Good morning and welcome to McGraw Hill Financial's Second Quarter 2015 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. All participants are in a listen-only mode. We will open the conference to questions and answers after the presentation and instructions will follow at that time. To access the webcast and slides, go to www.mhfi.com and click on the link for the quarterly earnings webcast. If you are listening by telephone, please note that there is a live phone option available to synchronize the timing of the webcast slides to the audio from your telephone. To do so, log in to the webcast, after completing the guestbook screen you will see two windows in the webcast viewer. Along the bottom of the left hand window, click the gear icon and select live phone from the list. A line will appear in the sound icon and slides will synchronize to the audio from your telephone. I would now like to introduce, Mr. Chip Merritt, Vice President of Investor Relations for McGraw Hill Financial. Sir, you may begin.

Good morning and thanks for joining the call. Presenting on this morning's call are Doug Peterson, President and CEO; and Jack Callahan, Chief Financial Officer. This morning, we issued a news release announcing our acquisition of SNL Financial and a separate release regarding second quarter results. If you need a copy of the releases and financial schedules, they can be downloaded at www.mhfi.com. In today's earnings release and during the conference call, we'll provide adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the corporation's operating performance between periods and to view the corporation's business from the same perspective as management's. The earnings release contains exhibits that reconcile the difference between non-GAAP measures and the comparable financial measures calculated in accordance with U.S. GAAP. Before we begin, I need to provide certain cautionary remarks about forward-looking statements. Except for historical information, the matters discussed in the teleconference may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including projections, estimates, and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. In this regard, we direct listeners to the cautionary statement contained in our Forms 10-K's, 10-Q's and other periodic reports filed with the U.S. Securities and Exchange Commission. I would also like to call your attention to a European regulation. Any investor who has or expects to obtain ownership of 5% or more of McGraw Hill Financial should give me a call to better understand the impact of this legislation on the investor and potentially the company. In addition, we recently published the company's new 2015 Investor Fact Book, which can be downloaded from our website. If you'd like a hardcopy, let us know. We're aware that we do have some media representatives with us on the call; however, this call is intended for investors. And we'd ask that questions from the media be directed to Jason Feuchtwanger in our New York office at 212-512-3151. At this time, I'd like to turn the call over to Doug Peterson. Doug?

Thank you, Chip. Good Morning, everyone, and welcome to the call. We have two topics to cover with you on this call, the SNL Financial transaction announced this morning and our second quarter earnings. We're creating a compelling combination with the addition of SNL. So let's start with the transaction. Before I go into more detail, let me first give you some history. Shortly after I became CEO, we conducted a rigorous analysis of the markets we serve to define investment priorities and an acquisition wish list. For potential acquisitions, we analyzed quantitative factors such as financial performance and market size, as well as qualitative factors such as strategic fit, strength of management team, and cultural alignment. Our assessment identified SNL as a leading potential partner for MHFI and we began to explore the possibility of purchasing the company. Once we started interacting with (sic) SNL, we were quickly impressed with the people at SNL, in particular its talented and dynamic senior leadership team, led by Mike Chinn. We became even more convinced that a combination of the two companies offered a very attractive opportunity to create long-term shareholder value and with S&P Cap IQ and Platts, we are in a unique position to add SNL to our portfolio in a very complementary way. As many of you know, SNL is a leading provider of sector-specific market data, news and analytics for the financial institutions, real estate, insurance, media, energy, and metals and mining sectors. The company has increased organic revenue in the low-to-mid teens each year over the past decade. Its subscription business model, coupled with its strong renewal rates, is a great fit for McGraw Hill. We see exceptional opportunity to this combined company to further penetrate core customer segments, expand into new geographies and strengthen common core…

Thanks, Doug, and good morning to everyone on the call. As Doug mentioned, SNL is a proven growth engine that will be additive to McGraw Hill Financial's future performance. The company has delivered mid-teens revenue growth for over a decade, driven by organic growth in the low-to-mid teens, complemented by selective acquisitions. The revenue model is highly stable, as it is a subscription-based business with high renewal rates and clear future revenue visibility, much like our S&P Cap IQ and Platts businesses. Furthermore, the upfront receipt of cash before the subscription period begins results in minimal working capital requirements. In 2015, we expect revenues of around $255 million and margins over 20%, which includes five points to six points of investment in the developing businesses that Doug just reviewed. Given the unique fit of SNL into McGraw Hill Financial, we have identified significant synergies, both cost and revenue based. We have built $70 million of EBITDA benefit in the financial plan that should be realized over the next four years by 2019. I will provide more detail on these synergies in just a moment. There's also a tax benefit associated with the basis step-up that has an NPV of approximately $550 million, which has an economic impact on the valuation. Relative to the earnings per share, for the first full year of operation in 2016, we anticipate accretion on a cash basis excluding transaction-specific amortization. On a GAAP basis, we expect the transaction to be accretive in 2018. As I just mentioned, SNL was a proven growth engine, delivering mid-teens growth over the last few years. Their established businesses are growing approximately 10% with margins over 30%. Their developing businesses, global expansion of their leading financial institutions product line, the build-out of the metals and mining product line, and selective…

Thank you, Jack. And as I've said in the past, we're aligned around four very important themes to drive growth and performance, and create value, strengthening our customer and stakeholder engagement, accelerating our international growth, sustaining our margin expansion and maintaining discipline in capital allocation, and fostering a robust risk and compliance culture to manage and mitigate risk throughout the company. As you just heard, the acquisition of SNL today fits very well with these themes. Now let's turn to the second quarter and I'm pleased to report solid results. The company delivered increased revenue despite unfavorable foreign exchange rates and decreased issuance outside of the United States, continued margin expansion with a 450 basis point improvement in adjusted operating profit margin, a 17% increase in adjusted diluted EPS to $1.21, strong year-to-date free cash flow of $621 million excluding the payments of legal settlements, issuance of $700 million of new 10-year notes as we re-entered the capital markets for the first time in eight years, increased capital return with repurchase of 2.6 million shares year-to-date, new additions to the portfolio with purchases of NADA Used Car Guide in J.D. Power and Petromedia in Platts, and continued productivity efforts across the company, which Jack will review later in the call. Now let's take a closer look at the second quarter results. Revenue increased 3%, but excluding the impact of foreign exchange, revenue increased 6%. Adjusted operating profit increased 16%. While geopolitical concerns negatively impacted issuance in our ratings business, adjusted operating profit increased across the entire portfolio. Progress on productivity initiatives resulted in a year-over-year decline in adjusted expenses. These initiatives have been focused on de-layering the organization, driving process efficiencies and improving productivity. Of note, on Friday, we will close the door on our former Midtown headquarters as the…

Thanks, Doug. I know this has been a longer call this morning than our norm, so I just want to briefly add some color on several items related to the second quarter financial performance, the balance sheet and the impact of the SNL acquisition on our 2015 guidance and then we'll open it up to your questions. First, I will recap key financial results and review certain adjustments to earnings that were recorded in the quarter. Let's start with the second quarter income statement. Overall, these were very good results especially the continuing progress in margin improvement. Revenue grew 3% despite the continuous headwinds from foreign exchange which reduced our growth rate by about three points. Adjusted consolidated operating profit grew 16% with all four business units contributing to this growth. Operating margins were over 41%, up 450 basis points from a year ago. This is the highest quarterly margin achieved since the formation of McGraw Hill Financial. Revenue growth combined with progress on our productivity initiatives contributed to this significant step-up. While foreign exchange had a negative impact on revenue we had had almost no impact on adjusted operating profit for the company as a whole due to the offsetting impact to expenses. Adjusted unallocated expenses decreased 22% as the prior period had cost associated with the sales of certain assets. The tax rate on an adjusted basis was 32.3%; for the balance of the year we continue to guide below a 33% rate. Adjusted net income increased 17%, and adjusted diluted earnings per share increased 17% to $1.21 versus the toughest comparison from 2014. The average diluted shares outstanding decreased by almost 1.5 million shares versus a year ago, as share repurchase activity offset the diluted impact of shares granted for equity related compensation. Now, let me turn…

Just a couple of instructions for our phone participants. Please press star, one to indicate that you wish to enter the queue and ask a question. To cancel or withdraw your question, simply press star two. I would kindly ask you to limit yourself to two questions, that's two questions, in order to allow time for other callers during today's Q&A session. If you've been listening through a speakerphone but would like to now ask a question, we ask that you lift your handset prior to pressing star one and remain on the handset until your question has been answered. This will ensure better sound quality. Operator, we'll now take our first question.

The first question comes from Alex Kramm, UBS. Your line is open.

Yeah, hey, good morning, everyone. Hopefully you can hear me okay. I'm remote. But anyways, Doug, I guess, for you, I mean, you often described McGraw Hill Financial as a collection of benchmark businesses. So obviously, those are hard to purchase or hard to expand. So maybe can you just summarize to us how you think SNL can be one of those benchmark businesses or not. And then maybe specifically, you said part of this business will be part of Platts, or could be part of Platts over time. When I look at the customer base, it's really just financial companies and not really the core user base of Platts. So can you maybe talk about this a little bit because a benchmark company, I would assume some corporate users as well?

Well, thank you for the question. First of all, let me just mention that as we've been looking at our overall strategy, we focus on a combination of benchmark, of data, analytics and research. And all of these are different sorts of products which get embedded into the workflow of the users that we work with. So first of all, SNL really is a benchmarking business at heart. If you look at how they produce the information, the proprietary data, and the focus and attention to detail that they provide, it's very similar to what you would look at for a benchmarking business. They're not a traditional price or index or credit benchmark, but they serve as financial performance and operating performance benchmarks for companies and assets in our space. We do look at them in addition to – as your second part of your question about how they would enhance our business related to Platts. They've been building verticals in the mining space, in the energy market analysis. As an example, they've got industry forecast curves and proprietary daily spot market prices in the energy market. They have operational statistics on over 5,000 electrical utilities. They've got power plant unit level data. On the mining world, they've got profiles of statistics on all mining projects globally. They've got customized maps. They've got location data, company primary, commodity information, ownership information, et cetera. All of that is very similar to what Bentek does, and very complementary to Bentek and Eclipse in the natural gas space. And so we see a lot of excellent fits in ways that we'll be able to leverage their database and their relationship. So I think that we want to make sure that you get more and more data about who they are and who their customers are, but you'll see over time as you get a chance to learn about them, that they've diversified incredibly well beyond their traditional investment banking portfolio.

Okay. Thank you. That's helpful. And then really just secondly for Jack. Maybe you can talk a little bit more about the – I guess the accretion as we think about 2016, and to some degree also from a mechanical and technical perspective. So if you're saying it's accretive on a cash basis, are you actually going to adjust your earnings next year to exclude amortization? Or will we still find this dilutive on a reported basis? And if so, how much dilution do you think you could expect next year from an EPS perspective? Thanks.

At this point in time I don't anticipate that we would exclude the amortization specifically relative to the transaction. However, we will point you towards to let you know what it is such that you can judge the cash accretion that we're forecasting for next year. So we will connect the dots there. I think we have some work to do to close this deal. We have to finalize some purchase accounting, so I would say on a GAAP basis next year the dilution for 2016, please this is the first pass (45:46) view of it, it's somewhere between $0.15 to $0.20. And we'll tighten up that range as we integrate this into our 2016 financial planning and future guidance.

All right. Very helpful. Thanks again.

Bill Bird, FBR Capital Markets, you're line is open.

Yeah. Good morning. The synergy numbers are quite large relative to EBITDA. I was wondering if you could just give us a sense of what's included in the synergies. Also, what's not included? And then how do you expect synergies to phase in between now and 2018? Thank you.

Let me start, Bill. This is Doug. Well first of all, one of the things we've been impressed with at SNL as we've gotten to know them is their ability to run a very tight operational shop and how they've got ways that we can work together, as Jack showed on that map, in their operating centers around the globe. And then second, as you saw from the chart, they've got 91% of their sales today are in the United States. And we have a sales force and penetration globally that we think that we can get a lot of synergies from there. But let me hand it over to Jack for some more detail.

Yeah. Two points, and maybe let me address maybe cost synergies first and then come back on revenue, because the case is built roughly 50-50. First on cost, I would – we came at the analysis not just looking at the costs of SNL, we looked at the costs across SNL, S&P Capital IQ and Platts. I think when you look across that cost base, the cost synergies that we assumed here are actually quite modest, and there's a lot of overlapping capability as it relates to technology, in some cases data, et cetera. So I think you need to say from a cost point of view (47:43) take a more holistic view of it. Secondly in terms of revenue, there's both near term, what's called medium term and longer term revenue synergies. Some of the more medium term are taking the great products they've already developed, like their global FIG product, and we just have a much greater sales force coverage than what SNL has today. In collective, we just have more feet on the street to kind of expand that, to accelerate their global build out. And then longer term, we gave and we talked. There's a lot of new product development opportunity that's quite exciting both maybe in more traditional S&P Capital IQ space but also as Doug was just mentioning with Platts in terms of the mutual areas of capability that we built out there.

And then a question on the phasing in, how it may phase in between now and 2018.

I mean traditionally, as you'd expect, the cost synergies are a little bit more forward weighting between now and – we have pointed to $70 million by 2019. We may get a little bit more benefit on the revenue side a little earlier because of the opportunities to just kind of take their existing product line through our sales force. And in terms of the specifics for 2016, we'll give you more guidance on that when we do it in the context of our full outlook for next year, towards the end of this year or early next.

Thank you.

Thank you.

Thanks Bill.

Andre Benjamin, Goldman Sachs. Your line is open.

Thank you. Good morning. First question. I know you're just getting your hands around this large deal, but I was thinking, what does this mean for incremental M&A, which you mentioned you may continue to do. How we should think about areas of focus? Should we expect you to do some other things like continue to build the index business more organically like you've been doing. Then if you were to do a deal, how high a leverage you would be temporarily willing to go for that deal.

Andre, good morning. Thank you for the question. We continue to believe we have flexibility to pursue what we've always described before as our asset allocation between investing in organic growth, smaller tuck-in acquisitions, continuing to pay our dividend and also repurchase shares. We, as I mentioned earlier, we're focused on benchmark businesses, in particular, how we can also enhance those with high quality data and research businesses. So we hope that we can continue to do small transactions like the other ones that we announced this quarter with Petromedia and NADA Used Car Guide. And so it's our goal to continue to add to the portfolio high quality properties over time, but in the sense, we also want to keep a level of leverage so we're also able to always pay our dividend and repurchase shares.

And then on the core business, I know you mentioned that you were having some challenge in the Platts business from some banks pulling back. Any color on exactly how much of a headwind that was, just color, I apologize if I missed it. And more importantly, do you have any visibility into how many more may follow that trend going forward?

Yeah, I wouldn't refer to it as a challenge. I mean Platts had a great quarter, so I would not put it in that context at all. We probably lost a point or two of growth off of what we otherwise would have had because of some of the banks pulling out of commodity space, and a couple of small factors going out of business. But great quarter, and with oil prices the way they've gone so directly south, it's kind of amazing how little Platts has been impacted.

Thanks.

Joseph Foresi, Janney Montgomery Scott, your line is open.

Hi. I was wondering if you could talk about the pricing structure of the SNL acquisition and how you feel pricing power there relates to what you're seeing in Capital IQ?

You know I think we've been very impressed with the must-have capability of what SNL offers its customer set and the very sector specific data and analytics that they provide. I think they, over time, they have realized reasonable pricing improvements over time and I suspect that will continue. But I think that – I wouldn't point to anything unusual about pricing. I think it's more what we work on across both our S&P Cap IQ business and Platts. So I think it's very similar.

Okay. And then if I could just get some comments on Europe and the issuance market there and your thought sort of as we head towards the back half of the year. Thanks.

Yeah. So Europe has continued to be incredibly weak. There's a combination of factors that I mentioned earlier, the volatility that we saw earlier in the year with the German yields. We also saw some of the negative interest rate issuance, et cetera. We haven't seen too much of a rebound in Europe in this July, although there have been a few reserve Yankee bonds, which have gone to the market in a few financial institutions. But overall Europe investment grade was down 33% and the investment-grade corporates were down 33% in the second quarter. Financial institutions were down 40%. Total Europe was down over 40% and the rest of the world was down 54%. So we saw very strong issuance in the U.S. and investment grade was up almost 30%, although non-investment grade in the U.S. was down 8.9%. So as I've already said every quarter when we have these calls and when I meet with investors is that we don't know what each quarter is going to bring and we have a longer term forecast that, I think, was a combination of refinancing with global growth, with a belief that we have – that Europe will continue to move from a banking market to a capital market overall. In a long run, we will see growth in issuance but we do see quarter-by-quarter a lot of volatility.

Thank you.

Doug Arthur, Huber Research, your line is open.

Yeah, thanks. Jack, I think you mentioned or Doug that the organic growth trend at SNL has been low-to-mid teens. Can you break that down between sort of how much of that growth is a function of the new verticals they've gotten into? Or another way of asking the question is what's the organic growth of the very established products? Are they slowing or are they also growing at a mid-teens level? Thanks.

Chart in the deck.

There's a chart in the deck that, I think, kind of lays it out over the last few years, I think back to 2012. So on a compounded basis, including the forecast for 2015, the established businesses have been growing around 10%. And then the developing businesses have been growing, I think it's 70%...

70%, yeah.

CAGR over the last few years for an all-in CAGR of around 16%. Now on the established side, it's really a combination of both organic investment combined with selective acquisitions. So you should view the developing business as a combination of both internal investments that they've made combined with some of these acquisitions. And if you look at the timeline, you can see they've been pretty active the last few years adding to the mix.

It's on slide 16.

Okay. So just to clarify, the organic growth has included the impact of the small tuck-ins.

No. Let's break it apart. I think if you kind of go within the established businesses – I mean the developing businesses, some of that's been internal investments, some of that's been acquisitions. So depending on the year that's why we kind of classified over a longer term timeframe there a growth of either low-teens to mid-teens depending on the year.

Okay. Okay. Thank you. I'll go back and take a look at it. Thanks.

Denny Galindo, Morgan Stanley. Your line is now open.

Hi, there. Good morning. I had a quick one just on the quarter on Capital IQ margins were very strong – it looks like the best since 2012 or so. And I wanted to get a feeling for whether there was any kind of one-time-ish benefit from here, whether it was kind of mix-driven. I know that some of your lower profit pieces of that segment have been declining whereas some of the other ones are growing. Or any other kind of one-time issues that might have driven that margin expansion and can we expect it to continue?

Yeah. First of all, in terms of we have been doing some selective restructuring in that business and also the team there has done a nice job of sort of re-sequencing on, I think, some of the investments that were underway in the business. And I think that's starting to have some real benefits. I would say though, the margin, close to – there is a little bit of an impact in their margins in Cap IQ from forex. Just about all of their revenue is dollar denominated based and so from an expense point of view, we are benefiting from forex particularly in the pound and the euro. So a little less than half is forex, but the rest is just good performance in terms of expense management.

Okay. And then lastly, this SNL is really more of a sector-specific data platform. And actually some of the more general platforms have also been going to providing more sector-specific information. Is this kind of a trend in the industry that everyone's going to have their own sector-specific platform instead of the more general one-size-fits-all platforms or do you think it's just additive or maybe you could just talk about that trend?

Well, let me – from the point of view of the trend, I think that what – we find what our users and customers are looking for is depth, and depth of knowledge, depth of data, time series, being able to go back for a long time to be able to understand the kind of data need. As an example, not related to SNL, but when we launched the S&P 500 Bond Index, we put in 20 years of back data on this kind of transaction. So what I would look at is that the type of data and analytics that are required more and more in the market is sophistication. And to have that kind of sophistication, we need to have depth and data and industry-specific information that something like SNL has. So I think SNL has been a leader in this area as well as some of the other McGraw Hill Financial businesses, and you should expect to see this kind of activity from a lot of different companies.

Operator?

Our next question comes from Peter Appert, Piper Jaffray, your line is now open.

Thanks. So, Doug, it looks like S&P's revenue growth maybe is lagging a little bit relative to some of the peers or relative to the overall industry. Do you have any bridge in terms of why that differential may exist?

So when I've looked at this in a couple of different ways, the main driver of differential in growth is in the United States and it's in the structured finance markets, specifically. If you look at the issuance during the second quarter, as I went through them, the largest growth in the United States was in the investment-grade corporates and in public finance, which we continue to perform very well in. And then the only sector where there was growth in the United States in structured finance was in CMBS. And as you know, we are temporarily not involved in conduit/fusion in CMBS and that's the main differentiating factor that we've seen when we look at our competitors.

Got it. Thank you. And then on the margin side, the progress at S&P has obviously been very impressive. Can you talk about how far along we are in the margin improvement story? Are most of the gains baked in at this point or is there more to come?

We're going to continue to work as much as possible on that, although we continue to invest in people and technology. We think that it's important that we automate and update our systems such as our processing systems, I mentioned The Way We Work (61:35), Dodd-Frank. We're also ensuring that we have high-quality publication and publishing systems so that we think that we're very, very pleased with the performance and with the improvement in the margins. We will continue to attack those margins through every different lever we have. But on the other hand, we want to continue to invest to have the highest quality and very high-quality risk management when we look at the way we manage the company. So we're pleased, we think that there should continue to be more progress, but we don't want to overpromise, either.

And, Peter, I want to add, just as a reminder, is this was a good revenue quarter, so there is the importance of revenue leverage in the margin. So I think while 50% margins are quite attractive, I'm not sure I'd straight-line that, particularly the third quarter, which traditionally is a little bit lower in revenues, but we're overall extraordinarily pleased with the solid progress we've made there.

Thank you.

Tim McHugh, William Blair, your line is now open.

Yes. I guess, just another question on SNL, the differentiation, I guess. Can you help us just for those less familiar with the product, I guess, how is the data different than what people can get through other kind of data providers or is it more the research and kind of analysis layered on top of the data that's really, I guess, the differentiating point as SNL goes to market here?

Well, this is Jack. I'll take a start and then maybe Doug can add on. I mean I think what's different is if you kind of compare it with S&P Cap IQ, which has sort of broad coverage, SNL has really grown up very sector specific with deep, deep expertise in financial institutions and that's where they really have perfected their model and then what they have by building off that depth, they then have kind of taken that model, then expanded it to other significant industry types that then have provided them the growth. And they're still in the middle of this expansion and investment phase. That's why we're very excited to work with them now to leverage the great progress they've made in taking their financial institutions product globally and we want to work with them with the Platts and the investments they've made in energy and metals and mining, it's kind of collectively continued to build out that very sector-specific deep insight. And they provide some tools that, back to Doug's earlier point about getting all the way down to workflow, that actually will be simplified as far as some of – even simplifying some of the regulatory requirements – some of the regulatory requirements for some of the commercial banks. So they're very, very deep and very much linked into the workflow of their clients.

Let me just add as an example in the bank area where they started and the kind of discipline that they're now moving into their other vertical. So if you were to look at the United States banking market, they have detailed information about every branch of every bank in the United States. They can look at the proximity of the different branches and overlap analysis. They can have an analysis of bird eye views and satellite. They can map it. They can look at the markets and the market demographics of every branch. They can look at deposit concentration and deposit growth. They can then add into that deposit rates, auto rates, mortgage rates, asset quality, demographics, et cetera. And so that's the kind of information which is unparalleled, as they built up in that kind of a market and they've taken that expertise and that approach to managing and gathering data and then distributing that, which is a combination of proprietary data mapped with some third-party data so that they really provide something that is quite unique. And they've moved that into other markets and it's very complementary to both S&P Capital IQ and Platts, as we've said.

Okay. Thank you. And as we think about, I guess, the core part of SNL, the growth, 10% growth, I guess, over the last few years, do you have any sense that you can give us for how much of that is price versus customer growth, versus selling additional products to the established customer base?

I think it would be premature to get into that a little detail on this call, but it's been a combination of both extending their reach and some fair realization on pricing.

Okay. Thank you.

Thanks, Tim.

Bill Warmington, Wells Fargo, your line is open.

Thank you and congratulations on the SNL acquisition. Their accuracy guarantee is famous. So one question I wanted to ask you was just to make sure that I had the bridge correctly in terms of how you're looking at the acquisition costs before and after the adjustments. So if we just start out unadjusted the $2.25 billion – $2.225 billion versus the EBITDA, it looks like about $51 million unadjusted, and then we can adjust, you can back out the $550 million on the tax and add the $70 million back to the EBITDA. That would get you to something closer to a 14 multiple. Is that the way you're thinking about it?

I think you kind of look forward, I mean because their current margins are so impacted by the investments that they're making in the developing businesses combined with the fact that they've made a number of acquisitions in these areas to kind of build them out with – I would probably – I would look forward to 2017 whereas these investments work, which we have spent a lot of time looking at, that we're quite excited about. Once as they start to basically contribute to the profit pool before any real application of synergies, you start to be getting to a GAAP EBITDA in 2017 of around $100 million. And also, to remember this is based on, the valuation here is based on cash not GAAP EBITDA. And they tend to have like 98% of their customers pay ahead. So if you think about it from a rough cash EBITDA, you could add at least on a current run rate around $20 million to that number. So I think that's more the right range to think about, comparing it to what the valuation of the business is. And then we start to layer in the synergies as we start to move forward into 2017, 2018, beyond.

Got it. And then a question on the overall business, it's such a high percentage of renewals. Is there a seasonality to the renewals? Are most of them taking place at the end of December, beginning of January? Or is it just kind of spread out throughout the year?

Most of them – a good number of their deals are multi-year in nature. So it's a little bit of a mix. There's a little bit of maybe the end of the year, but there's nothing overly pronounced in it.

Got it. Thank you.

We've been quite impressed with their overall success in their renewals. And really on a consistent year-on-year fashion, it's really quite remarkable particularly when you consider how they've expanded out from their core strength in financial institutions into new sectors over the last few years.

Got it. Well, thank you very much.

Thank you.

James Friedman, Susquehanna, your line is now open.

Hi. Thank you. It's Jamie at Susquehanna. I was wondering with regard to the $140 million cost takeout plan for the McGraw Hill side, if you can update us just as to where you are there and then I guess I'll ask my SNL upfront. In terms of five points to six points of investment, could you articulate in a little bit more detail where that investment's going?

Sure. In terms of – we're well on track to – this was our cost saving, I think that's pretty obvious by looking at our margins that the progress that we have made there. And as Doug mentioned, one part of that program was the exit of our old headquarters building, which has been completed over the last few weeks. So we're well on our way to delivering on that target and we may actually – given the very strong margin performance we've had so far, we may be a little ahead of that previous target that we had set to have full realization of the $140 million by the end of 2016. So I think we're a bit ahead, but we'll give a more complete update on that as we approach the back half of the year. And as it relates back to your investment on the five points to six points of investment, that has all to do with the investments they're making in the build-out of the developing businesses. So that's taking the FIG products global. It's building out metals and mining, which is really interesting to us and its synergy with Platts. And they also have some selective software business' capabilities that they offer U.S. commercial banks and insurance companies. So those businesses are growing very nicely at a compounded basis of around 70% over the last few years, and they'll start contributing to profitability in 2017.

Thank you.

Thank you.

Our next question comes from Manav Patnaik, Barclays. Your line is now open.

Yeah, thank you. Just one question for Jack and then one for Doug as well. So firstly, on the margins for SNL Financial, I just want to make sure I've got that clear. So you said steady state their margins should be 30%, I think you said there was five points to six points of investments going on. So I guess margins should be 25%, but I think you said this year it was only 20%, so I just wanted to know what that gap was, and if that 30% includes your synergies by 2018?

Well, look, I think the way to think about it is their established businesses right now are in the 30% range. They're investing in the developing businesses. So once the developing businesses start to contribute to profitability, frankly they're a drag right now. Overall company margins will start to approach that 30% sort of number over time. So that's the sort of – and then there's also just some general margin improvement in the established businesses. And that's just, the sequence of the build-out of these developing businesses should improve the overall margins of the business over the next two years. Then we would layer in specific synergies.

Okay. And then just big picture, Doug, it seems like, obviously you guys are looking at 2017 cash EBITDA. There seems like some work left in terms of synergies and tax benefits and so forth, and you get your mid-teens multiple. WoodMac seem like it was sort of a cleaner (01:12:56), like you get to similar multiples in 2017, so what was the difference between walking out of that deal in valuation versus pursuing this one?

I don't have any comments on WoodMac (01:13:11). What I would say is that we're very, very please with SNL. It's a fantastic business, as I said earlier. Mike Chinn and the management team has built a very high-quality set of businesses and operating procedures. We think that they bring a high-quality operating platform. They've got product innovation and that they can benefit it tremendously from our global reach as well as the operating centers we already have. This is really about SNL today and we're very pleased that we're able to announce this transaction.

Okay, all right. Fair enough. Thanks, guys.

Vincent Hung, Autonomous, your line is now open.

Hi. Good morning.

Good morning.

Good morning.

Just first question. Could you just talk about the existing management team and how they're going to be incentivized and how long they're going to be locked in for?

Locked in?

So we have contracts with Mike Chinn and the folks, that sort of thing.

Are you talking about the SNL people or the McGraw Hill Financial?

Yeah. The SNL.

Well, I think in our approach, we are – look Mike is now a direct report to Doug. One of the reasons why we're excited about this deal was the quality of that leadership team and we're looking forward to working with them and we're quite comfortable that we're going to have that opportunity over the coming years, so.

Okay. Last question. On slide 12, you break out revenues by customer type. Can you just give us a sense for revenue growth by those customer types?

All we would say is that I think – you're asking in the context of SNL?

Yeah.

Yeah. The only thing, I think, we would say today is that they've done a very nice job of broadening it out from investment banks and to appeal more to the buy side, commercial banks, insurance and corporates. I think they've done a nice job building a very, very broad reach in their customers that they serve. And they have no significant dependence on any one customer or customer type, which I think kind of gives more to the stability and future predictability of the business.

Okay. Thanks.

Thank you.

And our last question comes from Patrick O'Shaughnessy, Raymond James. Your line is now open.

Hey. So a question on the tax benefit that you guys are going to be getting. Can you talk a little bit about the nature of that benefit and then how are you going to realize it? Is your GAAP tax rate going to be lower going forward or how do you actually benefit from that?

It's basically just a step-up from the basis. So it will provide us some tax benefits within the United States, which is just – in a large part, which is our highest tax jurisdiction. And it will collectively give us a couple-tenths of improvement in our overall effective tax rate, which is helpful, so that's how it will come in over the next few years.

That plays out over a number of years.

Oh, it's a number of years and this will stay (01:16:47), and that's why you really need to think about it on an NPV basis. I mean this benefit will be with us for about 15 years.

All right. Got it. Thank you. That makes sense. And then as far as the cash component of the deal, are you able to use any non-U.S. cash for that or is that basically going to more or less tap out the U.S. cash that you have on hand right now?

It will be mostly U.S. based deal in terms of cash. That's one reason why we do need to go to raise some new debt to fund the transaction.

All right, great. Thank you.

Great. Well, thank you, everyone. I know this has been a very long call and you might have some more questions, you can get to Chip later. We've covered a lot this morning on our acquisition announcement on SNL Financial. We also were able to go through the quarter, which we think was a very strong quarter from the point of view of margin improvement and continued for us to deliver what we've been talking about in the past. So thank you again, everybody, and good morning.

That concludes today's morning's call. A PDF version of the presenters' slides is available now for downloading from www.mhfi.com. A replay of this call, including the Q&A session, will be available in about two hours. The replay will be maintained on McGraw Hill Financial's website for 12 months from today and for one month from today by telephone. On behalf of McGraw Hill Financial, we thank you for participating and wish you a good day.