, we put regional contracting in, replacing dozens and dozens of contracting entities. We've repapered our entire customer base, and of course, our sales force has had to drive that. We've had to train them on new systems, all new processes. So think about the distraction there of repapering and training and new processes, all of that impacting them as we finalize Vanguard and SFA through Q2. So Jerre's comments were around this distraction to sales. We're so excited about having that behind us. And then as we get to the beginning of next year, really having an engine in place, sales aligned, some of the platforms out and this distraction past us. And it's more than just the distraction, simplicity going forward. So we've talked about 30% to 40% of our sales teams time's wasted because of inefficiency in systems. So kind of -- your question's a great one. That's the backdrop, so we've got solid strong growth in many high-growth markets, above-market growth rates globally. Efficiencies driving in our sales force, we'll start to realize as we begin 2014.

Sir, you have no questions at this time, so I would like to turn the call over to the management for closing remarks.

Thank you very much, Perita. We thank each of you very much for your interest in IHS. This call can be accessed via a replay at (888) 286-8010; or international dial-in (617) 801-6888, passcode 71638793, beginning in about 2 hours and running through June 27. In addition, the webcast will be archived for one year on our website at ihs.com. And as always, you can contact IHS Investor Relations with any follow-up questions. We can be reached at +1 (303) 397-2969. Thank you. We appreciate your interest and time.

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