S&P Global Inc. (SPGI) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the IHS Markit's Second Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Eric Boyer, Senior Vice President, Investor Relations. Sir, you may begin.

Good morning and thank you for joining us for the IHS Markit Q2 2019 earnings conference call. Earlier this morning we issued our Q2 earnings press release and posted supplemental materials to the IHS Markit Investor Relations website. Our discussion of the quarter includes non-GAAP measures or adjusted numbers, which exclude stock-based compensation, amortization of acquired intangibles, and other items. IHS Markit believes its non-GAAP results are useful to enhance the understanding of our ongoing operating performance, but they are a supplement to and should not be considered in isolation from or as a substitute for GAAP financial information. Please refer to our earnings release on our website for definitions of the non-GAAP measures and reconciliations to the most directly comparable GAAP measures. As a reminder, this conference call is being recorded and webcast and is the copyrighted property of IHS Markit. Any rebroadcast of this information whole or in part without the prior written consent of IHS Markit is prohibited. This conference call, especially the discussion of our outlook, may contain statements about expected future events that are forward-looking and subject to risks and uncertainties. Factors that could cause actual results to differ materially from expectations can be found in IHS Markit's filings with the SEC and in the IHS Markit website. After our prepared remarks, Lance Uggla, Chairman and CEO and Todd Hyatt, EVP and Chief Financial Officer will be available to take your questions. With that, it's my pleasure to turn the call over to Lance Uggla. Lance?

Thank you, Eric. Thank you for joining us for the IHS Markit Q2 earnings call. I was pleased with Q2 as we continued to demonstrate the strength of our business model with diversified revenue growth, good margin and profit delivery, and strong cash flow. We delivered a solid quarter in line with our expectations, continued to make progress delivering to our target leverage range allowing us to begin our $500 million buyback in Q3, and we also announced a strategic asset exchange that enhances our downstream resources business. Some key financial highlights of the quarter are. Revenue of $1.136 billion, up 5% on an organic basis and 13% overall. Continued solid performance across our three scaled verticals; Transportation, Financial Services, and Resources. Adjusted EBITDA of $465 million and margin of 41%, up 150 basis points year-over-year. And adjusted EPS of $0.71, up 16% over the prior year. Let me now provide some segment highlights. Transportation continued to perform at a high level with organic revenue growth of 9% in the quarter, at the top end of our high single-digit guidance. The auto business benefited in the quarter from strong performance from CARFAX's used car listing and banking and insurance businesses, Automotive Mastermind, the ongoing transition of the CARFAX Canada business to a subscription model, and our recall and forecasting businesses. Within auto, we continue to benefit from the increasing complexity across the auto value chain and believe we are well positioned for long-term growth due to our diversification and strong new product pipeline. This includes our latest new CARFAX product launch, CARFAX for Life, which is experiencing good early market traction. We also continue to progress our auto's Unity Platform. Unity combines our various auto forecasting databases into a single platform leveraging new technology and analytics. The Unity project is already accelerating product development in our auto forecasting business, including supporting the launch of a new autonomous vehicle forecast product. And finally, within transportation, our Aerospace and Defense and our maritime and trade businesses, both performed to expectations. Financial Services, here we reported 5% organic growth. In particular a strong quarter for WSO, our loans portfolio management software and managed service and our digital solutions business. Ipreo results rebounded within the global capital markets business as expected, while the private capital markets business continued its strong double-digit growth performance. The integration is ahead of plan. In resources, we delivered another solid quarter with 6% organic growth anchored by stable recurring revenue growth and strong non-recurring revenue growth. Strong performers in the quarter included downstream pricing, chemicals, and CERAWeek. We are well positioned for the year to deliver to our mid single-digit organic revenue growth target, which is supported by stable industry trends despite recent oil price movements, the growth of our 12month - our trailing 12-month annual contract value, and strong non-recurring revenue pipeline. We also signed definitive agreements with Informa for the exchange of the majority of our TMT market intelligence business for Informa's Agribusiness Intelligence Group. The deal increases our focus on core markets where we have particular strength and a long-term commitment to grow. We'll be integrating the Informa agribusiness intelligence portfolio to our chemical and downstream businesses, which builds upon our existing data, pricing, insights, forecasting and new services within our resources segment. Agriculture is the largest chemical end market in the world and this transaction expands our capabilities into fertilizer and chemical crop protection while expanding our capabilities in biofuels. Reviewing our portfolio is a continuous process across our businesses and something that we look at through the lens of what is in the best long-term interest of the Company strategically, financially for shareholders, and also for our colleagues. Finally, CMS organic revenue growth was negative 2% as our TMT business continues to be impacted by the non-renewal of a single contract. We continue to expect CMS organic growth to be in the low single digits for the year. Product design, the largest business within CMS, continued to make progress on its cost structure. Finally, I want to give an update on the progress we've made on our data lake strategy, which we have been working on since the merger. The data lake is designed to provide a single platform to explore and access our organization's data while reducing costs for both our customers and ourselves. Our data lake will help us discover new insights, realize new synergies and savings, and help create new commercial opportunities. Currently, all of our underlying data is now mapped and cataloged and the data lake infrastructure is in place. We are now populating the data lake with the relevant data sets and plan to have this completed by the end of our fiscal year. Colleagues now have access to our extensive catalog and are starting to run analytics across datasets. A lot of progress has been made to date, but we're just at the beginning in terms of starting to realize the benefits of our longer-term strategy. I look forward to providing future updates. Overall, we are pleased with another solid quarter of execution and financial results. And with that, I'll turn the call over to Todd.

Thank you, Lance. As Lance discussed, our Q2 results were in line with our expectations and included revenue of $1.136 billion, an increase of 13% and organic growth of 5%; net income of $149 million and GAAP EPS of $0.37. Adjusted EBITDA of $465 million, an increase of 17% with margin of 41.0%, up 150 basis points year-over-year and adjusted EPS of $0.71, an increase of $0.10 or 16%. Relative to revenue, our Q2 organic revenue growth of 5% included stable recurring fixed organic of 5%, flat recurring variable organic and non-recurring organic of 9%. Looking at segment performance, Transportation revenue growth was 8% including organic revenue growth of 9% and negative 1% FX. Organic revenue growth was comprised of 10% recurring and 6% non-recurring. Resources revenue growth was 5%, including 6% organic and negative 1% FX. The organic revenue increase was comprised of 4% recurring and a 11% non-recurring. Our Q2 organic ACV increased $9 million and our trailing 12 month organic ACV increased $29 million to $747 million, which was up 4% versus prior year. We continue to trend at an ACV level supportive of our 2019 revenue expectation. CMS revenue declined 3% including 2% organic decline and negative 1% FX. Organic revenue has been negatively impacted by the non-renewal of a contract in our TMT benchmarking business. Recurring organic was flat, and non-recurring organic declined $2 million or 10%. We expect approximately $10 million of organic revenue growth in second half of the year from the Boiler Code. We continue to expect full year CMS organic growth to be in the low single digits. Financial Services revenue growth was 29%, including organic revenue of 5%, acquisitive growth of 25% and negative 1% FX. Recurring fixed organic was 4%, recurring variable organic was flat and non-recurring organic increased $7 million with 31% organic growth. Non-recurring growth was driven by strong software sales benefiting from the new software revenue recognition standard. Our information business organic growth was 1% due primarily to a challenging comparison versus the prior year which grew organically 11%. We remain confident in our mid-single digit organic growth for the year. We continue to see stability in our credit and loan pricing businesses and strong growth in bond pricing and valuation services. We also expect increased growth in our index businesses supported in part by AUM growth. Processing organic declined $2 million or 3%. Derivative processing was up, but was offset by decline in our loans processing business. Solutions organic growth was 15% led primarily by software sales in our loan management business, benefiting from the new software revenue recognition standard. We expect solutions growth to slow in Q3, due in part to negative impact from the new revenue standard. As expected, Ipreo revenue increased to $87 million in the quarter, due in part to improved equity markets. Turning now to profits and margins. Adjusted EBITDA was $465 million, up $67 million or 17% versus prior year. Our adjusted EBITDA margin was 41.0%, up 150 basis points on a reported basis and up 115 basis points normalized for Ipreo and FX. Regarding segment profitability, Transportation's adjusted EBITDA was $137 million with margin of 42.9%, up 80 basis points. Resources' adjusted EBITDA was $109 million with margin of 43.8%, up 140 basis points. CMS adjusted EBITDA was $29 million with margin of 21.8% up 30 basis points. Financial Services' adjusted EBITDA was $206 million with margin of 47.5%, up 300 basis points normalized for Ipreo and up 110 basis points on a reported basis. Financial Services margin was driven by strong revenue flow through benefiting in part from prior year cost reductions and favorable product mix. We expect some moderation in financial services margin in the second half due to increased investment, and increase in lower margin services revenue. Adjusted EPS was $0.71 per diluted share, a $0.10 or 16% improvement. Our GAAP tax rate was 14% and our adjusted tax rate was 18%. As expected, we delivered strong Q2 free cash flow of $358 million. Our trailing 12-month free cash flow was $1.079 billion and represented a conversion rate of 64%. Turning to the balance sheet. Our quarter-end debt balance was $5.3 billion and represented a gross leverage ratio of approximately 3.1 times on a bank covenant basis. In Q3, we will return to our target leverage range and resume our share buyback. In the quarter, we completed a $1 billion of public debt financing, including $600 million of ten-year bonds at a 4.25% coupon rate and $400 million of five-year bonds at a 3.625% coupon rate. We've essentially completed the terming out of our capital structure with fixed debt as a percent of total debt of 90% at quarter end. We closed the quarter with $110 million of cash and our undrawn revolver balance was approximately $1 billion. Our Q2 weighted average diluted share count was 409 million shares. We expect to complete a $500 million share buyback by year-end. This will have minimal impact on our 2019 weighted average diluted share count, but will reduce our year-end 2019 share count by approximately 8 million shares. Finally, as we announced on May 22nd, we signed definitive agreements with Informa for the exchange of the majority of our TMT market intelligence business for Informa's agribusiness intelligence group. The agreement values the two exchange businesses at equivalent EBITDA multiples with Informa contributing an additional $30 million cash to IHS Markit to reflect larger EBITDA contribution from the TMT business. As a result of the exchange, our annual CMS revenue will decline by approximately $60 million, while our annual resources revenue will increase by $40 million. The exchange is slightly dilutive to adjusted EBITDA and neutral to adjusted EPS. The agribusiness intelligence acquisition is expected to close June 30, the TMT market intelligence transaction is expected to close August 1st. In terms of guidance, we are reaffirming our prior guidance. As you think through modeling the rest of the year, it is important to note that Q2 has seasonally become our strongest quarter, and as such, we tend to see outsized operating leverage and margin flow through compared to the rest of the year. Our full year guidance provides for revenue of $4.425 billion to $4.5 billion with organic revenue growth of 5% to 6% including Ipreo four-month stub period organic contribution. Including Ipreo for 12 months would increase total organic growth to 6% to 7%. We also expect adjusted EBITDA of $1.75 billion to $1.78 billion, including adjusted EBITDA of $115 million from Ipreo. Adjusted EBITDA margin of 100 basis points normalized for FX and excluding Ipreo and 80 basis point margin expansion including Ipreo. Adjusted EPS of $2.52 to $2.57. And finally we expect conversion, cash conversion in line with our mid-60s target or more than $1.1 billion of free cash flow. And with that, I will turn the call back over to Lance.

Thanks Todd. I'm pleased with our Q2 results, which put us on track to deliver to our full year financial commitments. We continue to have solid diversified revenue growth with expanding margins and strong free cash flow. We made continued progress towards our Ipreo synergy targets and made a positive portfolio exchange that enhances our downstream resources business. Finally, during Q3, we'll be in a position to start to deliver upon our committed capital return to shareholders by repurchasing 500 million of shares in the second half. Operator, we are ready to open up the lines for questions.

[Operator Instructions] Our first question comes from Peter Appert with Piper Jaffray. Your line is open.

So Lance and Todd, the margin progress remains very impressive. I'm wondering if the progress you're seeing this year emboldens you perhaps to be a little more aggressive in terms of where you think margin can go. And then related to that, I'm just wondering this data lake strategy you've outlined, is that something that moves the needle in terms of margin - margins over the course of next year or two?

I guess - well, thanks Peter. And those are both good questions. So I'll start with the first one and then Todd can add and then I'll do the data lake. So on margin, I guess we have a strong conviction that mid-40%s is the correct place for IHS Markit to head to over the next periods and we've committed to 100 basis points of margin every year and I think that that's something that we've been consistent at. We pretty much hit those numbers dead-on and I think the market's gaining confidence that we can get to our mid-40%s. And so personally, that's how we are leading the firm and managing the firm. At 5% growth, we still have to work hard to deliver 100 basis points. We get 50 - you probably get 50 basis points naturally through the revenue leverage, but then you've got to go out and find another 50 basis points or $22 million to $25 million, which means that you are having to work hard using technology, using better costed locations and strategy, and at 5% it's real work. I think as we consistently start to perform at 6% to 7%, that's going to open up some additional margin for us. And what I'd like to see is that we start to consistently invest that incremental cash to enable us to start to consistently hit 6%s, 7%s and occasionally an 8%. And we haven't done that yet, we went from zero to 2%, 2% to 4%, 4% to 6% and I'd like us to consistently start hitting in the upper end of our revenue guidance range as we look forward and that may give us an opportunity to look at that differently. But I'd say short-term, operating in the 5% to 6% organic growth revenue range; we will look to invest in our people, in our products, our technology, our internal platforms, and also driving some of the efficiency gains using technology also takes a bit of additional investment. So, that's it on the margins. So don't expect a lot more out of 100 in the second half, which I'm sure will be one of the favorite questions of the day. So, we'll put that one to rest. The second thing I'd say is that we've got - on the data lake strategy, we're into three years post the merger. I'd say it's a year and a half of planning, selecting technology stack, and implementing infrastructure. Our infrastructure is fully implemented. We have set out our architecture, our indexing, and our data science and technology teams are now busy with the product teams filling the data lake. Now what we said at merger is that we thought that the data lake strategy could enable two things. One, create some efficiencies so that's going to help us with the margin, but more importantly change our new product development life cycle so shorten it. So I would expect, going forward, opportunity to more readily hit our upper end of our revenue targets once the data lake is full and product development is occurring direct from the data lake. I'd also say that we have opportunities with our - with more customers. So, expand to a broader range of customers because the data lake as a distribution tool becomes a lot easier for our customers to navigate our information, connect to it, and commercially buy our data in ways that we probably don't sell to them today. And so, I'm very excited about both those things. We worked very hard, it's three years since merger and I think you're going to hear us talking more and more about that and I'd love to think that that forms part of the vitality of our new revenue sources as we look forward.

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

My question was - I guess, broadly just the asset swap was interesting, you made some comments in the portfolio review. Maybe just talk about what else is being reviewed and just maybe just help us reiterate the capital allocation policy?

Well, I think it's in terms of a portfolio move, I think hats off to the team. It really is an exceptional exchange for both Informa and IHS Markit. Informa is building their technology business. We have market-leading world-class resources business and this perfectly fits and extends our position, number one position in chemicals, pricing and news extending that team downstream into fertilizers, added biofuels, crop protection. It's same types of customers, more information, tens of thousands of new data sets, it really is a great opportunity for us. It was sub-scale for Informa. On the TMT side, we had three types of TMT assets. We have our benchmarking assets which do have some synergies with the other parts of the Group. We had technology assets in semiconductors, very important to our automotive franchise and we have technology assets in and around the renewable space, solar and wind, very important to our energy business and we had tech assets around battery storage, important to both automotive and energy. So we've been able to redistribute those tech assets back into the business, maintain benchmarking as a smaller, more focused business and shed what was non-core to us which were screens, displays, video, a whole bunch of things that were not core to us but will be core to Informa. So good for people, good for us. That's exactly what I want the team to do is to be creative around the continued cleanup of our portfolio and there are some assets, you guys know the assets as well as I do that are small or sub-scale or not exactly core within our portfolio. And if the opportunity to make changes occurs, and the financial structure of that deal makes sense, we'll do it. And we're constantly looking at our portfolio and we will look for more of those types of things to do, that are actually win-wins and we're super excited to have the agricultural intelligence business join our downstream pricing reporting into Brian Crotty who runs the OPIS and downstream businesses.

Our next question comes from Gary Bisbee with Bank of America Merrill Lynch. Your line is open.

On the transportation business, very strong growth, particularly against a tougher comp here, right. I guess the question I get asked most from investors around this business is just can you help me understand the penetration of some of the core offerings there within CARFAX and other parts of the business forecasting, et cetera. Can you just give us an update on that and where we are in the growth curve on some of the key assets there? Thank you.

I think Todd and I'll do this one together, but I'll start off with a few of the businesses that I personally know very well now. So take for example used car listings. We're growing strong double digits. We have the best product. We've integrated the vehicle history reporting of CARFAX into our listings product and we've created a great UX, great experience, we're growing double-digits and we've got big players with a lot of revenue in front of us. So my view there is, we have a significant growth over the next three to five years, just stick to the knitting, continue to do what we do and do it well. Next piece of growth of course is integration of our services across IHS Markit automotive, the acquired Mastermind and CARFAX and make sure we're leveraging our capabilities across the Group, especially with respect to used car listings, as well as the overall service lane. And making sure that we're building audiences for our customers and we're targeting ways to help our customers make revenue. And whether that we're in a tough market for sales of cars or an easy market, there is dollars being spent on marketing and expanding those sales channels and the team is doing a good job. I'd say the other thing is the automotive chain is increasingly complex. AVs, EVs, new componentry and given the complexity, our subject matter experts providing the research into the forecasting suites of all of the OEMs is giving us an expanded growing revenue stream that is starting to outperform. So you have to remember what we did this quarter is in each of our segments, we told you the things that outperformed in the quarter. But if you look back over the last 12 quarters, those names are changing regularly. It just shows the depth and diversity of our business and forecasting and complexity around the spaces we're in is increasing. That would be in the next piece, I'd say. Finally, what I'd say is that, the market for new cars is slowing down and therefore any tools to help sell cars is a positive and we provide with Mastermind, CARFAX, the additional support for the dealers to sell a car, service a car and - or exchange or trade in a car or actually go after one of their competitors' cars and that's a great place for us to be. So net-net, we continue to be high-single digits, and high single-digits again to me, are 7, 8, 9 and we happen to be at 9, we could have been at 8 could have been at 7, it really wouldn't make a difference to me, right. The teams work hard to maximize revenue every quarter, but we are confident in high-single digits and they continue to do that. Todd, do you want to add something to that?

I'll just give it another lens, which is you have to appreciate the market position that we have. We have a very strong position in the used car market if we're talking about CARFAX and we are an important part of the entire used car workflow across that chain, whether it's a dealer taking a car in trade-in or selling a car, servicing a car. So we're really core in that process. And so what we've done strategically it's the one-time, the lifetime is start with the VHR business and then expand that into other revenue streams. So VHR we have evaluation product which we don't monetize, but we create value for the dealer with that product. We talked about used car listing, we're now moving into the service lane. And so to me, the innovation and the additional product creation driving additional revenue streams with the anchor position and doing that in a way that's supporting the entire value chain and demonstrating value to our customers and that to me is the theme around used cars, also, the theme in new car. We have a strong position in production forecasting, but we've added products. We've added the VPAC, emissions analytic product. Lance talked about audience building and revenue that we drive through the underlying information we have on car ownership. So, to me it's about building additional revenue streams from our market positions and assets that we have.

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

So, a question on Ipreo. If you annualize the $87 million in revenue from Q2 comes in just under $350 million, which is in line with the low end of the $350 million to $370 million guidance, but the revenue will need to accelerate further in the second half in order to make up for the softness in Q1. So the question is how - how did the revenue progress during the quarter and what gives you confidence in the acceleration in Q3 and Q4?

Yes, well, I think Q2 the markets and Ipreo performed in line with our expectations of the acquisition and the teams did a great job and in terms of the synergies, you know, Adam, Kevin, the entire market - IHS Markit and Ipreo teams have got ahead of the synergies in terms of working through the integration. I would expect that in Q3, Q4 we pick - you pick up incremental revenue in both the quarters above Q2 level and when you annualize that, you'll move up to the top end of the range. So, in terms of run rate, I think, I think we end up at the top end of the range. I think in terms of actual, we will be in that range on that - you know, at the lower end of that range and that's the breaks of a tough Q1 and that's it. There is nothing else to say. The business is performing well and we continue to move on and each quarter we'll look to build on the revenue performance of the previous one.

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

Want to ask about the auto forecasting which is call out as a strength - as a driver of transportation for the past couple of quarters now. And I guess my questions related to is the contribution from the Unity Platform occurring or is that on the common if it's not Unity there were a couple of other call outs of new products, VPAC commissions maybe more growth from OEMs. Just help us understand what's serving the strong performance in auto forecasting and tie it to the Unity platform comments. And not totally clear to me is that a client facing platform or is that back-end of other enabling product development since launch.

Now, Unity is part of our data science, data lake strategy and it's really important that across the group, we have spent several years now since the merger and the case in auto forecasting even the year going into the merger putting our data sets and our tools into a modern tech structure that allows for accelerated product development and re-forecasting in changes what was - if you look back to the historical IHS Markit automotive forecasting business, it was probably acceptable to update a big automotive forecasting model on a quarterly basis and that was acceptable. Today, our customers want updates almost in real time and therefore to deliver that, we can't be doing that in with spreadsheets and Oracle databases. We need to do it with a modern tech stack and that's what Unity is. Actually, Yaacov Mutnikas, our Chief Data Scientist and CTO is here, maybe you want to talk a little bit about just where we're at in terms of the data lake strategy and how that's helping businesses like our automotive forecasting team.

Briefly we - as Lance mentioned earlier, integrating all our data sets in data lake, with an unified interface to the data lake across - and an unified taxonomy across all data assets that we have and so that facilitates projects such as Unity and many others that were consistent couple of data interface with a standard taxonomy to engage, to build out new products, new analytics and deliver value to the business.

Yes. And in a much more rapid way. So great job to the team. It definitely is key to our automotive forecasting, continued revenue growth and as we look forward, all of our product sets will gain shorter development lifecycles when they're building out of our data lake infrastructure.

Our next question comes from Michael Cho with JPMorgan. Your line is open.

My first question is just around ACV comments. At the - I think in the past you mentioned that you expected ACV to improve or accelerate year-over-year throughout the year. Is that still the case and can you give us some color on what you're assuming for end-market activity growth behind the ACV outlook commentary? And two, just a clarification on Ipreo, what was Ipreo's organic revenue growth in the second quarter? Thanks.

With ACV, we are growing at 4%, the number moved up a bit in absolute dollars this quarter. I think we moved up by $5 million from last quarter. So we continue to see good, stable progression in ACV. We guided to ACV that would support a mid single-digit sub-revenue growth and so that's going to be a mid-single digit level of ACV growth and we do expect to see ACV continue to improve in the back half of the year, but we're still - we're still staying with the mid-single digit guidance on the resources business. So modest level of improvement as we move through the year.

Our next question comes from Tim McHugh with William Blair. Your line is open.

I just wondered if you could elaborate on WSO, which I think you called out as being particularly impactful to the growth of solutions. Just what's driving the growth there, I think would be helpful. Thanks.

Well, I think the - I've called out in terms of the acquisition of Ipreo, our business in leverage loans, and in general in alternatives, we see that whole alternative space continuing to grow low yields in the liquid and public markets driving people to reach to higher yielding private assets. You've got more private equity players that are looking for other areas, they've had great performance. They're raising large amounts of capital and looking for new and diversified ways to invest. So, we see many new private equity players moving into private debt. You've got traditional asset managers, rarely do I find a traditional asset manager that isn't trying to move its credit market expertise from public markets and start sneaking its way up into the private markets. And when you see that, there is one thing in common for all these people, buying the public bond fits very well into all the OMS systems that are available in the marketplace. Buying a private bond, a leveraged loan, doesn't. And it requires - it requires tools, software, pricing, indices and WSO is the world leader for leveraged loan back office. So we bought that asset that came out of JP Morgan's Investor Services Group, some years ago which they were using for their customers. When it came into our team's hands, we both attracted other banks. We also attracted all the hedge funds and asset managers that wanted to participate in the leverage loan space. So that's a growth area. I think anything we do around alternatives, private debt, private capital has strong growth characteristics in the markets around them and then when you start to add that in with our reporting tools that we acquired through Ipreo, our compliance tools, which we've been rolling out called deal flow, we really do have a very strong suite of products to support the - the private debt private equity markets, also the valuations. So that's WSO is the generally the chosen platform probably nine times out of ten and our teams have done a good job getting their share of that marketplace. So we've done well there. Thank you.

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

Lance, I'm intrigued by the commentary around the longer-term organic revenue growth aspirations. Are - is a step up from 5 to say 6 or 7 in your view, mostly or entirely dependent on the data lake strategy and success and time to market and product development acceleration or there is some other drivers in addition to that, that you're looking to?

Yes, I think there is the three or four key revenue drivers, okay. So, people of course you've got to have great people and you've got to be able to keep your good people. So it's important that we have a strong financial performance and can pay our people well. So people will be first. On product, product to me is all of our product groups will be enhanced by the data lake. It's going to help them improve margins by leveraging the data ingestion of the data lake rather than doing it many times across different product suites. So the leverage of the technology will be strong for margin which will provide for some incremental investing because my trade off with the groups is, spend the time and commit to the data lake strategy and I'm going to share some of those gains with you to be able to reinvest in your incremental product development plans and therefore your growth. But the other thing is actually being in markets that are growing above the firm's organic growth level. So, where are those areas in IHS Markit that are accretive to growth and there, I think there is at least one or two areas in every one of our divisions that are driving long-term opportunity and growth. And can allow us to perform at the - at a more accretive level to our growth ranges. So if you go in financial markets, I definitely have to say alternatives. It's double-digit, it's strong, it's anything to do with private debt, private capital and we're one of the largest players and there is lots to do. So, I like that. The second thing I'd say is asset managers are feeling the fee squeeze and the ones that aren't - don't have substantive scale are finding the cost of serving up the technology and operations into their business as a percentage of those fees is growing and therefore, they need to - they need to reduce those costs and any of the information services providers will gain some of that opportunity then we're definitely gaining our share of that. So that would be my cut at it - and there is other one, indices, AUM growth, passive, active, active - active product now getting new platforms coming, where active is going to get rolled into an ETF type structure. Those will bode well for IHS Markit index growth in AUM. So, therefore, if I look at financial markets, I move that up with Ipreo to six to eight, I'd love to see us be able to shift to the midpoint of that consistently or upper end of that. In the energy space, I think they are the most exciting thing of course. We love the downstream pricing news all the PRA-type platforms where we compete against Platts and Argus and ourselves with OPIS and our pricing and news businesses. Those were accretive and strong upper single-digit growth, sometimes double digits. We are continuing to organically build out new product there, I see that as having a great TAM. The other one is which I think we are underperforming, but have given our presence should outperform and therefore have a big piece of the pie is everything to do around energy transition, that transition from coal into renewables. It's the - it's all of our knowledge around LNG and the analytics around the LNG markets. Again, driven out of our data lake strategy in terms of fast, strong analytics it's the marriage of transportation with commodities, again driven out of our data lake strategy. So in that anything to do around energy transition, clean tech renewables those are growth markets. We're right in the middle of them. We got to extract the right value and again, I'd like to see us break out of our mid-single digit range in energy, but you still have a volatile market around our business and our upstream still is 50%-plus of what we do, 60% of what we do. So I'm always a little bit cautioned there. And then in automotive we've got lots of growth engines and we are accretive to our growth. So if you just looked at that, you'd say we should move to the - we should move up a percentage point or so on organic growth. But you do have to then temper your view with some of our dilutive to growth assets, some of the matured lower growth assets that are growing at 0% to 5%. And that's the - that's the portfolio management, I'm going to call it an opportunity because challenge is not a fair word, but it's the opportunity for us and as we move through that, I think we'll continue to see progress to the upper end and - of our range and you know if we're consistently at the upper end of our range and beating it, then we'd be willing to move it up, but we haven't done that yet. So therefore we are operating at a level where we're confident we can grow organically at what we say give a 100 basis points to shareholders, create a lot of free cash flow, use it very carefully framework of capital return to our shareholders with some small bolt-ons and drive double-digit earnings growth. And when - and I think that should drive us to close the gap on the multiple differentials to the best in our space, and that's what we're trying to do. And when we're there, we'll come back with probably some renewed forecasts. It definitely gets easier as you grow at 6% or better.

Our next question comes from Joseph Foresi with Cantor Fitzgerald. Your line is open.

I just wanted to get kind of two updates. First on oil, obviously it's been in the news and we've seen some movement there. I was always under the impression that budgets were pretty much set for the year and that they would be reviewed at the end of the year. So, I wasn't sure if you're seeing any change in that? And then second, with the share buyback back in place, how do we think about the acquisitions? Thanks.

Do you want with start with - start off Todd?

Yes, I think that's right with energy that essentially companies, these are long-term decisions so budgets get set, companies operate to those and it's why even though in your - you see some level of volatility in the underlying oil price, it doesn't really affect the operational decision, so long as the price remains within a range which we expect it to. So energy continues to be very stable and I've said this before, we're just grinding it out, and I think Dave, Brian, Dan, Jamie, the entire team at tool, they're really doing a good job of operating the business and we continue to expect to see improvement, but it will be - it will be over a period of time. What was the second part of the question?

Acquisitions.

Acquisitions? I mean, you can run the math, I mean our capital leverage is - policy is two to three times. We'll get below three in Q3 that allows us to resume the buyback, pencil out the $500 million for the year. That doesn't leave a lot of excess capital for acquisitions and then as we, every year we review the capital allocation strategy with the Board and we'll provide more color on the forward capital allocation as we move through this year, but I think this year is just set.

Yes. And I think that we're also - we've also signaled to our investors and said very consistently, you should expect a very disciplined approach to our capital management and capital return to shareholders is a key part of our strategy.

Our next question comes from Hamzah Mazari with Macquarie Capital. Your line is open.

Just [indiscernible] how to think about organic growth in the downturn. You know, just given the [indiscernible] do you still expect to do positive organic churn?

Yes. So in each of our divisions, sorry, you were breaking up a little bit there, but I think I got the organic growth in the downturn. So high-single digits in automotive that's 7, 8, 9 in a downturn, we still feel our positioning around used cars, service lane and many other things besides new cars will allow us to maintain a high single-digit outlook, financial markets with fee challenges, growing alternative space. We've got lots of - a lots of irons in the fire, and we think that our range there of mid-single digits shifting to the upper end of that 6 to 8 is a - is the right number. And financial markets are ones that move a little more consistently with the downturn, maybe you end up at the lower end of that and then you've got energy, which we really have been focused on diversifying away from upstream to have a much more balanced approach across the full energy value chain and then overlaying all of this with data lake strategy in terms of distribution of data and new product development. I'm very confident that we can consistently operate in mid single digits with opportunities to accelerate above that. In a downturn, I don't see any issue with maintaining a positive organic growth across the firm, even if it was a severe downturn.

Our next question comes from Kevin McVeigh with Credit Suisse. Your line is open.

Just following up on the buyback. Just a couple of things. Does the Informa exchange impact the timing of when you can be in the market, and is the $500 million, is that in the EPS guidance or would that be additional upside?

No, and yes. So we will execute - for Informa, it doesn't affect the $500 million. I mean we - net-net, we end up with $30 million of cash and we have built in the buyback into the forward share count guidance. As I said, there is not a big impact this year. So it's a fully diluted weighted average share count, but it will definitely be impactful in 2020. We'll start off the year at a $8 million or 8 million lower shares. So it definitely will be a benefit next year.

Our next question is from Alex Kramm with UBS. Your line is open.

Just wanted to come back to the margin in the financials business, I mean really strong performance, you mentioned a bunch of things including the integration with Ipreo. Can you just dissect this a little bit more, like various businesses that contributed, how much maybe the synergies are rolling into the margin yet. And then again why you're being conservative on the margin outlook here as we go into the second half? It seems like your - you've done a tremendous job already. So why is it not sustainable? Thanks.

Well, Lance said this, I mean we've made good progress with Ipreo and the synergies and the integration and so, probably ahead in terms of the expense synergies, but we have ground to make up coming out of Q1. I still see high level of confidence in getting to the full-year number. The big thing that I called out is that we will see a subtle shift in product mix in the back half of the year. We do have in the red compliance space, we'll see more revenue coming from that area that will be a bit lower margin. And so, first half of the year, we had a very favorable product mix with high margin products in both information and software. And so we do see a bit of a reversal of that and then given the strong margin performance, we have a little bit of forward investment that we expect to make in financial services in the back half of the year. Continues to be a really, really strong margin story and has been for three years now. But we want to manage the business for the long term and make sure we're making the right decisions and investing it in an appropriate level. So we do see margin expansion coming down in the back half of the year a bit.

Our next question comes from Shlomo Rosenbaum with Stifel. Your line is open.

Hi Todd, can you just explain to me why the resource's recurring revenue would decline sequentially. It looks like it went down like $1.7 million. Is there anything that's seasonal even there and then, I want to squeeze in one other one, just if - I didn't catch the Ipreo organic growth year-over-year, if you can throw that in as well.

Remember that last quarter we called out a favorable point benefit from rev rec and resources, and I think that was the big thing and so we're actually trending at a normalized level right in line with where we've been in the last couple of quarters. And, with Ipreo, we don't call out specific organic revenue growth, but in the range that we provided that delivers to a 10% full year growth or a double-digit full year growth rate for Ipreo.

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

Just one last one on Ipreo, I guess, I know you just mentioned that 10% full year growth, which I think is lower than the low to mid teens expectation that you had, had in your first quarter foot note on the guidance slide. So, just given that Ipreo seems to be getting a little bit better, I just wanted to understand, was it just you don't feel like you can catch up as much after the weaker first quarter or I just wanted to understand why there is a lower expectation for the full year growth now.

Yes. I mean I think we talked about that last quarter that we expect the business to rebound, it did. We're now at a run rate that supports the original range and as Lance said, as we move up in the next couple of quarters, move saying on a run rate basis inside to the middle part, mid to high part of that range, we don't expect to fully catch up the Q1. And so that's why in Q1, we went down to the lower end of that guidance range.

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

You've previously indicated that you're on track to increase your market revenue run rate synergies from $35 million exiting fiscal '18 to a $100 million exiting fiscal '19. Can you discuss the progress of cross selling in the quarter and incremental initiatives you have going forward that can help drive a continued step-up in revenue synergies?

Yes, so. Thanks, George. I think the first thing I'd say is that the synergies across IHS Markit have definitely played out to be a real positive in terms of our merger and - if we can consistently drive 1% organic growth from the distribution of IHS Markit products into financial market participants, to me that's a golden outcome and that allows us to be up in terms of a run rate, up above the original view of $100 million, which I think I've said before, we are a little bit slower to start. But on a run rate basis, we've done a really good job. What I can tell you is, I'm just coming off the back of a big customer trip. I've been in Boston, Montreal, Toronto, New York and now I'm in - we're doing the call here today from L.A., from Newport Beach and, you know, the fact is, I don't go to any customer meeting where I don't spend a lot of time talking about what we can do in terms of country risk measures. What we can do in terms of supporting any types of investments into ex - energy exploration, Permian, LNG, energy transition and how it impacts investments. Our automotive experts getting called in to support a financial investment. So, my view is this, the fact of being an information Company with financial markets as one customer set. That's a really strong place to be and we're continuing to extract a lot of value out of those revenue synergies. I do think ongoing, if we have six points of organic growth, I'd be really disappointed if at least 1% organic growth is coming from the merger related activities, which gets harder and harder to measure, but the team, that's really been a real positive. And then the second thing that I would say will drive organic growth, which we got out of the scale of the merger is the ability to take incremental margin that you can feel the pressure on the call of us giving more margin to our shareholders and what we're saying is, is we want to invest that margin to allow us to have consistent and better growth and the data lake is that type of strategy and I'll be really disappointed if, when we start to put out a vitality measure, if every three years when we look back, we're not getting 1% or 2% organic growth out of the vitality of our investments, I'd be disappointed with that. So that gives you kind of the scale of the merger, plus the distribution of IHS Markit, IHS products into the market customer base into financial markets. That's a really strong outcome and one I think that we've been consistently performing against. Next question?

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

Lance, great color on the data lake strategy. Thanks for all those insights. Maybe just a quick follow-up on that data lake would be, how does it also help provide cross industry insight in a differentiated view which none of your competitors have, because you have such a great portfolio of data asset across industry and maybe a follow-up for Yaacov, maybe if there are any examples that you can give of using machine learning or natural language processing or also on your cloud enablement strategy, any color on that front? So, anything on the technology front. Thanks.

Okay, I'll take the first part and Yaacov can take the second part. So, to me, the key thing about the data lake strategy, first is very simple, because I hate all the buzzwords around data science, data lake, machine learning, a lot of natural language processing, a lot of these words, it really comes down to using technology to first, organize data efficiently. Second, to allow structured and unstructured data combinations to be made more readily. Third, to allow your customers to more easily access data sets that you have. Fourth, to allow people across the firm in different regions that are doing R&D and product development to be able to gain easy access to data sets that they want to use and explore and that whole shifting environment in IHS Markit which really allows us to proclaim ourselves as an information company, leveraging technology to build better products for our customers and better products for our customers are something that's helping them make decisions, save money, do things more efficiently. So, I'm just completely pleased that about, I just want it to be faster, but the fact is the team has done a great job and every day we're increasingly in a better place with respect to that tech strategy. Yaacov, you want to talk about a couple of the POCs that are leveraging more advanced data science, natural language processing, maybe the ECR, AD&S or maritime or...

So, just I'll answer - I'll comment in two ways. One, a little bit more color on the data lake itself and two about some of the examples of analytics that those cross border, cross - across different division lines. So just dipping a little bit into the data lake, so Lance mentioned the data lake is capable of processing and is processing today, structured, semi-structured, unstructured data throughout. Number two, it's rooted in a coherent data catalog in data governance culture, where we've got now a data governance machine, how we manage data that's emanating in the lake, but that also creates a structure across the organization, how we manage our data. Number three. We have an approach where we have got a process for the end of the year to hydrate our Data Lake with quality curated data. Number four, the data science, it doesn't address just issues of product innovation, but widely applies to data curation to which we have a process in place. Second of all, I mentioned earlier is that we've got a way of since the data lake contains all the data across the board, across different business lines, we can now build products that we can merge data from, let's say, energy and financial sector through an unified data interface and cataloging capability. And so for the data lake in theory and in practice supports data management, data creation and product innovation. In terms of - just one part of the color to the thing, of course this entire exercise has to be done in the context of managing the cost of all the data management and data curation. And finally in terms of data science specific projects, one of the project that I wanted to mention is for example commodities at sea, where we can understand from our maritime business all movements of oil ships basically in the real time, out of that we can subset all the energy movements, all the oil movements across the world, we know any oil carrying ship where it's coming from, where it's going, at which point in time it's going to various points where these potential challenges, let's say like Strait of Hormuz et cetera. And we can understand and anticipate when the oil is going to reach various commercial centers and what potentially it can influence in terms of the oil value. The other example that I will mention, we're launching in January a product which is our dividend focusing thing which is now supported by advanced machine learning techniques that going from manual effort of focusing 3,000 companies, we can focus 28,000. And finally we've got a cognitive processing for news as it relates to terrorism, as it relates to civil unrest, political unrest, energy events and similar that all machine is now taking on data from roughly 16,000 open source sources to process classified data and help our analysts to opine on issues that are [indiscernible].

Thanks Yaacov. And we've got some - close to 20 different products being developed across the data lake now and most of them are using more advanced techniques and at least half of them are natural language processing and building real knowledge networks and indexing of content in ways that we just wouldn't have been able to do before unless we added a lot more people.

And I'm currently showing no further questions at this time. I'd like to turn the call back over to Eric Boyer for closing remarks.

We thank you for your interest in IHS Markit. This call can be accessed via replay 855-859-2056 or international dial-in 404-537-3406 conference ID 7658239 beginning in about two hours and running through July 3, 2019. In addition, the webcast will be archived for one year on our website. Thank you, and we appreciate your interest and time.

Ladies and gentlemen, this concludes today's conference. Thank you for joining. Have a wonderful day.