S&P Global Inc. (SPGI) Q4 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Q4 2013 IHS Inc. Earnings Conference Call. And now I would like to hand over to Jane Bomba. Please go ahead.

Thank you. Good morning, and thank you for joining us for the IHS Fourth Quarter and Fiscal 2013 Earnings Conference Call. We issued our fourth quarter earnings release earlier this morning. In addition, we posted to our website a supplemental presentation relevant to today's call. If you do not have a copy of the release or the supplemental materials, 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, amortization of acquired intangibles 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 are included in our release and 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. After our prepared remarks, Scott Key, IHS President and CEO; and Todd Hyatt, EVP and Chief Financial Officer, will be available to take your questions. With that, it is my pleasure to turn the call over to Scott Key. Scott?

Thank you, Jane. Good morning, and happy new year to everyone. It's a pleasure to be with you this morning to share our results from the fourth quarter and for the full year 2013. We are pleased with our fourth quarter performance and a strong finish to our year, as we delivered to the clear expectations we set for the final 2 quarters of 2013. We can prove it in our subscription organic growth rate and continued progress in our non-subscription offerings. The result was a solid finish in 2013 for revenue, EBITDA, free cash flow and earnings per share. Based on the efforts of every IHS colleague and leader, we accomplished so much this past year. This included the completion of our core infrastructure initiatives; the continued rollout of great new platforms that integrate our capabilities and create powerful new solutions for customers; the launch of our target 1,000 sales strategy, which focuses sales resources on high-growth, high-opportunity accounts; 8 strategic acquisitions, including 5 acquisitions in energy, 1 in chemicals, 1 in economic and country risk and, of course, R.L. Polk, all of which are on track with their integration plans; the addition of great people from acquisitions and others who joined us in key roles to extend our capability and add to an impressive bench strength. R.L. Polk has continued to perform ahead of plan, marked by a nice revenue trajectory, strong free cash flow generation and good integration progress. Record scores again for customer delight and colleague engagement; and the addition of IHS to the Dow Jones Sustainability Index, supported by more than 13,500 hours of volunteer time given by IHS colleagues in service to our communities around the globe. My many thanks to my colleagues for all their hard work, a clear focus on a strong…

Thank you, Scott. Let's start by reviewing some of the financial highlights for the fourth quarter. Revenue was $560 million, an increase of 35%. Adjusted EBITDA was $170 million, an increase of 21%. Adjusted EPS was $1.46, an increase of 3%. And free cash flow was $126 million, an increase of 138%. Relative to fourth quarter revenue performance, revenue increased 35% to $560 million. The growth in revenue included 4% organic growth and 32% growth from acquisitions, with a 1% drag from FX. Subscriptions represented 75% of revenue and grew organically 7% in Q4. As we highlighted on the Q3 call, we saw strengthening sales pipelines, and as expected, we also benefited from catch-up of several past-due subscription renewals. This catch-up revenue helped push the subscription organic growth rate to 7% for the quarter. Our non-subscription businesses declined 3% organically in Q4. Underlying this performance was continued improvement in our non-subs business and a strengthening in sales pipelines that we expect to continue into 2014. Looking at regional performance. Growth was strong across all 3 regions, due in part to the inclusion of R.L. Polk, and anchored by steady organic subscription revenue growth. Americas overall revenue increased 52%. Organic growth continued at 6%. And acquisitions added 47%, primarily due to R.L. Polk's significant U.S. presence. Americas organic subscription revenue growth was a solid 5%. EMEA's overall revenue growth was 14%. Organic revenue growth was 3% and acquisitions added 12%. EMEA's organic subscription revenue growth was a strong 10%. APAC overall revenue growth was 6%, which included acquisitions growth of nearly 8%, negative organic growth of 2% and 1% adverse FX impact. APAC's organic subscription revenue growth was a solid 9%, with total organic revenue impacted by negative non-subscription revenue growth. Despite the negative non-subs performance in the fourth quarter, we…

Thank you, Todd. I'd like to briefly summarize some of the key takeaways, and then we'll move to your questions. With respect to our stock-based compensation, we will effectively manage this program to balance value to shareholders and incentives to colleagues. This means we will actively manage the scale and cost of this program, as Todd has outlined, in 2014 and beyond. With respect to progress in building IHS, we have successfully completed the critical global infrastructure process and systems implementations that have consumed a significant portion of our attention and resources over the past 3 years. We set a clear foundation and expectations for our forward performance and overall organic growth of 100 to 150 basis points per year and margin expansion of 100 basis points per year that we are committed to delivering from now through 2016. We were pleased to deliver a solid close to 2013 and are confident in the foundation that this builds for 2014. So let's move to key points for our 2014 guidance and commitments for performance and growth. Included in our 2014 guidance is 100 basis points of core IHS margin expansion, along with improvement of R.L. Polk margins to IHS levels by year end; expanding subscription organic growth that will build through the year and into 2015; and non-subscription organic growth that will turn neutral to positive as we begin 2014. Finally, as Todd indicated, we have a 2014 plan that every IHS colleague and leader is committed to delivering and will allow us to meet our shareholder expectations for the continued profitable growth of IHS. I'm now ready to answer your questions, so let's start the Q&A.

[Operator Instructions] Your first question comes from Suzanne Stein from Morgan Stanley.

I'm just curious about the CapEx guidance. It looks pretty high just relative to previous years, and I'm just wondering if you could break out any of the big items that are embedded in that guidance for '14.

Sure. Thanks, Suzi. We are running this year kind of at the 5 to 5-ish, 5.5 range on CapEx. And Suzi, we're at that range, marginally above it, for 2014, so it's not a significant expansion. Realize also that Polk brings CapEx to it, so the absolute number has grown because of the addition of Polk but still, as a percentage of revenue, roughly in line with where we've been, in the 5 to 6 range. To your point, the key components, really a shift from the infrastructure investments that were driving our CapEx to this largest deployment of commercial platforms in our history as we've moved that CapEx spend from infrastructure to commercial benefit. And of course, this is high priority for us as we drive to increasing organic growth in the coming quarters and years.

And then can you just comment on what your fiscal '14 guidance implies about performance geographically? Does it imply a pickup in -- I guess, in the non-U.S. businesses?

Yes. Thanks. Maybe I'll start and let Todd jump in.

Sure.

From an organic growth perspective, really we're focused on growing the subs space organic from 2013 levels, which was 6% on the full year, into the 6, 7 -- 6% to 7% range. And we see -- we were pleased with the positive performance on the subscription side organically in each region, actually, and we see that solidifying and strengthening.

Yes, I mean, we certainly see some improvement coming out of EMEA. We see Americas continuing to be very stable as the largest region. And those would be probably the 2 things that I would highlight, Suzi.

Next question comes from Hamzah Mazari from Crédit Suisse. Hamzah Mazari - Crédit Suisse AG, Research Division: Scott, you spoke about some of the specific program rollouts and the progress you've made there. And you've highlighted the organic revenue growth contribution from those initiatives at Investor Day, but could you help us understand how investors should think about the cost side benefits as these programs roll out, as you shut down some of the legacy systems. Curious to see if you could add any color on the implication on the cost side of your business.

Yes. Thanks, Hamzah, appreciate it. And you're exactly right, so yes, we've talked about these contributors to growth. And of course, through 2016, we will see this continued pace and cadence of rollout of new platforms that allow upsell and cross-sell, alignment of our sales around them, and then that'll build into revenue. So we're really beginning in this building process as we start the year. And you're exactly right, that this allows us to shut down a significant number of legacy systems, and that's part of what will ensure and gives us confidence in the consistent 100 basis points of margin expansion that we've committed to delivering year-on-year for many years to come. So efficiencies will contribute to that margin expansion. Clearly, revenue growth contributes to it, but then the takeout of these substantial costs to support the delivery infrastructure of a very broad product mix that we have now. So you have it exactly right. Hamzah Mazari - Crédit Suisse AG, Research Division: And then on the non-sub business, you spoke about a positive trajectory. Maybe drill down a bit and help us understand where you've made the most progress. Is it transactions? Is it consulting? Is it the software side? Is it the events business? Where do you have work to do, and where do you see things sort of optimized, if we'll take a drill down in the non-sub business?

So I'd say yes in all of the above. So several positive dynamics. One, we are now implementing the e-commerce platform, and we've got first releases and moving important elements of our transaction business onto it into Q1. So that stabilizes that $70 million to $90 million in revenue in transactions that we've talked about. So that's one piece. So we have some confidence that, that will stabilize and as we come into 2014 and build through the year. We made consistent sequential improvement, and that means, from quarter to quarter, operating improvement in pipeline management from consulting, through events and into software, and we see strengthening in each of those as we end the year. Of course, we're coming to easier comparables as we enter 2014, the combination of the two. And I would say, real good visibility with new systems to our pipelines. So that's what gives us confidence to see that we will move to a neutral and positive as we enter the year. And our goal, to be really clear, is to have a neutral to slightly positive full year for 2014. So the non-subscription business is no longer a drag or a driver of our overall organic performance, but really, the bulk of our business, which is subscription, becomes the prominent feature and the key metric. Hamzah Mazari - Crédit Suisse AG, Research Division: Just a quick follow-up, I'll turn it over. Do you folks envision de-levering below 2.5x? You've paid down a lot of that free cash flow conversion. I realize it's going down in '14 relative to if you look at this quarter. But do you folks think about de-levering below 2.5x? I think you are 2.8x now.

Well, we're actually at 3.4x when we closed the year, on a gross basis. Our stated financial policy is a 2x to 2.5x leverage ratio. Certainly are focused on de-levering throughout 2014. We're not going to give a stated leverage target at the end of the year, but we feel pretty confident in our ability to drive leverage down to a level within the financial policy in a reasonable period of time.

And realize, we talked about a run rate, as we exited the year, of $0.5 billion in free cash flow. And if you look at the conversion we talked about and the EBITDA levels at $690 million for the year, will be reasonable period of time.

And realize, we talked about a run rate, as we exited the year, of $0.5 billion in free cash flow. And if you look at the conversion we talked about and the EBITDA levels at $690 million for the year, we'll be in great shape to hit that goal. And what that does, it just gives us a lot of flexibility to continue to make the right choices when we see great assets. And we'll make those choices as the time comes and the timing is right on the right assets to help us scale and grow.

The next question comes from Andre Benjamin from Goldman Sachs.

First question, I was hoping to maybe take a step back and look at the very big picture. If you can maybe provide some thoughts on the level of conviction and focus on getting to the $4 billion to $5 billion in revenue, I know you cited in the past, and how much of that should be organic and as with -- as you continue to grow subscription-based versus M&A, and what the likely timeline of that would be.

Thanks, Andre, appreciate the question. If you take the big sweep of the last 10 years, we've built the business equally between organic and acquisitive, so we really have a 50-50 split. So it's been a very good balance of acquiring assets that have significant organic growth potential, and of course, that's a requirement. So they build to that organic base and ensure that organic is half of our growth story. And then Polk is clearly a scaling move. And we'll continue to use this strong free cash flow to scale, but I -- you can think about the balance being about what it's been historically, and that allows us to effectively deploy our cash in a prudent manner at a rate which we can integrate well and then continue to scale the business. But we're $2.2 billion this year, we're halfway to that goal and making great progress towards it. So we still see -- and as we track over 2,000 assets that are potential targets across our core sectors, we see an opportunity, as we said at Investor Day last year, to scale each of them from $0.5 billion to $1 billion in revenue. There's that potential globally. And of course, when you add that up, you can see we can easily get to that $4 billion to $5 billion range that we've talked about.

And then just to drill down a little bit on the revenue mix in your core businesses, energy versus autos and some of the others, could we get a little update on what percentage of revenue is into those buckets as of the fourth quarter, and then maybe what growth you're seeing in the key verticals?

Well, I think, if you -- we -- as we get into this year, we'll start to give you revenue color that's more tied to industry as we lapse a full year of SAP and have great analytics and metrics, and that will give you much more meaningful views around our revenue color. What I would tell you today is, as we know, we've got an energy business that is in the $0.75 billion range and it certainly has been the biggest vertical for us, with the Polk acquisition and really dedication to build IHS Automotive for almost 5 years now. We've got an automotive business that is more than $0.5 billion in revenue, so a very large vertical for us. We've made great progress across each vertical in Product Design, and that's nearing $0.5 billion as we look across each sector. So those are the big drivers. And then each of our other sectors now are at the $100 million level, as automotive was a year or so ago, and as we've said at Investor Day, really poised to continue to scale. So that's, I think, a good way to think about the mix.

Next question comes from Andrew Steinerman from JPMorgan. Andrew C. Steinerman - JP Morgan Chase & Co, Research Division: Todd, a question for you. I'd like to review the subs revs in the quarter, the $418 million. We talked about that it benefited from slippage from third quarter to fourth quarter. Could you go over that a little bit more? Is there any upfront revenues? Or is this, now that we signed a renewal, we're "responsible for recognizing revenue that otherwise would've been recognized in the third quarter?" And then the same point goes to, as Scott said, the first quarter sequentially will be a build quarter for subscriptions. My question is, with that in mind, could subscription revenues be down sequentially because of this subject that we're talking about, the third quarter slippage into fourth quarter?

Yes, Andrew, we've -- I mean, we've been very overt about this. On Q3, we came out of that call, we recorded a 5% sub growth, but we said we had some past-due renewals that had slipped out of the quarter. We expected to bring those into Q4. We did bring those into Q4, so Q3 felt much more like 6% if you normalize. In Q4, when you normalize, it's closer to 6%, and I think we have been overt about that. Similarly, last year, Q1, we had an 8% organic growth rate, which we called out at that time. We benefited, in that case, from some items that had slipped out of the prior year and it closed and caught up in Q1. So the number moves around 1% within quarters and certainly doesn't cause us huge concern, but we called out on the call that, looking at the Q1 number, that's a -- that will be a difficult comparison relative to this year Q1 because of the fact that we had some catch-up revenue that pushed that rate up a bit. But when we balance things out, Andrew, and we're pretty clear about this in the guidance, we see us growing off of a base of around 6%. We see that number moving sequentially higher during the year as we start to drive revenue from a lot of the initiatives that we've communicated.

Yes. That's a great way to think about it. Andrew C. Steinerman - JP Morgan Chase & Co, Research Division: Right. And but I asked sort of more sequentially, like could revenues be down from the $418 million? I mean, the subs revenues in the past have never been down in the first quarter.

The actual absolute revenue amount, I would not expect that number to decline on a sequential basis, the absolute amount.

Yes. But the -- yes.

Next question comes from Manav Patnaik from Barclays.

I just wanted to understand. In the past, you've talked a little bit about the macro assumptions that you take into account when you provide your guidance. I just wanted to get a sense of what sort of environments you've assumed in this, I guess, the current guidance that you've provided.

Thanks. Happy new year to you, Manav. So now you're making me say the word macroeconomic again. And you've noticed we've stopped talking about the economies for the last couple of quarters, and that really underlies the answer to your question. We see a positive improvement in our business in the current environment and we really don't see the economy as a factor in our performance, nor are we counting on it to be one in any portions of next year. We see fundamental positive strengthening in the business as we build and deploy and execute to our commercial initiatives. We have a strong and a -- I feel like, a solid base that we exited the year with. We may see and all of us may see a tailwind in the latter half of 2014 economically, as Europe continues to solidify and strengthen and we have fewer distractions in the U.S. But I really don't want to spend time on that because that's what everybody was saying this time last year. So we're really focused on delivering in the current environment, and we can deliver to what we've just outlined in the environment as we see it today.

Fair enough. You guys mentioned, obviously, that Polk's ahead of your plans and you've had some of the highest quarters in years. I was just wondering if that changes maybe the sort of the expected contribution in '14 compared to the guidance you had provided to us when you closed the acquisition. Like, should we be expecting higher growth, maybe a higher dollar number? Wondering if you could give us some color around that.

Yes. We were pleased with the positive additional contributions. And we had some discrete items in the stub period in the quarter at Polk that helped that positive contribution. So we were pleased to see those. So that was just great timing to have some unusual items come in. That really gives us confidence that we'll deliver to plan. And we'll continue to monitor it. And we may see, as the year progresses, that increasing performance at Polk allows us to increase our outlook a bit, but we'll monitor it. We're pleased that we're solidly on plan and see a very low risk to executing to our goals there.

Okay. And one last quick one from me, just in the context of all the small M&A that you guys have done historically, just curious, pipeline on that and thoughts around efficiency more coming from you guys.

We are in a great position in terms of cash. And we have a pretty good pipeline of small tuck-in assets that we're now working towards. So as we've said, you should see us continue to execute along those strategic tuck-in acquisitions, and the teams are still working those. I think that's what you should expect in the very near term. But we continue that, as we've said, to monitor a pretty broad field, and things in the $30 million to $40 million revenue range is kind of our average over many, many years. We've got a number of those assets as we move into the year, Todd, and to the back end of the year that we'll look at.

Next question comes from Peter Appert from Piper Jaffray.

So Scott, can you give us any further granularity on the revenue performance by industry vertical in '13 and sort of what's implied by the guidance?

Yes. As we've said, obviously, we've got a great and a strong energy business that has, for almost a decade, been a high-single-digit organic grower, and it's continued to contribute positively to the business. And we expect that -- as you -- as I said, a number of the acquisitions last year were in energy. In fact, in terms of the number of assets, most of them were in energy. So we continue to build and strengthen our core. And Connect comes out in energy. $250 million of energy revenues will sit on Connect by the end of the year, enabling a lot of upsell and cross-sell, where we're still only 30%, 40% penetrated with those subscriptions for energy customers. So we expect energy to continue then to be a very solid contributor, and we add value to customers there. Chemicals, a great industry, has built a great presence. IHS chemicals and the team leadership there is really, really solid; a strong momentum on the non-subscription and subscription side in chemicals as we left the year. So again, that's another high-single-digit organic grower. Autos, of course, Peter, is just performing well. IHS Automotive pre-Polk was high single digit. CARFAX is a high-single-digit to double-digit organic grower. So autos continue to be positive. And then we're seeing a solidification of Electronics & Media, which we're now talking about as technology, in that vertical; and a bottoming and strengthening in A&D and Maritime. So those will be slightly lower contributors, but they're building as we enter the year. So I think that's a good overview industry-wise.

So the thing that held you back versus the approaching, we're call it, 8% to 10% growth you're doing in energy, chemicals, autos, it's really the defense, the -- so what you used to call security and environmental, right?

Yes. And as -- I think A&D has been a market of reorganization and a challenging government spend. And but as I said, we're seeing bottoming there. Maritime held us a little back last year, but we see positive trends as we get some things in place there. I think those are the -- and technology, electronics, semiconductors, it's been a tough market, tough in Asia, strong cost control, very low margins. And in that business, we're still building. So I think those things have held us back, Peter. And of course, what's held us back in the overall rate is the non-subscription, which we now see as moving to neutral to positives.

Got it. And then the underlying growth in Polk growth. So you had -- you have highlighted some special items, but can you give us a sense of what the sort of underlying organic growth in Polk was in the quarter on an apples-to-apples basis?

Well, CARFAX, very solid and consistent at high-single- to double-digit levels, as it has been for many years. So just solid, again, leadership, execution and a great market and great potential that they're capturing. Polk has been a low single digit for 4 to 5 years as they came into IHS, but we saw some strengthening market conditions, some onetime, and other good execution. Buyback team, as they came into IHS, got us, Todd, about mid-single...

Mid-single.

Mid-single digits but below what IHS Automotive has been doing. So that's where Polk sits as we exit last year. And the goal really to bring the Polk division up to IHS Automotive levels of growth consistently and as we exit next year.

Got it. And just last thing, so I can better understand your expectations in terms of phasing. So the -- I understand what you've said about the first quarter. I would imagine that the organic growth would look particularly robust in the fourth quarter as you annualize the Polk transaction. So should we assume that the first, second, third quarters are relatively static in terms of the pace of organic growth, and then a step-up in the fourth quarter?

I think it's a build. But you're right, its fourth quarter will be strongest and we'll get a benefit from Polk. Thanks, Peter. Appreciate it.

Next question comes from Paul Ginocchio from Deutsche Bank.

Sorry if I missed it, did you give the revenue from R.L. Polk in the quarter and what was the November organic growth rate of on a pro forma basis for R.L. Polk? And then finally, maybe just to be more specific, could the first quarter subscription growth overall be 4%, or is it more like 5%?

Yes, we don't give the split-outs on Polk in revenue there, but the organic growth, as we said, was mid-single digits on the Polk division and high single to double on CARFAX. So good, solid performance there. And in terms of the first quarter, we wouldn't expect any time next year to be at a 4% subscription organic rate, but we did say we'll build and we've got a tough comparison in Q1.

Next question comes from Jeff Silber from BMO Capital.

I was hoping we can drill down a little bit by country, if possible, on both your EMEA and APAC regions. Were there any pockets of strength or weakness?

Yes. Just first, strong, very strong, subscription growth in both regions. So we really had a positive performance in APAC, a positive subscription performance in EMEA. So we're very pleased with that. On the APAC side, we did post an overall number that was negative, but realize we got $12-ish million in nonrecurring revenue in APAC. So it's really a scale of numbers thing. And we had a double-digit nonrecurring organic growth in APAC, 35% in the first quarter, I think, and in the 20s in the second quarter. So that's just timing and small numbers, but pretty solid performance, and we expect that to continue and build. So we feel good about where we are regionally.

I'm sorry. My question was specific countries, if you can call out any.

Sorry. China, Japan, strength in Japan in APAC; strength in Indonesia, based on the energy presence there. Middle East and Russia continue to be positive places of investment and strength for us in Europe. And in the U.K., doing well, and then of course, Latin America, so a lot of focus for us there. And some strength in Brazil and a few other places.

Yes.

Next question comes from Jeff Meuler from Baird. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: Just to drill down on this one more time, Todd. Could you just help us with the accounting on the past-due renewals? So is it that, if you had a renewal that was supposed to come up in Q3, it slipped into Q4 during that nonrenewal period, you have a onetime catch-up adjustment that you recognize when the contract is signed?

We do, assuming that we continue to provide service in that period of time and assuming that the contracted period covers that period of time. So with these large accounts, and we'll make it a determination as to whether or not we're going to continue to provide service. Certainly, we need to be in active discussions with the customer. And most of these are long-term relationships. You end up with some procurement cycles that can take a bit long. But assuming that we do continue to provide service and the contract covers that period of time, we do end up catching up the revenue for that lapsed subscription...

But I will tell you, it's been a feature of the last couple of years where recoveries are very focused on their costs, so cycles both for new business and renewals have extended. But I will tell you, we had extremely positive close, almost 0 outstanding renewals in every region as we closed the year. So our teams did an incredible job and we're in great shape as we start 2014.

Thanks, Jeff.

Next question comes from Brandon Dobell from William Blair. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Maybe some color on how the margin progression should phase through the year. Given, like, kind of lower growth in the first quarter, should we expect margin expansion in the first part of the year to be below that 75 to 100 basis points range and the back half year to be above it? Or is there something else going on that we need to take into account?

I'll start and then let Todd jump in. We always are -- and I think you've kind of hit on the seasonality that we've talked about and posted materials in the past. So Q1 is our lowest-revenue quarter, Q4 is our highest on a relatively fixed-cost-based business. So that seasonality in revenue is reflected then in the seasonality in our margin, for sure. And then often, we've seen, in the past, our Q4 margin becomes the full year margin of the following year as we build margin. So we should expect margin to build, and that...

That's the right way to think about it. We expect to see margin build as we go through the year. Lowest-margin quarter -- almost, they line up. Lowest-margin quarter we expect will be Q1, and Q2 and 3 and 4.

Now what will enhance that trend this year, of course, is the great progress we're making on Polk. And we will continue to make that progress through the year, as we said, getting Polk by year end at a run rate that's at IHS margin levels. So that's a good margin story for us. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Okay. Any way to quantify the benefit or the impact, I guess, from the Connect or kind of related platform rollouts you saw in '13, what that would do for organic growth in '14, or some way to drive a correlation? Or just to get -- so I'm just trying to figure out the impact on an individual customer spend from those Connect platforms. Or something like chemicals, what does that do for your '14 or '15 organic revenue growth?

Look, chemicals is just like Connect because we spent 4 quarters getting Connect fully out and customers converted, and now we're in a position to start renewing and enhancing and uplifting. We've aligned sales around it as we start this year. So we should see that manifest in sales in Q1 and then start to manifest in revenue in subsequent quarters, which is part of our confidence in the building our organic subscription growth base. When you think about chemicals, we'll spend this year putting on the platform initial releases and moving customers. So it'll really be a 2015 story as from a revenue as we align sales the beginning of next year to chemicals, as it's out, and then renewals and uplifts and see that deploy [indiscernible]. So Connect will be part of the store that's embedded in the guidance, as we strength in subscription. Thanks so much, Brandon.

Next question comes from Andrew Jeffrey from SunTrust.

Just quickly on Polk, don't want to belabor the point, but could you just remind us about the seasonality in that business? Does it track your overall business?

Yes, it's interesting. Q4 and partially driven and maybe more than partially by CARFAX is actually tends to be a weaker period, whereas for IHS, Q4 is seasonally our strongest. That's both driven in that seasonality, is because we're a growing company, so we're just building every year and every quarter. So Q4 tends to be our high for the year. And of course, for CARFAX in specific, Q4 actually tends to be a low watermark. And as I said, there's strength and the recent period benefited from some discrete items that we were glad to see happen for Polk.

Okay, got it. And with regard to the top 1,000 customer progress, and you mentioned you hired 27 sales people, as you think about -- inside sales people, as you think about 2014, how much of the growth do you think is a function of sort of same accounts versus the ability to hire new sales people, I think I misspoke, field sales people? And what's -- is that a gating item at all? How do you think about the buildout in the sales force versus the performance in that key strategic initiative?

Well, it's a pretty good balance because we're 30%, 40% penetrated only in our existing customers and our new platforms are about enabling upsell and cross-sell, in other words, servicing simply the full value of our subscriptions to common workflows. So sales has a simpler selling motion to capture that upsell and cross-sell in existing accounts. So that's really important, but as we've outlined with the target 1,000, we've got 300 core companies in our core markets that do more than $5 billion a year in revenues that we do less than 200k with a year because we haven't had the field sales force calling on them and establishing the relationship. So the target 1,000, those 27 are in place now to establish those relationships where we have very small ones. So I think it's a pretty good balance. And of course, if you do the math on the 100 accounts across these 27 target 1,000 executives, 2 or 3 each at $1 million each, there's $100 million of growth potential. And of course, that will build over the next 10, 12 quarters, but a good balance of the two.

Thanks.

Next question comes from Joseph Foresi from Janney Capital Market.

Just a continuation question on the sales force additions. Could you just remind us how many you're planning on adding and how long those take to ramp? And have you altered any competition there?

Yes. One, realize that we're paying for this through efficiencies. So our sales and marketing costs have been flat through this year to the previous year as we transition our sales force, move small accounts inside, free up the center of our field sales force for new business focus, and then the target 1,000. We started -- we're recruiting across 20 geo markets globally so that we're right at the cold face with the customers in these high-opportunity accounts. We started the process of recruiting this time last year and really spent the full year building to about 1/3 of our goal of 100 over 3 years. They're now in place, really started to bring most of them in, in the final quarter as we did a great job recruiting around the world. And I think it's a build over 10 to 12 quarters on those accounts. We've talked about our success in doing this, and that's why we have confidence in it. We can name 4, 5, 6, 8, 10 customers where, over 12 quarters, we've gone from 200k to 3 million, 4 million, 5 million, 6 million. So I think the build is a gradual one over that kind of timeframe that we've got a lot of great resources on the ground now executing.

Okay. And then on the rollout of the new platforms, can you give us some idea, maybe quantifiably, what the percentage you've rolled out in 2013 and what you're expecting to have out there by the end of 2014?

Yes. It's a really good question. So for example, Connect, as I said, is -- ultimately, Connect supports a little north of $0.5 billion of revenue across all industries, and we'll have $250 million by the end of 2014 out there in markets. So we'll have $250 million of existing revenues sitting on Connect. So we'll be halfway there on Connect by the end of 2014. Things like Meridian and Vantage: Vantage will be fully out in the market as we end the year, fully deployed; Meridian, a similar timeframe. Sphera, engineering workbench, real strong solid commercial releases. So engineering workbench is pretty much deployed, all the enhancements to happen all through the year but commercially there. So we're probably looking at 1/3 of the way to our 12-quarter plan, so we're kind of on track from a revenue perspective. I think that's one -- probably the best way to think about it.

Next question comes from Shlomo Rosenbaum from Stifel. Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division: Most of my questions have been answered. I just have a couple left. In terms of the strong free cash flow, can you just quantify the tax refund timing? And was there anything else that we should note? Like, in the subscription, delayed catch-ups, was that a big factor or a big contributing factor that we should think about in terms of comping on it for next year?

In terms of the cash tax refund, think about in the range of 2% to 3% lift to the conversion rate. And then relative to the revenue catch-up that we talked about in Q4 from the past-due renewals, that shouldn't enter into a comparison on a full year basis. It would impact quarterly comparison. Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division: Okay, so then the cash aspect of that would fall more into 1Q when they start paying you forward.

Right, right. Yes.

Yes. Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division: And then just at -- from a philosophical question, given the high subscription levels of your business, is de-levering necessary beyond just keeping dry powder for another Polk-type acquisition? Or are you guys averse to keeping a high leverage ratio if there are opportunities that are out there...

I think we're -- yes, a great question. I'll start, and I'll give it to Todd. We're -- we always want flexibility in running our business. And it's a great cash engine we've deployed. Most of our acquisitions and the building of infrastructure across the world has been with our cash. And so we always want to be in a flexible position. We stated 2x to 2.5x, Todd.

Yes.

And that's kind of a target that gives us the flexibility that we like.

Flexibility. It gives us the financial flexibility to execute potentially larger transactions longer term. And I think your point's right, as far as we generate a lot of cash, from a leverage perspective, we could probably support something above that level. But in terms of the overall financial flexibility on a long-term capital structure basis, it's really the level we want to be at.

And we've shown with Polk we can flex up and then quickly de-lever. So it's a great feature of the model. And we're always going to be willing to do that when we have greater assets that we can bring into the company. Thanks.

Next question comes from Gary Bisbee from RBC Capital.

Just 2 questions. The 2 questions, first of all, what's built into the guidance from -- you talked about geographies on the revenue front, but not profit. And EMEA and Asia, both at declining adjusted EBITDA through much of this year. Should we expect that to turn? And maybe any color on why that's happened?

Well, I think there are a couple functions. One is, you know what, there -- these businesses, with this business, there's a level of cost structure that's involved in supporting sales and marketing, and we've invested in those costs in both EMEA and APAC. And certainly on the margin, and we saw this quarter with APAC, if we have revenue that falls below a certain level, then you end up with operating leverage working in a negative manner. I think, given the investments that we've made in those regions and our expected growth in those regions in 2014, we would expect to see positive margin improvement in both of those areas. But it really is a function of a consistent investment in places where we think we have opportunity, coupled with a lower growth environment, particularly in EMEA, in 2013, but with some strong signs of improving as we exited the year.

And I think we're pretty excited. If you look at APAC, for example, we now have 5 offices in China up and running and in great shape. We've got our regional headquarters in Singapore, where we just relocated. We have 300 or so colleagues there in a new office. We've got our Center of Excellence now built. So we have a lot of those costs digested and we see positive growth and returns from that investment. So we feel very excited about Asia, as we really have gotten past many years of investment to create the infrastructure to scale for some time to come. And then similarly in Europe, very focused on building out in Russia this year. We did a great job of building and adding teams in the Middle East, really grown our presence in a couple of high-growth areas in Europe and the Middle East. That will pay benefits. And so as Todd says, we're going to realize the value of this as things fall through on this fixed cost structure as we really have the infrastructure to scale our growth.

Great. And then just the last question from me. Your return on invested capital, the way we calculate it is it's fairly weak just due to all the M&A and the intangibles that, that puts on your balance sheet that you need to earn a return on. I guess, just from your perspective, I know you have hurdle rates that are above your cost of capital, can you give us a sense on how you've met those over time? And as you do bigger deals that come with higher multiples, like Polk, do you still think that you're positioned to be solidly ahead of cost of capital? And should we see the total ROIC, I guess, ramp as the business scales?

And I'll start and then let Todd jump into it, because you have it right: ROIC is not the best measure for IHS because we're acquisitive, and it's like anyone that deploys a lot of capital suddenly. We have very strict metrics on every acquisition with pretty high hurdle rates and weighted cost of capital, that's a pretty high burden. And we have to be up in the team's internal rate of return. And we have successfully delivered against that over, Todd, the last 10 years. So we'd be in the high teens, with weighted average cost of capital in the low teens, on average over that period. And so we've had solid returns and profit and cash from every asset we've acquired.

Yes. On an individual acquisition, you cited Polk, that certainly from our valuation model and running a pretty robust net present value analysis and IRR analysis, we were comfortable with the return parameters around Polk. And I think, to Scott's point, as we model out individual acquisitions and look at those relative to our hurdle return, we will be very diligent as we make acquisitions in the future to ensure that those meet an acceptable level of return.

But a suggestion for you is to run and do a modified ROIC that doesn't have all the amortization over a 5-year period flowing through, and what you'll see is our ROIC on that adjusted basis is in the 20s. So it's a very strong ROIC, and very consistent. Good question, though. Thank you. We really appreciate the dialogue and the discussion. And we appreciate being able to have this discussion with you today. Again, we were pleased that we built a solid foundation last year and closed well, and that really sets us up well for this year. So thank you so much, and we look forward to catching up with each of you further here in the coming days and in the coming few hours. So thanks so much for being on the call and thanks so much for your support. We're excited about 2014. And we'll talk to you in a few months.

And so thank you, each, for your interest in IHS. The call can be accessed via a replay at (888) 286-8010, or international, dial in (617) 801-6888, passcode 56009591, beginning in about 2 hours and running through January 14. In addition, the webcast will be archived for 1 year on our website at ihs.com. Thank you. We appreciate the interest and the time.

Ladies and gentlemen, that concludes the conference today. You may now disconnect.