Good day, ladies and gentlemen and welcome to the IHS Markit Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen only mode. Later there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to Eric Boyer, Head of Investor Relations. Sir, you may begin.

Good morning and thank you for joining us for the IHS Markit Q3 2016 guidance conference call. Earlier this morning we issued our Q3 earnings press release and some supplemental materials to the IHS Markit Investor Relations website. 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. The non-GAAP results are a supplement to the GAAP financial statements. IHS Markit 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 a copyrighted property of IHS. Any rebroadcast of this information in whole or in part without the prior written consent of IHS Markit is prohibited. Please keep in mind that the 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 on IHS Markit's filings with the SEC and on the IHS Markit's website. After our prepared remarks, Jerre Stead, Chairman 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 Jerre Stead. Jerre?

Thank you, Eric and good morning and thank you for joining us for the first official IHS Markit earnings call. We will review our Q3 results, provide you with an update on the excellent progress we've made in our integration work, and discuss some of the other highlights from the quarter. Before we proceed with our comments today, I want to recognize and thank my IHS Markit colleagues in our offices around the world. Our merger of equals builds from combined strengths, but it is not easy and causes lots of change as we create an every better, stronger combined company. Our colleagues have embraced the integration process looking for every opportunity to improve upon the way we operate to ensure that we drive the highest level of customer delight and shareholder value. I am very proud of the colleagues of IHS who are working so well together. Before we talk in more detail about the integration, let's speak to the high level financial results in the period which include revenue of $725 million, down slightly year-over-year on an organic basis when normalized for the timing of Boiler Pressure Vessel Code or BPVC. Adjusted EBITDA margins of 37.1%, representing expansion of 490 basis points with core IHS margins expansion of 380 basis points year-over-year, and adjusted EPS was $0.45 up 10% over the prior year. In terms of core industry verticals, transportation which includes our automotive, maritime, and trade and aerospace and defense teams continued to produce very strong organic growth of 9% for the quarter. Financial services organic growth, which includes our financial information, solutions, and processing businesses held steady at 3% as expected. In resources, our energy business continues to experience declining recurring revenue due to the headwinds within our markets. However, our chemicals team continues to perform…

Thank you, Jerre. Before we get started with the results, I want to remind you that IHS was the accounting acquirer [ph]. Reported results include Markit from the date of the close, July 12, so Q3 includes approximately 1.5 months of Markit. We have included Markit's year-over-year pro forma, organic FX, and acquisition revenue for the Q3 stub period in our financial services revenue growth calculations and have included the remainder of Markit's stub period revenue as acquisitive revenue growth. We believe this is a useful way to show the true performance of the overall business. For transparency purposes, we have provided supplemental material that includes historical market organic growth on its legacy calendar year basis and on the IHS November 30th fiscal year basis. Now for the results. Revenue was $725 million, an increase of 30% on a reported basis. Adjusted EBTIDA was $269 million, an increase of 50% and margin expansion of 490 basis points, and adjusted EPS was $0.45, an increase of 10%. Relative to revenue, we continue to see trends similar to those discussed on the last few calls. Total revenue growth was 30%. Organic revenue was down 1% for the combined company normalized for the prior year $8 million BPVC revenue. Acquisitions contributed 35% and FX was negative 2%. The organic revenue decline of 1% includes core IHS organic of minus 2% normalized for BPVC and core market organic growth of 3% for the stub period. Recurring fixed organic was minus 1%, recurring variable organic was 3%, and non-recurring organic was minus 5% normalized for BPVC. Looking at segment performance. Transportation growth was 17%, which included 9% organic, 9% acquisitive, and minus 1% FX. Organic revenue growth was comprised of 9% recurring growth and 9% non-recurring growth. We continue to see very strong growth in…

Thanks Todd. I am pleased with our Q3 performance given the energy industry challenges and continue to feel very positive about our leading assets and market position. Our transportation segment continues its strong results led by our auto business performance which we believe will continue to produce strong results through market cycles, and we are comfortable with the outlook of our financial services business. Finally, we are off to a very strong start with the integration of two companies. With that, operator, we are ready to take questions.

Thank you. [Operator Instructions] Our first question is from Peter Appert with Piper Jaffray. You may begin.

Thanks, good morning. So the margin performance at legacy IHS has been very impressive. And I'm wondering Todd or Jerre, how far along in the process are we in terms of getting the benefit from these changes you've made, and I am thinking that maybe margins are going to be a little bit more difficult going into 2017 in the context of the revenue performance you're seeing?

I'll start. Peter, great question. Thank you and Todd will pick up. We are very proud of the progress we've made. The 370 basis points improvement in Q3 puts us at a record margin on EBITDA. We’ve still got a lot going on and we may not see 370 basis points improvement, but we'll continue to see strong improvement as we go forward. Also keep in mind because we will report of course the segments, so that you could see the changes as we make them. Keep in mind that part of our commitment into 2017 is the beginning of the dollars of synergy expense reduction that we'll enjoy in 2017, 2018, and then into 2019. Todd?

Yes. When we look at 2017, Peter, we do see continued margin levers that are available to the company. Certainly, on top of the list we talk about the synergies and initially focused on corporate insured services in those areas and really moving forward very aggressively with those and actioning that toward the latter end of Q4. When we look at the commercial areas, a number of levers that have continued to be available relative to best cost to consolidation of data centers, we now with this deal have more data centers, more consistency in terms of the technology framework within the two companies, continued synergies in terms of or opportunities from a sales force efficiency perspective. And then you hit on the revenue growth certainly in a lower revenue growth environment, important that we're really managing those levers very aggressively. We also -- when we look at the parts of the business that are growing at a very high level, those are areas that we have opportunity to deliver incremental margin and we made investment decisions that we'll continue to evaluate the trade-off between investment and margin delivery.

Thanks, Peter. Next question.

Our next question is from Bill Warmington with Wells Fargo. You may begin.

Good morning, everyone.

Hi, Bill.

So I was just going to ask you to give us an update on the revenue synergies. You've talked about $100 million potential there and you've talked also about some of the buckets that would potentially would go into, three buckets in terms of some unique IHS content that you could sell into market and a couple of other buckets, and I'm particularly interested in hearing about how KY3P is progressing?

Okay, Great. Bill, thanks. I'll start, Todd can pick up again. We now get actually daily and weekly updates of the revenue that's in the pipeline that is being, as I said, focused on moving our - particularly our energy products and also our economic country risk products into the financial community and very pleased with those. We'll see those - they're actually ahead of the plan that we put together. The $100 billion is an exit number in 19 as you know. We'll see the other two pieces pick up as we move into early 2017. Todd, you want to pick up on the last piece of this question?

Yes. Well, as you said Jerre, the initial focus is really primarily cross-sell of IHS products into financial services, teams are driving a pipeline that we review daily. We also see opportunities, Markit products entire IHS customers, the enterprise data management, the analytics product offerings, when you ask specifically about KY3P, I mean that’s a business where the Markit team continues to add customer accounts to that and we certainly see opportunity from bringing industry customers into that platform, to date that has not been a primary focus area at this stage.

Yes we are trying to get the quick thoughts. Thanks Bill, next question.

Our next question is from Jeff Silber with BMO Capital Markets. You may begin.

Thank you so much. I know it’s early, but you didn’t mention any impact of Brexit in your comments and I am specifically wondering if you’ve seen any impact on Markit’s business or any of your legacy IHS business as well? Thanks.

And I know, a great question Jeff. The answer is no, with one exception. Obviously the pound is down about $0.08, it is in fact I think it was under 130 yesterday. If you look at the guidance we gave at the July announcement, we were anticipating about $10 million revenue hit because of currency, it was actually about $15 million this last quarter. Other than that, no we have seen nothing that would have any impact on our business going forward. Thanks Jeff, next question.

Our next question is from Gary Bisbee with RBC Capital markets. You may begin.

Hi, guys good morning. I guess a question on the resourced business, that business the organic growth rate subscription overall deteriorated sequentially again and I guess, what are you hearing from customers, Todd? You expressed the view that you could likely see the sub space flatten out next year, I guess what gives you the confidence data, what are the prospects that you see a wide number of customers again renew for less in the key upcoming season? Thanks.

Good question Gary, Todd picked it up, I’ll close it. We see the primary correlation to us is really the spending of the energy companies and the capital spending on projects. And really what we have seen in energy, we’ve seen in Asia, EMEA, we have seen improvements in those markets and feel like there is a clear path to bring those into a flat sub base territory. Americas has been more challenged, but we do see forecasts for a small uptick in spend next year, a more stable environment, companies having cycled through this for a couple of years and so, for us the key will be to really be able to move Americas into that flat territory. And we think it’s not going to be a perfect market, but we think it will be improved enough and customers have made enough strategic changes at this point that they are in a lot more that they will be able to make as we move into 2017.

Only thing I would add is actually what Todd said, will give you that indication hopefully in the Q4, into Q3 our non-sub consulting pipeline was active. That will be a very good indicator for us that it’s starting to ship. And then as we’ve said with our bookings we will, when we see them flatten out and hopefully move positive that will be the indication that says, we’re starting to move back. We said that and Todd mentioned that looking at probably $52 a barrel next year which is down four or five from what we said last time. It is interesting as you probably saw IEA reduced $100 million barrels a day by 100,000 in their forecast and they hit the oil market by I think three bucks the next day a barrel. So, still very volatile, but the critical point is what Todd said. Yet this industry is driven by annual budgets and as we see that evolving, we’ll do our best to give you the color of what we expect to see as it flattens out in 2017. Thanks Gary, next question.

Our next question is from Sarah Gubbins with Bank of America. You may begin.

Good morning, thank you. In financial markets you recently signed PIMCO 2, your customer offering and I’m wondering if that started to lead traditional buy side clients making them to move and also I believe that Markit had started to raise pricing particularly in the Information segment and I'm wondering if we should expect that to be much of a contributor to growth in 2017?

Yes, and I mean Todd, yes, please...

On the pricing Sarah, Markit talked about a 3% price increase, it is really a muted benefit this year because many of Markit's contracts are longer term in nature. So that will really cycle in over the next couple of years. But we do see it on a long-term basis as being an opportunity to drive further market growth. On KYC, I mean the program continues to have a number of good operational wins, so there are now 13 banks signed up on KYC and announced a strategic partnership with Dow Jones, 700 clients at the top co levels. So operationally we're happy with the progress that Michelle and team continue to make on the KYC platform. Thank you.

Thank you, Sarah. Next question?

Our next question is from Andrew Steinerman with JPMorgan. You may begin.

Hi this is Michael Cho for Andrew. It's a question around the Engineering Workbench product, can you give us some update on if there is new sales coming on or what are you seeing for this product? Thank you.

No good question, I will start and Todd will pick up. The answer is yes, we set out 3.5 years ago to evolve a business to where we were, and ever smaller piece of our total revenue was based on royalty and that's – this is the year of the introduction of the Engineering Workbench with the new product offerings. The new product offering is early yet, but very strong and it will continue to be strong in the months and years ahead. So we feel good about that. Todd, do you want to add more?

Yes, I would add Jerre. I mean there are – there is a good pipeline. We had several good wins particularly in Q2. Q3 we didn’t have the same level of activity, but we do like the way the Q4 pipeline is shaping up and for us it's about getting the customers on to the Workbench and selling them the additional products and services that Jerre talked about.

Thank you, great question, next.

Our next question comes from Manav Patnaik with Barclays. You may begin.

Thank you, good morning gentlemen. I just wanted to talk a little bit more about the visibility you guys have on the energy business, so you pushed the recovery out to 2018 from 2017 and maybe just going to next quarter, I think it is one of your bigger renewal quarters and maybe some color there? And just on the non-recurring business, the software sales I guess that's understandable. What I'm trying to get at is, is that something that will come back, meaning do they have to use your product or are they finding alternate ways to use other products?

Thanks Manav. I'll start and Todd will pick up. I think two or three things, one on the software sales there is two pieces, one is the licensing and that has been postponed eventually. Customers are going to have to make the decision and will, we see early indications of that. The bigger short term return is that some of the smaller customers have actually cancelled the annual maintenance fees and that will come back and in fact the way to think about that is, those come back will end up picking a couple of years of the maintenance fees up because they can't go too long without that. So that part will come, that is a small piece of the total though. Todd, you want to pick up the...?

As far as visibility, we do look at energy on a customer basis, so we have visibility as we look out in Q4 and on into Q1. I had said in my comments that we will see improvement in the sub-base reduction in Q4. We do see a path to move this business into a flat sub-base range in 2017, but it does continue to be a volatile and a challenging environment, but certainly our sales teams we're managing this thing at a customer level in a very granular fashion.

All right, two additional comments, one I think you all saw the 44.5% EBITDA margin on resources, our highest in history. I look forward very much to the day that the revenue turns positive which it will, particularly in upstream in the future. And when you've got that kind of margin base, we're going to see a great couple of years. I just want to clarify, we did not push out recovery into 2018. In fact what Todd said is, we're stable and expected to be flat or marginally up in 2017. Thanks Manav.

Our next question is from Jeff Meuler with Baird. You may begin.

Yes thank you. On CMS how are you viewing the growth rate organically both in terms of normalized once we get past the consolidation at a RootMetrics customer and the product rationalization? So what is the normalized organic growth rate and then what is the growth rate over the next year or so, while you're facing those headwinds?

I will start and Todd will pick up. Historically the key D&D business has been 5% to 5.5%, 6% organic growth business even in downturns year-over-year, so that is a solid base. What we have gone through this year with TMT has been and we've talked about it before as we moved from 1200 products to 300 products, moved from about 35% subscription base to about 65%. So, we look forward to seeing that improvement move into 2017. We are in the process of finishing the integration with TMT and RootMetrics, feel good about that. It was a significant 500 basis points of improvement year-over-year from a margin standpoint, not to where we want to be in total CMS, but improvement. Then finally ECR, I'm very positive about as we integrate that into the historical business and strength of the Markit business under Adam Kansler. So I feel good about those and I think we will see the progress in 2017. Todd anything?

On the normalized, we see a normalized sub growth in CMS of 3 to 4 adjusted for RootMetrics, the all-in because of the code becomes more difficult to look through, but all in low single digit growth. Longer term as Jerre said, product design historically has been a 5% type business and we don’t see any reason that, that as we get through the TMT product transformation that we can't get back to that level.

Thank you, good question. Next?

Our next question is from Andrew Jeffrey with SunTrust. You may begin.

Hi guys, good morning, thanks for taking that.

Hi Andrew.

I wonder if we look at the Info business, your financial services segment, given puts and takes from sort of macro and volume considerations as well as pricing moved and then also possible synergies, can you speak to what you would view as the long-term structural organic revenue growth in that business?

I will start and in Todd's script today he talked about returning to a 4% to 6% organic growth level. I think we feel very good about that at this point. Todd, you want to add?

Yes, what I think my answer and Jeff talked about and we're certainly committed to having a business that will deliver at that level.

Thank you, next question.

Our next question is from Ato Garrett with Deutsche Bank. You may begin.

Hi, good morning guys.

Good morning Ato.

Just one question thinking about the business overall in terms of what the impact might be from a interest rate hike, whether that might drive a spike in process revenue is the greater trade volumes due to price changes and whether that might impact the CapEx budgets a little bit within the resourced division or even within transportation with a lot of manufacturers, can you help us just think about, if we did see a rate hike this year and possibly for the one next, where do you think the biggest puts and takes be across the business?

It's a great question, therefore Todd gets to answer.

I think in financials, I think it would probably a net positive because probably at some level of volatility and improve overall volume levels and I think that is probably the biggest driver that we would see in financials. In the core legacy IHS businesses, I don’t see a big impact from interest rates going up. I just, I don’t see that a rate hike would flow through to the business in a material way.

No, I agree Todd that, especially if you think about upstream and energy because as that’s gone through the cycle, the interest rate is insignificant compared to supply and demand, that’s primary cost. Thank you, good question. Next?

Our next question is from Anj Singh with Credit Suisse. You may begin.

Hi, thanks for taking my question. I realize you guys a little bit away from giving guidance, but I wanted to get your high level thoughts on some of the strong margin expansion that we’ve been seeing particularly in resources. Todd, I think you had said that this level of margin expansion probably wouldn’t continue at Q2, but we saw even stronger margins this quarter. As some of the revenue starts to stabilize or starts to grow and as you look ahead will resources margin expansion be more limited or pressured, just wanted to get your thoughts there? Thanks.

Well, I mean Peter hit on this earlier. You certainly, long term you need to have the revenue growth to continue to expand margin long term, but we have done a good job in resources of rebalancing the resourcing to the revenue levels that we have particularly in the non-subs part of the business. And I think and really from the time that the Jerre came back, well over a year ago we’ve been very focused on operational efficiency. And for me probably, the primary contributor to the margin that we've been driving is tied back to the commercial operating model. And it is this efficient aligned model that allows business leaders to make resourcing decisions with sales, marketing, product development, product management and really aligns the incentive structures around that. So, we at a corporate level we’ve certainly identified the levers that are available to the business leaders and I went through those in answering Peter’s call. We see continued opportunity to drive improvement in margin from those initiatives.

And the only thing I’d add to that is, remember that we had committed publically to a $125 million of synergy cost savings as we go out of 2018. So, you will see a piece of that each year and that’s a significant number if you think about the cost base that revolving from it. And lastly, we’ve committed that we'll continue in the legacy IHS to develop the 100 basis points improvement year-after-year and the same thing is true in Markit. So, not the 490 basis points or 370 basis points this quarter, but significant upside improvement for years to come. When we announced the deal, we said we expected to see us evolve into, after adjustment for the accounting changes, evolve into a low to mid 40s all in way out in the future, so we’re committed to that and expect to see it. Thank you, next question.

Our next question is from Shlomo Rosenbaum with Stifel. You may begin.

Hi, good morning. This question is for Todd. Todd, can you talk a little bit about the cash tax ex benefit for the Markit deal, what kind of cash tax rates should we expect and then over next several years, when does the company finish using the tax related benefits and which are helping the conversion ratio from EBITDA the free cash flow?

So that the lens that we provided is that the adjusted tax rate would be in the low to mid 20s and that’s what we provided at the time we did the deal. GAAP tax rate will be well below that and I talked about the reasons for that on the call. We do look at cash taxes in the near term being at the lower level than the income statement tax rate. So, what I will say is, we will provide more color on cash flow and cash conversion in November, but we certainly expect to have a cash tax level in 2017 that will be at a level that on a percentage basis is below what we’ve seen in the current year.

Thank you, next question.

Our next question is from Joseph Foresi with Cantor Fitzgerald. You may begin.

Hi, you talked about maintaining your earnings outlook that you originally talked about when you announced the merger, but its sounded like resources is going to take a little longer to recover. So, what should we think about as the main driver of that growth, is it margins or the buyback?

Well, there is a whole series and I’ll have Todd comment on them, but let’s not that - I just said our margin for resources is 44.5% historical high last quarter. So, the great job we’ve done with cost control and also the commitments we’ve made publically to the synergy revenue and synergy cost savings is a big piece of it. Certainly, the buyback that Todd reconfirmed today, $1.17 billion and $1.18 billion and the fact that we’re currently buying will also pick up the tax piece Todd.

Yes, that I mean the levers that we have I think we've detailed these in the past. So we’ll certainly be aggressive around the synergies, and for couple of reasons. One, financial benefit, but I think the other one is operationally, it's much better to execute and get that behind so that we can focus on running the business. So, there is the synergy lever. There is also a more efficient cash structure from a capital perspective. There is flexibility around share buyback. And operationally we have a level of confidence that commercially we will be able to improve the underlying margins in the business, so those are really the big things.

Thank you, next question.

Our next question is from Toni Kaplan with Morgan Stanley. You may begin.

Hi, good morning.

Good morning, Toni.

Thanks, your commentary on resources is a little worse than you had previously communicated and CMS and financial services growth seem pretty light this quarter, but the guidance implies top line growth to reaccelerate organically in the fourth quarter and so I’m just wondering what really the main drivers are for that reacceleration?

Todd?

Yes, I mean I think that Q4 will be largely in line with lot of the trends we’ve seen in Q3, but in terms of some of the non-subs we see some opportunity to accelerate growth in certain parts of the business in Q4. I referenced that the pipeline that we have in consulting around energy and we have opportunities there that we think provide a path to improve the overall revenue performance.

Thank you, Toni. Next question?

Our next question is from Andre Benjamin with Goldman Sachs. You may begin.

Hi, good morning.

Good morning.

Yes, my question on the financial segment, I was wondering if there is any update on how the company is thinking about the anticipated shift of OTC derivatives in Europe and how you’re thinking about any discussions with regulators or proactive pricing changes with the customers?

You are talking OTC derivatives in Europe, Andre?

Assuming I would thought.

Yes, I mean I think generally speaking, we don’t see it at significant impact in 2017. We see that being a later 2017 into 2018.

Yes, 2018.

Thank you, Andre. Next question?

Our next question is from Hamzah Mazari with Macquarie. You may begin.

Hi, this is [indiscernible] filling for Hamzah. I’d a question – we have a question about the for contract renewal cycles, can you give us a sense of the resource business and how much of your overall business is in multi-year contracts?

We don’t, multi-year for resources, Jerre? I would say resources multi-year maybe 20% in dollars that's what we've talked about in the past. Markit generally has a higher level of multi-year agreements than IHS Legacy has had. Automotive we have a number of multi-year as well.

Correct, some three, four years. Thank you, next question.

Thank you. Our next question is from Alex Kramm with UBS. You may begin.

Yes, hey, good morning.

Good morning.

Just coming back to the financial services just for one minute, I think in the prepared remarks you talked about the third quarter and some of the reasons for the noise there, and then if you could just reiterate the four to six longer term, but can you just talk about the near term a little bit in more depth? It seems like still a lot of stress in the financial services industry, both buy side and sell side, so what should we expect in the really near term in the next couple of quarters in take? Thank you.

Well the information, legacy information part of financial services, we continue to feel very good about. And we continue to have good solid growth in pricing and reference data in the indices area, the IBOX under management has moved up to $115 million. That fiscal year movement did have an effect of making Q2 look a bit higher than it would have been on a legacy calendar quarter basis and Q3 being lower, but that we're very confident that we will see the information service growth improving Q4 over what we saw in Q3 processing very much volume driven and we did have the improved volumes in the fixed income area in Q3. So, I think, depending on volumes, we will see processing at or slightly below where it was. Solutions, particularly some of the enterprise software deals are very lumpy and in the world of financial services a lot of those are really timed for December. So we're certainly aware that, with the move to November year end, we may see a bit of an impact in that area as we report our Q4.

Which says Q1 will be a great start, we hope. Okay. And thank you, next question.

I'm showing no further questions at this time. I would like to turn the call back over to Mr. Boyer for closing remarks.

Just before you do this Jerre, I want to close just as a reminder to everybody, Lance and I first met on December 4th. on March 21st we announced the deal. We closed it on July 12th, fastest, this is the fourth merger vehicle I've done by far the fastest. Seven weeks later we closed the quarter, we just reported on and I am tremendously proud of the progress we've gotten 80%, 90% of the noise out of the way including all the work with BCG, et cetera. So as we move into fourth quarter and into 2017 we've got great momentum. We've got great progress going on in total and I look forward to, one the guidance we will give you in mid-November for 2017 and then reporting Q4 results in 2017. So, great job, a lot of people working very hard. Jerre?

Yes, we thank you for your interest in IHS Markit. This call can be accessed via replay at 855-859-2056 or international dial-in 404-537-3406 and conference ID 76278906 beginning in about two hours and running through October 04, 2016. In addition, the webcast will be archived for one year on our website at www.ihsmarkit.com. Thank you and we appreciate your interest and time.

Ladies and gentlemen, this concludes today’s conference. Thanks for your participation. Have a wonderful day.