IHS Inc. Reports Third Quarter 2012 Results

IHS Inc. Reports Third Quarter 2012 Results

  • Quarterly revenue of $386 million, up 14%

  • 5% organic revenue growth rate overall, including 8% for subscription-based business

  • Adjusted EBITDA of $121 million, up 21%, representing 31.4% of revenue for the quarter

  • EPS of $0.66, up 6%, and Adjusted EPS of $0.99, up 14%, for the quarter

ENGLEWOOD, Colo.--(BUSINESS WIRE)-- IHS Inc. (NYS: IHS) , the leading global source of information and analytics, today reported results for the third quarter ended August 31, 2012. Revenue for the third quarter of 2012 totaled $386 million, a 14 percent increase over third quarter 2011 revenue of $339 million. Net income for the third quarter of 2012 was $44 million, or $0.66 per diluted share, compared to third quarter 2011 net income of $41 million, or $0.62 per diluted share.

Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) totaled $121 million for the third quarter of 2012, up 21 percent from $100 million in the third quarter of 2011. Adjusted earnings per diluted share were $0.99 for the third quarter of 2012, an increase of 14 percent over the prior-year period. Adjusted EBITDA and Adjusted earnings per share are non-GAAP (Generally Accepted Accounting Principles) financial measures used by management to measure operating performance. Please see the end of this release for more information about these non-GAAP measures.


"Our growth remains well above economic growth rates in each of our end markets, but below our expectations," said Jerre Stead, IHS chairman and chief executive officer. "Although our subscription business remained strong, growing at eight percent organically for the seventh consecutive quarter, our non-subscription business experienced weakness as customers put capital decisions on hold in these uncertain environments."

Added Stead: "We continue to move quickly to deploy new systems and processes across every aspect of our business to capture scale efficiencies and to enhance the effectiveness of our global sales force. These important investments will enable us to provide future organic growth, margin expansion and increasing free cash flow as we realize related benefits over the next four quarters and into 2014."

Third Quarter 2012 Details

Revenue for the third quarter of 2012 totaled $386 million, a 14 percent increase over third-quarter 2011 revenue of $339 million. The revenue increase was driven by five percent organic growth and 11 percent acquisitive growth, with a negative two percent foreign currency impact. The subscription-based business grew eight percent organically and represented 76 percent of total revenue.

Three Months Ended August 31,

Absolute

Organic

Nine Months Ended August 31,

Absolute

Organic

2012

2011

% change

% change

2012

2011

% change

% change

Subscription revenue

$

294,516

$

263,916

12

%

8

%

$

855,160

$

747,907

14

%

8

%

Non-subscription revenue

91,093

74,802

22

%

(5

)%

260,351

207,075

26

%

(4

)%

Total revenue

$

385,609

$

338,718

14

%

5

%

$

1,115,511

$

954,982

17

%

5

%

The company continued to grow its business overall in all three of its operating regions. The Americas segment increased its revenue during the third quarter by $27 million, or 13 percent, to $232 million. The EMEA segment grew its third quarter revenue by $13 million, or 13 percent, to $109 million. The APAC segment's revenue was up $8 million, or 21 percent, to $45 million.

Adjusted EBITDA for the third quarter of 2012 was $121 million, up $21 million, or 21 percent, over the prior-year period. Operating income increased $5 million, or nine percent, to $56 million. Americas' operating income increased $13 million, or 22 percent, to $70 million. EMEA's operating income was up $6 million, or 30 percent, to $25 million. APAC's operating income decreased $1 million, or eight percent, to $10 million.

"Although customers rely heavily on our information and insight in uncertain economic environments, we are not immune to discretionary decision-making in the face of uncertain markets that materially impact business spending," said Scott Key, IHS president and chief operating officer. "However, we remain confident in the fundamentals of our business and our ability to achieve our long-term aspirations. We are focused on executing to deliver our full potential in any economic environment, ensuring IHS is delivering performance and value well above market levels on a consistent basis."

Year-to-Date 2012

Revenue for the nine months ended August 31, 2012, increased $161 million, or 17 percent, to $1.12 billion. Organic revenue growth was five percent overall and eight percent for the subscription-based portion of the business. Acquisitions added 13 percent, with a negative one percent foreign currency impact during the first nine months of 2012. The Americas segment grew its revenue during the nine months ended August 31, 2012, by $90 million, or 15 percent, to $670 million. The EMEA segment increased its year-to-date 2012 revenue by $46 million, or 17 percent, to $321 million. The APAC segment increased its revenue by $25 million, or 25 percent, to $124 million during the first nine months of 2012.

Adjusted EBITDA for year-to-date 2012 increased $64 million, or 23 percent, to $345 million. Operating income increased $6 million, or four percent, year-over-year to $152 million. Americas' operating income was $190 million, up $29 million, or 18 percent, over the prior-year period. EMEA grew its year-to-date 2012 operating income to $70 million, up $14 million, or 26 percent, over the same period of 2011. APAC's operating income was $29 million, an increase of $0.5 million, or two percent, over last year.

Net income for the nine months ended August 31, 2012 decreased $1 million, or one percent, to $112 million, or $1.68 per diluted share.

Cash Flows

Excluding a $57 million pension funding contribution, IHS generated $303 million of cash flow from operations during the nine months ended August 31, 2012, representing a 20 percent increase over last year's $253 million. On a trailing twelve-month basis, our conversion of Adjusted EBITDA to adjusted free cash flow was 72 percent.

Balance Sheet

IHS ended the third quarter of 2012 with $298 million of cash and cash equivalents and $1.01 billion of debt.

"We recently increased our credit facility by $500 million, moving from $1.3 billion to $1.8 billion of total borrowing capacity," said Richard Walker, IHS executive vice president and chief financial officer. "While these actions did not increase our outstanding debt, we have increased our current available borrowing capacity to $750 million to support continued acquisitions and strategic investment."

Outlook (forward-looking statement)

For the year ending November 30, 2012, IHS is revising guidance and expects:

  • All-in revenue in a range of $1.515 to $1.535 billion, including an organic growth rate of approximately eight percent for the portion of the business that is subscription-based

  • All-in Adjusted EBITDA in a range of $480 to $490 million

  • Adjusted EPS between $3.77 and $3.89

The above outlook assumes no further currency movements, acquisitions, pension mark-to-market adjustments or unanticipated events.

See discussion of Adjusted EBITDA and non-GAAP financial measures at the end of this release.

As previously announced, IHS will hold a conference call to discuss third quarter 2012 results on September 20, 2012, at 8:00 a.m. EDT. The conference call will be simultaneously webcast on the company's website: www.ihs.com.

Use of Non-GAAP Financial Measures

Non-GAAP results are presented only as a supplement to the financial statements based on U.S. generally accepted accounting principles (GAAP). The non-GAAP financial information is provided to enhance the reader's understanding of our financial performance, but no non-GAAP measure should be considered in isolation or as a substitute for financial measures calculated in accordance with GAAP. Reconciliations of the most directly comparable GAAP measures to non-GAAP measures, such as Adjusted EBITDA and Adjusted earnings per diluted share, are provided within the schedules attached to this release.

EBITDA is defined as net income plus or minus net interest plus income taxes, depreciation and amortization. Adjusted EBITDA further excludes (i) non-cash items (e.g., stock-based compensation expense and non-cash pension and postretirement expense) and (ii) items that management does not consider to be useful in assessing our operating performance (e.g., acquisition-related costs, restructuring charges, income or loss from discontinued operations, pension settlement and mark-to-market adjustments, and gain or loss on sale of assets). Adjusted earnings per diluted share exclude similar items as Adjusted EBITDA. None of these non-GAAP financial measures are recognized terms under GAAP and do not purport to be an alternative to net income as an indicator of operating performance or any other GAAP measure.

Management uses these non-GAAP measures in its operational and financial decision-making, believing that it is useful to eliminate certain items in order to focus on what it deems to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations. As a result, internal management reports used during monthly operating reviews feature the Adjusted EBITDA and Adjusted earnings per diluted share metrics. Management also believes that investors may find non-GAAP financial measures useful for the same reasons, although investors are cautioned that non-GAAP financial measures are not a substitute for GAAP disclosures. EBITDA, Adjusted EBITDA, and Adjusted earnings per diluted share are also used by many of our investors, research analysts, investment bankers, and lenders to assess our operating performance. For example, a measure similar to Adjusted EBITDA is required by the lenders under our term loan and revolving credit agreement.

Because not all companies use identical calculations, our presentation of non-GAAP financial measures may not be comparable to other similarly-titled measures of other companies. However, these measures can still be useful in evaluating our performance against our peer companies because management believes the measures provide users with valuable insight into key components of GAAP financial disclosures. For example, a company with greater GAAP net income may not be as appealing to investors if its net income is more heavily comprised of gains on asset sales. Likewise, eliminating the effects of interest income and expense moderates the impact of a company's capital structure on its performance.

All of the items included in the reconciliation from net income to Adjusted EBITDA are either (i) non-cash items (e.g., depreciation and amortization, stock-based compensation, non-cash pension and postretirement expense) or (ii) items that we do not consider to be useful in assessing our operating performance (e.g., income taxes, acquisition-related costs, restructuring charges, income or loss from discontinued operations, and gain or loss on sale of assets). In the case of the non-cash items, management believes that investors can better assess our operating performance if the measures are presented without such items because, unlike cash expenses, these adjustments do not affect our ability to generate free cash flow or invest in our business. For example, by eliminating depreciation and amortization from EBITDA, users can compare operating performance without regard to different accounting determinations such as useful life. In the case of the other items, management believes that investors can better assess operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.

IHS Forward-Looking Statements:

This release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. Such statements may include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. Forward-looking statements are generally identified by the words "expect," "anticipate," "believe," "intend," "estimate," "plan" and similar expressions. Although IHS and its management believe that the expectations reflected in such forward-looking statements are reasonable, investors are cautioned that forward-looking information and statements are subject to various risks and uncertainties - many of which are difficult to predict and generally beyond the control of IHS - that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed or identified by IHS from time to time in its public filings. Other than as required by applicable law, IHS does not undertake any obligation to update or revise any forward-looking information or statements. Please consult our public filings at www.sec.gov or www.ihs.com.

About IHS Inc. (www.ihs.com)

IHS (NYS: IHS) is the leading source of information, insight and analytics in critical areas that shape today's business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959, incorporated in the State of Delaware in 1994, and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS employs more than 6,000 people in more than 30 countries around the world.

IHS is a registered trademark of IHS Inc. All other company and product names may be trademarks of their respective owners.

© 2012 IHS Inc. All rights reserved.

IHS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per-share amounts)

As of

As of

August 31, 2012

November 30, 2011

(Unaudited)

(Audited)

Assets

Current assets:

Cash and cash equivalents

$

298,433

$

234,685

Accounts receivable, net

289,548

326,009

Income tax receivable

19,932

25,194

Deferred subscription costs

45,229

43,136

Deferred income taxes

53,026

45,253

Other

27,924

23,801

Total current assets

734,092

698,078

Non-current assets:

Property and equipment, net

157,995

128,418

Intangible assets, net

578,597

514,949

Goodwill, net

1,959,663

1,722,312

Prepaid pension asset

9,042

Other

8,783

9,280

Total non-current assets

2,714,080

2,374,959

Total assets

$

3,448,172

$

3,073,037

Liabilities and stockholders' equity

Current liabilities:

Short-term debt

$

170,208

$

144,563

Accounts payable

36,795

32,428

Accrued compensation

45,140

57,516

Accrued royalties

19,101

26,178

Other accrued expenses

67,138

69,000

Deferred revenue

516,188

487,172

Total current liabilities

854,570

816,857

Long-term debt

837,503

658,911

Accrued pension liability

7,672

59,460

Accrued postretirement benefits

9,006

9,200

Deferred income taxes

148,234

123,895

Other liabilities

22,548

19,985

Commitments and contingencies

Stockholders' equity:

Class A common stock, $0.01 par value per share, 160,000,000 shares authorized, 67,621,367 and 67,527,344 shares issued, and 65,937,011 and 65,121,884 shares outstanding at August 31, 2012 and November 30, 2011, respectively

676

675

Additional paid-in capital

671,378

636,440

Treasury stock, at cost: 1,684,356 and 2,405,460 shares at August 31, 2012 and November 30, 2011, respectively

(101,711

)

(133,803

)

Retained earnings

1,042,367

930,619

Accumulated other comprehensive loss

(44,071

)

(49,202

)

Total stockholders' equity

1,568,639

1,384,729

Total liabilities and stockholders' equity

$

3,448,172

$

3,073,037

IHS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per-share amounts)

(Unaudited)

Three Months Ended August 31,

Nine Months Ended August 31,

2012

2011

2012

2011

Revenue:

Products

$

339,946

$

295,328

$

964,444

$

832,006

Services

45,663

43,390

151,067

122,976

Total revenue

385,609

338,718

1,115,511

954,982

Operating expenses:

Cost of revenue:

Products

132,577

120,638

392,931

343,437

Services

21,169

23,376

72,676

68,448

Total cost of revenue (includes stock-based compensation expense of $1,488; $854; $4,467 and $2,638 for the three and nine months ended August 31, 2012 and 2011, respectively)

153,746

144,014

465,607

411,885

Selling, general and administrative (includes stock-based compensation expense of $29,050; $21,570; $86,465 and $61,175 for the three and nine months ended August 31, 2012 and 2011, respectively)

138,519

117,352

390,540

324,792

Depreciation and amortization

31,390

23,496

86,683

62,411

Restructuring charges

967

12,080

702

Acquisition-related costs

2,104

1,540

3,472

6,089

Net periodic pension and postretirement expense

2,001

835

5,998

2,383

Other expense (income), net

622

(197

)

(680

)

416

Total operating expenses

329,349

287,040

963,700

808,678

Operating income

56,260

51,678

151,811

146,304

Interest income

255

163

674

654

Interest expense

(5,057

)

(2,967

)

(14,837

)

(6,774

)

Non-operating expense, net

(4,802

)

(2,804

)

(14,163

)

(6,120

)

Income from continuing operations before income taxes

51,458

48,874

137,648

140,184

Provision for income taxes

(7,384

)

(8,183

)

(25,908

)

(27,951

)

Income from continuing operations

44,074

40,691

111,740

112,233

Income from discontinued operations, net

8

118

8

454

Net income

$

44,082

$

40,809

$

111,748

$

112,687

Basic earnings per share:

Income from continuing operations

$

0.67

$

0.63

$

1.70

$