Harbor PanAgora Dynamic Large Cap Core ETF
Q4 2017 Earnings Call Transcript

Published: 16 Jan 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q4 2017 IHS Markit Earnings Conference Call. [Operator Instructions]. And as a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Eric Boyer, Head of Investor Relations. Please go ahead.

[Eric Boyer:]

Good morning, and thank you for joining us for the IHS Markit Q4 2017 Earnings Conference Call. Earlier this morning, we issued our Q4 earnings press release and posted supplemental materials to the IHS Markit Investor Relations website. Our discussion on the quarter are based on non-GAAP measures or adjusted numbers which exclude stock-based compensation, amortization of acquired intangibles and other items. IHS Markit believes that non-GAAP results are useful in order to enhance 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. As a reminder, this conference call is being recorded and webcast and is a copyrighted property of IHS Markit. Any rebroadcast of this information, in 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 risk 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 on 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 is my pleasure to turn the call over to Lance.

[Lance Uggla:]

Thank you, Eric. Thank you for joining us for the IHS Markit Q4 Earnings Call. Before I start, I want to say Happy New Year and also to thank Jerre for joining us today for what will be our final earnings call together. We've had a lot of fun together with the team and have set IHS upmarket for an excellent 2018. Now 2017 was a successful year for IHS Markit as we completed our first fiscal year as a merged company and delivered financial results at the upper end of our guidance. Overall, organic revenue growth was 4% and adjusted EBITDA margin expanded by 250 basis points. Year-over-year, we grew adjusted EPS by 15%. Q4 outperformed our expectations, and within the quarter, we continued to invest for future growth in 2018 and beyond. Financial highlights of the quarter are, revenue of $945 million, up 6% year-over-year on an organic basis; adjusted EBITDA of $366 million; and margin of 38.7%. Margin expansion was 60 basis points excluding the autoMastermind acquisition; and finally, adjusted EPS of $0.52, up 8% over the prior year. In terms of core industry verticals, I'll provide some Q4 highlights and forward-looking commentary. First, our Transportation segment continues to produce very strong results, with organic revenue growth of 9% in the quarter. Growth was driven once again by strength within our auto business. Going forward, we expect high single-digit organic growth over the next several years, anchored by a diversified set of growth drivers across the segment. I'll mention a few here. First, our auto business, which is well diversified between our used and new car-focused offerings, is expected to continue to perform well due to the many of the same growth drivers we have spoken to in the past. These include our vehicle history report and used car listing services, supply chain forecasting, vehicle emissions analytics, digital marketing and recall services. Second, our recent acquisition of autoMastermind, which is off to a good start, will be a strong growth driver for us within the new auto dealer space. And finally, third, both the maritime & trade and aerospace and defense businesses are poised to benefit from improving market dynamics. In Financial Services, we produced our best quarterly result in several years, with 8% organic growth, with strength across our information, solutions and processing businesses. In particular, we had a strong quarter within our pricing, indices, valuation services, managed loan services and enterprise data management businesses. We also continue to see growth in our loan processing business. We continue to target a 4% to 6% organic growth rate over the long term. In Resources, we were pleased to see that our organic growth turned positive as our upstream energy business continued to improve and our mid and downstream businesses remained strong. We are confident in our low single-digit organic revenue growth outlook for 2018, and we expect to have an annual contract value that improves throughout the year. We're expecting an increased -- increasing CapEx spend environment for our customers as we forecast the price of oil to average in the low 60s in 2018. CMS organic revenue growth was 3% in the quarter, and we expect to continue to deliver low single-digit growth in 2018, normalized for the boiler code. Moving on to our synergies and strategic initiatives. We have made substantial progress with our cost synergy program and will surpass our initial $125 million target this year. We plan to incrementally invest additional synergies in 4 strategic areas that we laid out at our April Investor Day. First, with regards to people, we are expanding training and development, investing in remote intelligence and providing a more streamlined management structure. Second, we have increased our investment in technology around data sites and analytics to improve both cost efficiencies as well as accelerate product development. We have also invested in internal systems to improve Workday -- workplace productivity, which are all now coming online. Third, we have leveraged our data science team to support incremental product investments and new initiatives. As previously discussed, we have now launched 20 POCs, and a number of these are now being commercialized. And finally, fourth, we are investing to increase our customer engagement by expanding our global account management structure across our corporate account base and implementing Salesforce.com. Moving on to revenue synergies. In 2017, we surpassed our $10 million target, and we're off to a good start in achieving a $35 million run rate for 2018. Our revenue and cost synergies are accounted for within our 2018 guidance. Finally, we announced the appointment of Nicoletta Giadrossi and the Lord Browne of Madingley as new directors of the company. Both have extensive experience within our end markets. So to close, we achieved a lot in our first fiscal year as IHS Markit, and we are focused on delivering to our forward commitments to create value for our shareholders, including consistently delivering organic revenue growth in the 4% to 6% range, at least 100 basis points of annual adjusted EBITDA margin expansion as we move to our mid-40s margin target and double-digit earnings growth. Within this framework, we'll invest for growth, return capital to shareholders and manage the business with strong corporate governance. This is our commitment to you, our shareholders. And I'll now turn the call over to Todd.

[Todd Hyatt:]

Thank you, Lance. Before we get started with the results, I want to remind you that while our Q4 and full year 2017 results include IHS end market, prior year reported results include legacy IHS for the full year and legacy Markit from July 12 through November 30. We have included Markit's year-over-year organic revenue growth and FX revenue impact in our revenue growth rates and have included the remainder of Markit revenue as acquisitive revenue growth. Now for the Q4 results. Revenue was $945 million, an increase of 8% and organic revenue growth of 6%. Adjusted EBITDA was $366 million, an increase of 8%, with margin of 38.7%, up 60 basis points normalized for the autoMastermind acquisition. And adjusted EPS was $0.52, an increase of $0.04 or 8%. Relative to revenue, we were pleased with the strength of Q4 revenue performance and the improving revenue trends throughout the year. Looking at segment performance. Transportation growth was 14%, which included 9% organic, 4% acquisitive and 1% FX. Organic revenue growth was comprised of 11% recurring growth and 4% nonrecurring growth. We continue to see very strong growth in our automotive business and remain confident in our ability to drive high single-digit organic growth in our Transportation segment, led by the growth drivers that Lance discussed earlier. Moving on to Resources. Revenue increased 1%, including 1% organic and 1% FX. The organic revenue increase was comprised of minus 1% recurring and 10% nonrecurring. We essentially closed the year with flat Resources ACV, with Q4 growth of $8 million and full year ACV of negative $2 million. Our year-end ACV excluding OPIS is $630 million. When we report Q1, we intend to include OPIS in our ACV total and expect low to mid-single-digit growth on a like-for-like basis with improving performance throughout the year. We also closed the year with strong nonrecurring Resources revenue performance and expect mid-single-digit growth in 2018 in our nonrecurring business. CMS revenue growth was 5%, which included 3% organic, 1% acquisitive and 1% FX. Organic revenue was comprised of 1% recurring growth and 13% nonrecurring, which benefited from Goldfire software sales and BPVC revenue of $2 million. We expect CMS to deliver low single-digit organic growth in 2018, normalized for BPVC. Financial Services revenue growth was 10%, including organic revenue of 8% and 2% FX. Information organic growth was 10% due in part to favorable comparison versus prior year and some revenue catch-up from Q3. Our indices business delivered double-digit organic revenue growth as ETF AUMs remain robust, and our index administration business performed well. In addition, our bond pricing business completed some major wins. Our processing business delivered 4% organic revenue growth, driven largely by the loans processing business as the leveraged finance and syndicated loans markets were strong. Derivatives processing was flat due to higher rate volumes, offset by lower credit volumes. We expect our processing business to be down year-over-year in the low to mid-single-digit range due to a difficult comparison. Solutions revenue increased by 9% and benefited from broad-based growth across the portfolio, led by our loan services and EDM businesses. We expect our solutions business to deliver high single-digit organic revenue growth in 2018. Overall, we expect to deliver within our longer-term 4% to 6% organic growth range in Financial Services for 2018. Turning now to profits and margins. Adjusted EBITDA was $366 million, up 8% versus prior year. Our adjusted EBITDA margin was 38.7%, up 60 basis points, normalized for the Mastermind acquisition. Regarding segment profitability, Transportation's adjusted EBITDA was $111 million, with a margin of 41.4%. Adjusted EBITDA margin was 43.4% excluding Mastermind, an increase of 60 basis points. Resources adjusted EBITDA was $92 million, with a margin of 42.6%, down 70 basis points versus last year. CMS adjusted EBITDA was $33 million, with a margin of 23.4%, down 360 basis points versus last year due in part to lower-margin BPVC sales in the quarter and royalty timing. Financial Services adjusted EBITDA was $148 million, with a margin of 46%, up 310 basis points versus last year due to flow-through from strong revenue performance. Adjusted EPS was $0.52 per diluted share, a $0.04 or 8% improvement over the prior year. Q4 free cash flow was $175 million. Our trailing 12-month free cash flow was $701 million and represented a conversion rate of 50%. Cash flow for the year was negatively impacted by restructuring and acquisition-related costs of approximately $113 million. Excluding these costs, conversion would have been approximately 59%. Turning to the balance sheet. Our year-end debt balance was $4.2 billion, which represented gross leverage ratio of approximately 2.9x on a bank covenant basis, and we closed the quarter with $134 million of cash. At quarter close, our undrawn revolver balance was approximately $964 million. In early December, we completed a $500 million debt offering due March 2026 with an effective interest rate of 4%. Subsequent to this debt offering, our capital structure is 62% fixed, and we are targeting a minimum level of 2/3 fixed debt at year-end. Our Q4 diluted weighted average share count was 412.9 million shares, and our full year diluted weighted average share count was 416.2 million shares. Our full year share repurchases were approximately $1.4 billion or 34.6 million shares, an average price of $40.71. The share repurchases included $1.1 billion against our buyback commitment and $300 million from stock option proceeds. We are planning to execute $1.1 billion of share buybacks in 2018. Our 2018 share repurchases will be back-end loaded and will be executed in line with our capital policy leverage levels. Moving to full year financial results. Total full year revenue was $3.6 billion, which represented growth of 32%, including 4% organic, 29% acquisitive and minus 1% FX. Revenue growth for the Transportation segment was 11%, which included 10% organic and 2% acquisitive. Revenue for the Resources segment declined 2%, including minus 4% organic and 2% acquisitive. Revenue for the CMS segment increased 1%, including 2% organic and minus 1% FX. Excluding BPVC, organic growth was flat. Pro forma revenue growth for the full year for Financial Services was 6%, including 7% organic and minus 1% FX. Within Financial Services, pro forma organic growth was 7% for information, 8% for solutions and 6% for processing. Turning now to profits and margins. Adjusted EBITDA totaled $1.39 billion, up 41% versus a year ago. Adjusted EBITDA margin was 38.6% with reported margin expansion of 250 basis points. Taking account of full year 2017 Markit results, pro forma margin expansion was 130 basis points. And adjusted EPS was $2.07 per diluted share, an increase of $0.27 or 15%. Relative to acquisitions, autoMastermind continues to perform very well, and we expect it to achieve its January 2018 earn-out target, increasing the initial purchase price of 78% of the business from $390 million to $435 million. We also expect to record approximately $200 million to $225 million of Mastermind acquisition-related performance compensation over the next five years, which represents the estimated cost of the acquisition of the 22% of the business, which is currently owned by Mastermind founders and employees. This will be a noncash cost at the time it is initially recorded but will ultimately be settled in cash when we acquire the remaining ownership interests in 2019 through 2022. These costs are separately reported in our adjusted EBITDA reconciliation. In terms of guidance, we are reaffirming our 2018 guidance, which we provided on our November 14 guidance call, but we are revising our revenue and adjusted EPS guidance upward to reflect a higher revenue entry point and a lower expected effective adjusted tax rate from the new U.S. tax law. This guidance provides for, revenue of $3.8 billion to $3.85 billion, with organic revenue growth of 4% to 5%; adjusted EBITDA of $1.5 billion to $1.525 billion. This represents margin of 39.6% at the midpoint and approximately 100 basis points of margin expansion. In order to achieve the 100 basis points of margin expansion, the core business is expected to produce more than 200 basis points of expansion from revenue growth and cost synergies, offset somewhat by margin dilution from the Mastermind acquisition and incremental investment activity. We expect adjusted EPS of $2.23 to $2.27. This represents adjusted EPS growth of 9% at the midpoint. In terms of cash flow, our 2018 cash conversion is expected to improve in line with our long-term mid-60s target as merger-related restructuring costs and capital spending begin to moderate and working capital improves. This guidance includes a revised adjusted tax rate of 18% to 20% from the new U.S. tax law, which is an improvement of 2 percentage points versus our previous guidance. We expect a negative GAAP tax rate due to the revaluation of our U.S. deferred tax liability at the new 21% rate, offset somewhat by our repatriation tax liability. We will record both of these items in Q1 and plan to exclude these from our adjusted tax rate. Neither of these items will impact cash in 2018. And with that, I will turn the call back over to Lance.

[Lance Uggla:]

Okay. Thanks, Todd. We had a great finish to 2017, and I could not be prouder of the work that our teams have done over the past year on behalf of our customers and shareholders. Q4 performance has been stellar and puts us in good position as we enter 2018. Now before we start our Q&A, I wanted to once again thank Jerre for his partnership and shared vision in creating what really is a global information powerhouse. Together, we met, we thought and, most importantly, we executed what has truly been an exceptional combination. Jerre and I have developed an unparalleled friendship, and I'll miss his presence. Jerre, the floor is yours to say a few words.

[Jerre Stead:]

Thank you, Lance. I want to thank all of our colleagues of IHS Markit for providing me the highlight of my 38-year CEO career in leading such great people who've done such great things. We were able to continue to deliver for our customers and shareholders during all the change around us. It's a testament to all of our colleagues' focus and discipline. I also want to thank the investment community for your support. It's been a great pleasure working with you over the many, many years to create value for our investors. Finally, I want to thank Lance for his partnership and, most importantly, his friendship. Lance, you are going to lead IHS Markit to ever greater things in the years to come. Thank you also very much.

[Lance Uggla:]

Thanks, Jerre. Operator, we are ready to open the lines for Q&A.

[Operator:]

[Operator Instructions]. And our first question comes from Peter Appert of Piper Jaffray.

[Peter Appert:]

And Jerre, congrats on your retirement. Thanks for the great run over the last 12 years. The organic revenue growth has been 5% to 6% over each of the last three quarters, the guidance calling for 4% to 5% in '18. So I'm just wondering, after the strong momentum you've seen in recent quarters, why the more -- slightly more conservative view going into the new year?

[Lance Uggla:]

Okay. Thanks, Peter. It's Lance. And thanks -- I share your kind words for Jerre as well, and we really truly have had a great year together. I guess one of the things that -- I think when Jerre and I put these 2 companies together, his first advice to me was -- is let's take a real conservative approach and hit every number possible. And so we started off with 0% to 2%, and I think we ticked that box quite well. We gave a whole bunch more guidance moving into the 2% to 4% range. And we've now successfully moved from 2% to 4% and start looking forward at our 4% to 6% long-term range we gave you, which we felt, with investments and with our concerted effort to focus on organic growth, that was an objective that we could consistently hit over the coming years. And I guess the word is consistent. We need to consistently hit that over the coming years. Our move into next year, we've set 4% to 5% as our initial entry point, which is the right step to our long-term 4% to 6%, and we're confident of delivering on those goals. So consistency, hitting the numbers and making sure we do what we say we do.

[Operator:]

And our next question comes from Gary Bisbee of RBC.

[Gary Bisbee:]

I'll echo the congratulations to Jerre. I guess a two-part question here on investment and margins. So we've had two quarters in a row with a bit less margin expansion than what you've delivered and a bit less in this last quarter than we -- you've guided for going forward. Anything in particular you'd call out on that? And as part of that, Lance, can we just get an update on all of the investment that you've talked about at the Investor Day in analytics and some of the other things you've been focused on? Is -- you said earlier there were some products -- new products in commercialization at this point. Is -- should we think that this is more a long-term effort? Or are there going to be some quick wins from some of the stuff you've been doing?

[Lance Uggla:]

Okay. Perfect. Thanks. I think I'll start, and then I'm going to pass that one to Todd. So first off, I think we're very committed and are confident in the 100 basis points. So that's a fact. Second, and I'll let Todd dig into the first part, we've had a -- some FX impact. And investments are starting to take place, and those had impact within the quarter. Some of the investments, to answer your question before I pass to Todd, are -- have been numerous. So have some 20 POCs, several moving towards commercialization. We expanded valuation component to our Vantage software product for doing portfolio analytics around energy assets. We've developed a new carbon pathway model with optimization engine that's rolling back into our product teams. We've created a next-generation event engine around our aerospace and defense and ECR using natural language processing out of our Belarus team in Minsk. That's also moving back. Commodities, sea for oil, taking our maritime & trade and energy products together to create new trade dynamics for commodities at sea. We're about to launch a new Baltic Supramax in this index with our index and energy teams -- maritime teams, sorry, working together and working to transform some of our forecasting techniques in and around our ECR business. So those are some of the ones that we're active in. I'm personally involved. Yaacov is leading through our data science and analytics team. And those are investments we're making to drive us towards the upper end of our 4% to 6%, and we'll continue to make those investments for both short-, mid- and long-term wins. Todd, do you want to take the second?

[Todd Hyatt:]

Yes, I'll take the margin. And it's probably helpful just to step back a little bit. When we look at revenue and the revenue progression, to Peter's earlier question, I think if you look at normalized revenue for the year, you'll see that the four quarters are 2%, 3%, 4%, 6%, so good progression through the year. And we are happy with how we performed, but I think when we look to next year, the guidance range that we've established, we certainly are confident we can deliver to that. But we do have to be aware that you have processing, has been a net positive, and we -- as I said, that's going to go a bit in the other direction. I think the other thing to just be aware of, and I've talked about this in the past, is with Resources, you have to differentiate between sales growth and reported growth. So the deferred revenue model, we do expect to see improving Resources through the year. We expect to get that into a mid-single-digit growth level, but as it comes through the P&L, think of that more in the low single digits. So I think just a couple of comments on the revenue. When we look at the margin progression, we're satisfied with the margin delivery over the last several quarters. As Lance said, we have done some level of investment to position ourselves as we go into 2018, and FX has been an impact in the numbers. And I think a couple of things I would call out there. One, we talked about this on the last call, but if we look at the other expense income line, a big piece of that is mark to market, where we have nonfunctional currency exposures that get marked, and as we've seen the dollar weaken, we have taken some losses in that line. We don't expect that to continue. We have a path to more fully hedge that exposure, so we expect to see pretty significant improvement in this other expense income, which you see has been a net negative for the year. The other thing I would say in terms of the translation of FX is that we saw FX turn positive this quarter from a revenue standpoint, so we picked up $10 million more of revenue. We also picked up $10 million more of expense. As I've said in the past, we're relatively naturally hedged from a translation standpoint. So as we look, we did deliver $40 million more, sequentially, of revenue in the quarter. $10 million of that was Mastermind. You have about $10 million from FX, and $16 million of that, sequentially, fell through to adjusted EBITDA. So I think good performance in the margin. Importantly we are positioned, as we go into 2018, to deliver to the commitments that we've made. And yes, I think we feel good about the guidance that we've laid out.

[Operator:]

And our next question comes from Bill Warmington of Wells Fargo.

[William Warmington:]

So a question for you on the energy contract value. You talked about it finishing up the year about $630 million. The momentum there is -- has turned and is improving. The question I've been getting is whether -- if you look back to where that was back in 2014, before the price of oil started to pull back, is there anything that's happened structurally -- well, first is, if you could give us a sense for what the annual contract value was for that business on an apples-to-apples basis going back to that point and whether there's anything that's changed structurally in the business that would keep you from getting back to those previous levels.

[Todd Hyatt:]

Yes. Bill, the annual contract value, when we entered the downturn, the first year, it declined by 5%. Last year, it declined by 10%. And coming into 2017, we said it was going to be flat and was going to be down a bit in the first part of the year. Jerre and I talked about that on the -- we said Q1 would be down. We had a handful of deals in Asia. And what we saw was exactly what we had laid out, and we were pleased to see $8 million of growth in Q4. And we ended the year down $2 million in the $630 million, which doesn't include OPIS. So going forward, we'll put OPIS in to the number. We didn't want to put it in this quarter because we want it to be apples-to-apples comparison so you would understand the performance. So we were looking at an ACV with OPIS putting another $95 million to $100 million into that number, so call it $730 million. The big thing that we talked about during the downturn were companies that were making strategic changes to their operational activities. We lost customers at the long tail of the business in the U.S., but it was more about customers exiting geographies, talked about independent companies in the U.S. exiting some of their international operations. As we look at the market now and we see activity levels increasing, we see capital coming back, we do believe that there will be some level of opportunity in the NOCs. I mean NOCs really shut things down. We see opportunities from the Middle East. In Latin, we see opportunities offshore. So we do think it's a more active market, but we're not going to sit and predict that we're going to be back to where we were in the next couple of years. But we do see a much more stable environment and an ability to deliver to the mid-single-digit sales growth level in 2018.

[Operator:]

And our next question comes from Kevin McVeigh of Deutsche Bank.

[Kevin McVeigh:]

Lance, with oil ticking up kind of in the low 60s, any sense of the sensitivity of kind of the organic growth in that energy business just given when the guidance was set, it was obviously in kind of mid-40s? Any thoughts as to how that would impact kind of upstream versus downstream and in the context of the organic growth overall?

[Lance Uggla:]

Yes. Well, we said, last quarter, our business is 65-35 in terms of upstream, 65%; and mid and downstream, 35%. Mid and downstream continued throughout the year to have a solid performance. Chemicals, OPIS, to be called out there, and we don't see that changing at all as we look forward into '18. Upstream, as we called out this time, it's about CapEx and spending. We said we are in the low to mid-60s; currently, upper mid-60s. We see some additional CapEx, and that's what will drive organic growth, and we're confident of a low single-digit growth, following on from what Todd just said a moment ago.

[Operator:]

And our next question comes from Andrew Jeffrey of SunTrust.

[Andrew Jeffrey:]

A question. As we look at the Transportation business, which continues to be very strong, and auto in particular, and then digging in a little bit on automotiveMastermind, can you talk about the competitive environment and what you see as aM-specific competitive advantages that you expect to sustain sort of above-segment-average organic revenue growth going forward?

[Lance Uggla:]

Okay. So we mentioned on the call, what we love about the automotive business across IHS Markit is its diversification across many aspects of both used and new car sales and then diversified across forecasting, recall, emission analytics, vehicle history reporting, used car sales of CARFAX, CARPROOF and now autoMastermind adding to that diversification. So a very solid diversification of assets and -- that's collectively performing to the high single digit, and we fully expect to remain there for several years to come. autoMastermind has both -- it has a leading product on the dealer floor, and so we like the growth parameters and the size and scope of their current penetration and what we see as optimal penetration over the years forward, so a leading product with a scope in their current marketplace. When we couple autoMastermind with rest of our automotive business, we also have an opportunity for new product development in and around conquest. So currently, autoMastermind is focused on retaining the dealer customer. Together within our franchise, the new revenue opportunity is to actually help the dealers use their incentive spends and advertising spends and take new business into the franchise. So again, we feel the dynamics are right. With more challenging markets coming ahead for new car sales, dealers need these analytics. They need the data science and the tools on the floor to maintain and grow their revenues.

[Operator:]

And our next question comes from Manav Patnaik of Barclays.

[Manav Patnaik:]

I wanted to focus a little bit on the Financial Services side and maybe, even more specifically, the information and processing piece. You obviously had a pretty strong year in both cases. It sounds like some of it was comps, and maybe some of that reverses next year. But going into next year, what are the pluses and minuses that you guys are keeping track of? And maybe my question is more focusing on how we should think of your positioning in the MiFID world. And then maybe on processing, is there other regulations around electronification and so forth that is in the horizon? And maybe some of you work on blockchain testing and so forth, just curious how you guys are thinking of those anecdotally.

[Lance Uggla:]

Okay. I got to keep Jerre's discipline to one question. Clearly, I'm going to have to choose one from there. But the, I guess, new kid in town, you're going to be testing me. But why don't I start with part of that. And then I'm going to pass it to Todd, and he can add from a financial perspective. First of all, I think when you look at financial information and you look at market, one of the things we really like in bringing our companies together is the diversification of taking the energy and resources, consolidated markets products into financial markets, and that's a big part of the marriage and performance of IHS Markit. So that's a good thing for our company. If you take historically the financial markets business, we always talk 5% to 7% overall. We're now running some 8 years, and really that number was 4% to 9% and so we had twice just below 5%, 3 times within 5% to 7% and now, once again, about 5% to 7%. I've said before, we're not bragging when we're above, we're not upset if we're slightly below. We feel a very solid, diversified performance across financial markets, which we expect to maintain going forward. And once again, today, we said if you take the pure information part of that, even though we outperformed on the upside, we want you to have in your models that 4% to 6%, which we feel is a very, very good way of looking at the combination of our mature products that have some price -- they're market-leading products with price to be used within them, so that keeps you at low single-digit growth. We've got products that we've invested in that are growing, indices, evaluated pricing, valuations, where we have strong performance, growth characteristics and upper single-digit growth. And then we have the new investment products, some of the solutions, et cetera, that have high to -- double-digit growth or no growth at all because we're just starting to invest and grow out those initiatives. So we have a nice, diversified financial markets footprint, where we feel the growth that we can deliver is consistent and margins improving, and we can continue to maintain that going forward. Do you want to add, Todd, some to that?

[Todd Hyatt:]

The only thing I would add -- I mean, because I think that it is a good diversified portfolio, the only thing I would add is, Manav, in the supplemental materials, we provide the reporting and the growth by the information processing solutions, legacy segments. We had a good year in processing. I would say it raised the numbers by 1 point and next year, as we talked about, likely going to be a low single-digit decline versus a mid-single-digit grower this year, probably likely to take the overall portfolio growth down 1 point, right? So that's the thing I would be aware of. But when we look at the core of the portfolio and we look at this information solutions, those product sets continue to perform very well, and we're pretty -- feel pretty good as we enter next year about the future that we have there.

[Lance Uggla:]

Great. Thanks, Todd. I will close on -- MiFID, just to close on that point, is a positive for us in terms of a tailwind. It's the implementation of solutions to solve regulatory problems, which has been growth for us this year, and with continued implementation, we feel well positioned from a positive perspective going into '18.

[Operator:]

And our next question comes from Andrew Steinerman of JPMorgan.

[Andrew Steinerman:]

Todd, I want to get back into oil and gas CapEx and ACV. Oil and gas CapEx has already had a massive rebound in 2017 and poised to grow double-digit in 2018. Why are Resources ACV kind of only poised to be up mid-single digit in that environment? Is it the NOC geographies being held back? Are there any other kind of constraints for ACV to be up more like CapEx?

[Todd Hyatt:]

Well, I mean, I think we look at it by different market and different segment, and so I called out areas that we see as being net-net growers next year and opportunities. And we certainly -- entering the first half of the year and looking at the market, it's an improved market, but I think there are still companies that are a bit cautious about substantial investment levels. So when you talk about the significant rebound in capital, I mean, we do see CapEx being up year-over-year, but we're talking about being up high single digit, low double digit. I mean we're not talking about being up 50%, 75%. I think companies are still going to be careful in terms of their cost structure and their investment levels. So the market feels -- don't get me wrong, the market feels a lot better to us. And just like we were confident coming into 2017 that we could move the ACV to a flat level, we feel good about the ability to grow ACV. But I think from our perspective, it's too early to call a high single-digit grower at this point.

[Operator:]

And our next question comes from Anj Singh of Crédit Suisse.

[Anjaneya Singh:]

On CMS, I know there's a lot of opportunity to improve the performance of that segment, and you're guiding to growth in '18 that's basically in line with your longer-term view. But how should we be thinking about the margin performance in '18 there? Anything you'd call out with regard to drivers of margin improvement in that business that you're excited about?

[Lance Uggla:]

Right. I think there's two pieces to that. I'm just going to talk about the business performance and the teams leading that, and then I'll hand it to Todd on the specific margin question. So Jonathan Gear has worked hard to put in place a very strong leadership around both product design and our parts business, which is led by Chad Hawkinson and his team. And we've -- Ian Weightman, he's taking full responsibility for our technology businesses, which includes the tech and RootMetrics. We feel the dynamics, first of all, in product design. Workbench 2.0 was fully implemented this year, 100% client takeup, and it gives us a great opportunity as we'll release Workbench 3.0 this year to continue to expand services to grow existing revenue, albeit not at the highest margin in this business, but a good, strong improving position for us. So we're pleased about that. And then technology, our view is, is that we've underperformed historically in a growth market, and this is a year we start marching back towards mid-single digits and get in line with the rest of the marketplace. So I feel good about the business deep dives, the reorganization and the positioning for better growth in 2018. Todd, do you want to add something on the margin?

[Todd Hyatt:]

Yes. The two specific things on margin, one is the -- we've talked about, in the past, the TMT product consolidation, so significant reduction in the number of products. We've really moved that business from a one-off report sale to larger, stickier subscription offering. So we do see that having the ability to benefit margin. And then the other, which Lance talked about, the Engineering Workbench. It is about providing proprietary functionality to customers, which enhance the value that we bring to the table with the specs and standards customers. And I do think that provides ability to upsell and drive margin.

[Operator:]

And our next question comes from the line of Alex Kramm with UBS.

[Alex Kramm:]

Todd, I think this one is for you, on the revenue guidance. You made this comment, I think, in your prepared remarks that you exited the year at a higher rate and that, therefore -- or higher base and, therefore, you're bringing up the guidance. If I look at my numbers and, in particular, FX, I think you had $10 million in FX included in your guidance before. If my math is right, I think $30 million should be -- there should be an incremental $30 million just in terms of where the pound and the euro are running. So is the guidance upside really just FX? Or is there anything else you would call out? And by the way, if it's FX, if you're using $30 million for the low end and $20 million for the high end, so why a different number? So maybe just flush out all the components, including FX.

[Todd Hyatt:]

Yes. We don't update for FX quarter after quarter after quarter. I mean, I think FX was a positive in Q4. We'll see where rates land, but really, the guidance update on revenue really recognize the over-performance on the organic level in Q4 flowing through to 2018. And as we go through the year, we'll call out FX commentary and update accordingly, but at this point, we haven't wend in and changed all the numbers for exchange. We will monitor it as we go through the year.

[Operator:]

And our next question comes from Jeff Meuler of Baird.

[Jeffrey Meuler:]

Let me help Manav, cleaning up for what I think was part D of his question. Just, Lance, you were talking about blockchain several years ago, before, I guess, it was cool. So I guess, any update on where are you? Is it still proof of concept? Is it commercialized at this point for you? And just how big of an opportunity can it be?

[Lance Uggla:]

Right. Well, I think blockchain is an important new technology, a distributed ledger technology and, in general, has been an important advance in terms of ownership changes of assets. And so we process derivatives, we process loans, FX, and therefore, our teams need to be well informed and active users of all new technologies. And so under Adam Kansler and Brad Levy, in our processing businesses, we've executed with industry several proof of concepts. We have our proof of concept in and around our loan processing called Stacks, recently called out in a few -- Seeking Alpha picked up on that a week or so ago. And we have a great team that has leveraged the technology to position us well. If and so the market participants see a desired shift to those new technologies and can afford the implementation costs of those new technologies and improve the ownership transference of assets, then IHS Markit is well positioned to participate and share in the upsides of those changes.

[Operator:]

And our next question comes from Jeff Silber of BMO Capital Markets.

[Jeffrey Silber:]

Just wanted to follow up on an earlier question about a little bit more granularily -- granularity, excuse me, in the revenue guidance for this year. Was there any specific segment that maybe caused you to increase your guidance? And then also, why didn't the adjusted EBITDA guidance change? Are you just being conservative?

[Todd Hyatt:]

When we look across, I would say nothing specific at the segment level. The color is materially the same color that we provided in November. As we look at ensuring that we're investing at an appropriate level to continue to grow the business, we look at delivery of margin to the bottom line. We think that this is the right balance, and we think it's the right balance that allows us to manage the business effectively, not only for 2018 but into the future. So that was ultimately a call that Lance and I made relative to the margin, and we think that what we've guided to is a robust level of margin and certainly an acceptable level to be at.

[Operator:]

And our next question comes from George Tong of Goldman Sachs.

[George Tong:]

Lance, you had indicated $35 million of run-rate revenue synergy expectations in 2018. Can you provide an update on the progress of your cross-selling initiatives, including how your pipeline and close rates are progressing as well as your latest revenue synergy expectations for fiscal 2019?

[Lance Uggla:]

Right. Okay. Thanks, George. So when we started out -- I guess we put a few numbers out at the time of the merger. One of the key numbers for 2017 was to achieve $10 million and the $10 million to achieve within year. We actually ended the year at a $12 million run rate, so I think the team did a great job. Probably a little bit slower start than at the merger, but what was very nice to see was the buildup of the pipeline, the opportunity sets and the pace -- the growing pace every single quarter of actual revenue closes. So no quarter had been less than the previous quarter. So I think the dynamics around the revenue synergies were very good, and the momentum is excellent. We also reaffirmed that we felt -- the $100 million exit at the end of 2019 run rate, we've emphasized several times that, that is a good number, and we continue to work towards it. So that brings about 2018, which we originally had said that we would be about $35 million in revenue synergies for 2018. And today, I said that we felt $35 million run rate exiting '18 is a good number and the pace of the pipeline and the closing of the current opportunities supports that very well. And I have to say it's been one of the most pleasing parts of our merger, is that we executed on the cost side but we're getting the revenue flow-through and the revenue opportunities. We've set up the new account management structure. It took us a little bit longer. Everything takes longer than what you think, but we now have that in place. Mark Rose is leading our global account management strategy across corporates. And it's really been the financial markets account managers that have been driving the hundreds of now pipeline opportunities, and hundreds is number of opportunities, of pipeline opportunities from financial markets. But equally, we've been growing the corporate side. And with the newly invested account management team across large corporates, we feel that we're poised to deliver the $35 million exit run rate this year, and we're on track for the $100 million run rate at the end of '19.

[Operator:]

And our next question comes from Joseph Foresi of Cantor Fitzgerald.

[Michael Reid:]

This is Mike Reid on for Joe. So with the cost synergies tied up already, is there any upside to that $125 million? And if so, how much? And where do you think that would come from?

[Lance Uggla:]

What we said today is that we have the $125 million in hand and had exceeded it and that we'll continue to take remaining cost synergies from the merger, consolidation of remaining offices, et cetera. And so we have some more, and we're also going to use the cost synergies to continue to invest in our initiatives to drive short-, mid- and long-term revenue growth.

[Operator:]

And our next question comes from David Ridley-Lane of Bank of America.

[David Ridley-Lane:]

Sure. Based on the already signed MiFID-related contracts you have, what's the expected revenue contribution from those products and solutions in fiscal '18? And then are you still signing contracts today? Or have those bookings really slowed already?

[Lance Uggla:]

No. Well, actually, the marketplace was given a few extra months to get fully in place with these new regulations, and we see 2018 as to be additive to our revenue within our information group. The team has done a good job, and we put ourselves in a good position in and around MiFID II regulations. We've got GDPR regulation in terms of implementation this year, where we have product offerings. We don't break out and disclose the individual revenue in and around MiFID, but it is a positive for our business.

[Operator:]

And our next question comes from Shlomo Rosenbaum of Stifel.

[Shlomo Rosenbaum:]

I want to also add my congratulations to Jerre on his retirement. And Lance, just wanted to tell you better change the locks because he has a way of keeping on coming back.

[Lance Uggla:]

We'll welcome that.

[Shlomo Rosenbaum:]

I want to focus a little bit more on just automotiveMastermind. It seems like, one quarter out of the box, you're already showing the incremental expenses for, frankly, outperformance on the payments. Can you talk about what the outperformance was on the revenue? Just give us like the dollar in the quarter and what you're seeing. And then also, it seems like there's a drag from the EBITDA of about $5.5 million -- $5.7 million. And when does -- when do you expect that to start to be a contributor to EBITDA overall?

[Todd Hyatt:]

Yes. The original agreement provided for a holdback that was tied to December revenue, January dealer count, and the business performed well. And so our estimate is that the business will deliver to that earn-out. That was always part of the original agreement. And basically, I think, in a high growth business like this, as we look at the plan and as we were negotiating the agreement, we agreed an amount, but then there was a holdback tied to the delivery of the performance. I don't know where the -- you're getting the $5 million. I mean, basically, what we said was AMM is a slight negative adjusted EBITDA when we acquired the business. Think of that in terms of single-digit percent. And the business delivered $10 million of revenue in October, November in the acquisitive revenue. So there's a negative $1 million of EBITDA rolling through. For next year, we've talked about a revenue target of $80 million and a low single-digit adjusted EBITDA percent, and then we see that moving into the 20% -- mid-20s as we go into 2019.

[Operator:]

And our next question comes from Hamzah Mazari of Macquarie Capital.

[Hamzah Mazari:]

My question is on tax reform. I was hoping you could touch on any impact from tax reform on the cash side. I know you talked about the book impact. And then also linked to that, any early conversations with your customers whether tax savings could lead to an uptick in spending with you as you look across your various verticals?

[Todd Hyatt:]

Well, from a cash perspective, there are really going to be several things. One is a lower ETR will flow through to tax -- or to cash. So we said our ETR is going to benefit by 2% from an adjusted perspective. The other cash impact will be the repatriation tax, which we'll report at the end of Q1. It's payable over eight years. We see that as being a -- not a significant negative cash impact in 2019 to make the first payment. And then sort of the theoretical impact is the deferred tax liability and the revaluation of that, but that will be well into future years, where we would see a benefit on that versus prior tax.

[Lance Uggla:]

Good. Thanks, Todd. And on the customer side, of course, as we read in the press, there's groups of corporates and financial institutions, some winners, some losers depending on how they are headquartered and how they're situated today. And in general, I think we would say that there'll be some positive outcomes for many of our customers, and we'll look to take that positive environment to be positive tailwinds for us.

[Operator:]

And our next question comes from Toni Kaplan of Morgan Stanley.

[Toni Kaplan:]

I was hoping that, Lance, you could elaborate just a little bit further on 10% organic info growth. You mentioned the strength in ETFs and bond pricing. I think of indices as sort of pretty recurring just given that like when the net asset value is up, it doesn't reset. And bond pricing, I'm not totally sure if you look at it more transactional or recurring. But I'm just trying to think of why info wouldn't be higher than the typical 4% to 6% in 2018.

[Lance Uggla:]

Yes. Thanks, Toni. So I guess it's the mantra that we've taken with the information services group since the original -- the premerger company right through the divisional performance within IHS Markit. And we've looked at ourselves as having a very defensible, diversified set of information processing and solutions that can drive 5% to 7%. And as I said, eight years running, that number has really kind of been 4% to 9%. So I think the stability in the delivery of that 4% to 9% is very well supported and supported historically, and we confirm that we feel that's a good way to look at us going forward. So why do we have that when you have such a strong quarter? And of course, sometimes, all parts add up and deliver to a positive outcome, and Q4 was one of those outcomes. And -- but we still -- the underlying businesses, we have some really, really great products, great products that are well matured in their marketplaces. So your main growth with those products comes from price. You've got a market-leading product, people want the product, there isn't substantive new market entrants to pick up the product, and therefore, your growth in that is price. And price is low single digits that's applied to a three-year contract, and therefore, expect on that part of our business low single-digit growth. So that's the first part. That's good news that we've got that position, bad news that, that type of position doesn't deliver you high single-digit growth. The second bit is we have great positions where we're growing the customer base, adding new products and delivering into key market momentums. Indices is a perfect example of that; bond pricing, a perfect example of that, where big addressable markets where we have a great product and the dynamics lead to high single-digit or low double-digit growth. We have then always been innovators. To -- when you think about the Financial Services, this is a company that started 2003. It's 13 years old. It generated, whatever it is now, $7 billion, $8 billion of market cap over that period of time. It's done that by being innovative, designing, developing and implementing new products and solutions for financial markets that when you launch them, of course, they only have costs, they are a drag on overall revenue growth. As they come online, they move into strong double-digit growth, and then over time, they mature. So I think we really do have a very good approach to describing that revenue to our shareholders, to managing that revenue and expense and margin expansion for the company and our shareholders. And I think that, that conservative, committed approach to that is one that holds the company in good stead, and we'll continue to do that. This is the last question, I think.

[Operator:]

That concludes our question-and-answer session for today.

[Lance Uggla:]

Okay. Good. Thank you very much. Eric?

[Eric Boyer:]

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, conference ID 8761549 beginning in about 2 hours and running through January 23, 2018. In addition, the webcast will be archived for 1 year on our website at www.ihsmarkit.com. Thank you, and we appreciate your interest and time.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.