IHS Inc. Reports Second Quarter 2013 Results

ENGLEWOOD, Colo.--(BUSINESS WIRE)-- IHS Inc. (NYS: IHS) , the leading global source of information and analytics, today reported results for the second quarter ended May 31, 2013.

  • Revenue of $418 million, up eight percent from the prior-year period
  • Organic revenue growth rate of three percent overall, including six percent for subscription-based business
  • Adjusted EBITDA of $130 million, or 31.1 percent of revenue
  • Adjusted earnings per diluted share (adjusted EPS) of $1.04, up seven percent from the prior-year period
  • Free cash flow of $219 million year-to-date, up 49 percent from the prior-year period

Adjusted EBITDA, adjusted EPS, and free cash flow are non-GAAP financial measures used by management to measure operating performance. These terms are defined elsewhere in this release. Please see schedules appearing later in this release for reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures.


Second Quarter and Year-to-Date 2013 Financial Performance

  Three months ended May 31,   Change   Six months ended May 31,   Change
(in thousands, except percentages and per share data) 2013   2012 $   % 2013   2012 $   %
Revenue $ 418,143 $ 387,159 $ 30,984 8 % $ 800,668 $ 729,902 $ 70,766 10 %
 
Net income $ 42,890 $ 44,191 $ (1,301 ) (3 )% $ 67,561 $ 67,666 $ (105 ) %
Adjusted EBITDA $ 130,156 $ 120,086 $ 10,070 8 % $ 248,350 $ 223,719 $ 24,631 11 %
 
GAAP EPS $ 0.65 $ 0.66 $ (0.01 ) (2 )% $ 1.01 $ 1.02 $ (0.01 ) (1 )%
Adjusted EPS $ 1.04 $ 0.97 $ 0.07 7 % $ 1.90 $ 1.73 $ 0.17 10 %
 
Cash flow from operations $ 129,480 $ 145,191 $ (15,711 ) (11 )% $ 261,166 $ 178,174 $ 82,992 47 %
Free cash flow $ 106,411 $ 127,073 $ (20,662 ) (16 )% $ 218,730 $ 146,500 $ 72,230 49 %
 

"We achieved our second quarter adjusted earnings per share target in spite of difficult global economic headwinds, and our margins continued to expand despite the adverse impact from recent acquisitions and certain discrete items, which has us trending lower in some of our guidance ranges," said Scott Key, IHS president and chief executive officer. "In addition, we realized strong growth in free cash flow for the first half of 2013 for this key performance metric and driver of shareholder value creation."

Second Quarter and Year-to-Date 2013 Revenue Performance

Second quarter 2013 revenue increased eight percent compared to the second quarter of 2012, and year-to-date 2013 revenue increased 10 percent compared to the same period of 2012. The components of revenue growth for these periods are described below by segment and in total.

  Increase in revenue
Second quarter 2013 vs. second quarter 2012   Year-to-date 2013 vs. year-to-date 2012
(All amounts represent percentage points) Organic   Acquisitive   Foreign

Currency

Organic   Acquisitive   Foreign

Currency

Americas 3 % 9 % % 3 % 8 % %
EMEA (1 )% 3 % (2 )% 1 % 4 % (1 )%
APAC 10 % 2 % (1 )% 12 % 4 % (1 )%
Total 3 % 7 % (1 )% 4 % 7 % %
 

The subscription-based business grew six percent organically compared to the second quarter of 2012, as described in the following table.

  Three months ended May 31,   Percent change   Six months ended May 31,   Percent change
(in thousands, except percentages)   2013   2012 Total   Organic 2013   2012 Total   Organic
Subscription revenue $ 313,923 $ 287,254 9 % 6 % $ 621,650 $ 560,644 11 % 7 %
Non-subscription revenue 104,220   99,905   4 % (6 )% 179,018   169,258   6 % (7 )%
Total revenue $ 418,143   $ 387,159   8 % 3 % $ 800,668   $ 729,902   10 % 4 %
 

Second Quarter and Year-to-Date 2013 Segment Performance

On a consolidated basis, IHS continued to deliver solid profit growth amid difficult economic conditions. At a segment level, EMEA results were negatively impacted by foreign currency movements and slowing revenue growth, and APAC results were adversely impacted by the timing of certain renewals and foreign currency movements, as well as continuing investment in the region's infrastructure to support future growth. Segment results were as follows:

  • Americas. Second quarter revenue for the Americas increased $27 million, or 12 percent, to $258 million. Second quarter adjusted EBITDA for the Americas increased $16 million, or 17 percent, to $108 million. Second quarter operating income for the Americas increased $11 million, or 16 percent, to $80 million.

    Year-to-date revenue for the Americas increased $49 million, or 11 percent, to $487 million. Year-to-date adjusted EBITDA for the Americas increased $30 million, or 17 percent, to $202 million. Year-to-date operating income for the Americas increased $22 million, or 18 percent, to $142 million.
  • EMEA. Second quarter revenue for EMEA decreased $1 million, or one percent, to $113 million. Second quarter adjusted EBITDA for EMEA decreased $5 million, or 15 percent, to $27 million. Second quarter operating income for EMEA was down $4 million, or 15 percent, to $20 million.

    Year-to-date revenue for EMEA increased $9 million, or four percent, to $222 million. Year-to-date adjusted EBITDA for EMEA decreased $6 million, or 10 percent, to $51 million. Year-to-date operating income for EMEA decreased $8 million, or 19 percent, to $36 million.
  • APAC. Second quarter revenue for APAC increased $4 million, or 10 percent, to $48 million. Second quarter adjusted EBITDA for APAC decreased $1 million, or eight percent, to $11 million. Second quarter operating income for APAC decreased $1 million, or 11 percent, to $10 million.

    Year-to-date revenue for APAC increased $12 million, or 15 percent, to $91 million. Year-to-date adjusted EBITDA for APAC increased $1 million, or five percent, to $21 million. Year-to-date operating income for APAC increased $1 million, or three percent, to $20 million.

"Strong performance and operational execution in the Americas was offset by adverse foreign currency movements in EMEA that masked solid execution in the face of continuing economic challenges in the region," said Key. "Foreign currency changes also negatively impacted overall performance in APAC as we continue to invest in the region to fully capture the growth potential."

Outlook (forward-looking statement)

For the year ending November 30, 2013, IHS expects:

  • All-in revenue in a range of $1.660 billion to $1.730 billion, including an overall organic growth rate expected to be between 5-7 percent at the midpoint;
  • All-in adjusted EBITDA in a range of $540 million to $582 million; and
  • Adjusted EPS between $4.23 and $4.43 per diluted share.

The above outlook assumes no adjustment for the R.L. Polk & Co. acquisition announced on June 9, 2013. This guidance also assumes no further currency movements, acquisitions, divestitures, pension mark-to-market adjustments or unanticipated events. See discussion of non-GAAP financial measures at the end of this release.

As previously announced, IHS will hold a conference call to discuss second quarter 2013 results on June 20, 2013, 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, adjusted earnings per diluted share, and free cash flow are provided within the schedules attached to this release.

EBITDA is defined as net income plus or minus net interest, plus provision for income taxes, depreciation and amortization. Adjusted EBITDA further excludes primarily non-cash items and other items that management does not consider to be useful in assessing our operating performance (e.g., stock-based compensation expense, 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, adjusted earnings per diluted share, and free cash flow 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, excluding 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 non-cash items or items that we do not consider to be useful in assessing our operating performance. 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 excluding 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 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs 6,700 people in 31 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.

© 2013 IHS Inc. All rights reserved.

IHS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per-share amounts)
   
As of As of
May 31, 2013 November 30, 2012
(Unaudited) (Audited)
Assets
Current assets:
Cash and cash equivalents $ 267,131 $ 345,008
Accounts receivable, net 350,088 372,117
Income tax receivable 4,655 20,464
Deferred subscription costs 50,874 47,065
Deferred income taxes 50,164 55,084
Other 34,238   24,145  
Total current assets 757,150   863,883  
Non-current assets:
Property and equipment, net 187,474 163,013
Intangible assets, net 562,731 554,552
Goodwill 2,058,516 1,959,223
Other 7,070   8,540  
Total non-current assets 2,815,791   2,685,328  
Total assets $ 3,572,941   $ 3,549,211  
Liabilities and stockholders' equity
Current liabilities:
Short-term debt $ 169,481 $ 170,102
Accounts payable 51,767 52,079
Accrued compensation 25,601 50,497
Accrued royalties 30,514 33,637
Other accrued expenses 69,044 55,304
Deferred revenue 599,635   515,318  
Total current liabilities 946,042 876,937
Long-term debt 839,538 890,922
Accrued pension and postretirement liability 22,632 30,027
Deferred income taxes 122,712 139,235
Other liabilities 29,157 27,732
Commitments and contingencies
Stockholders' equity:
Class A common stock, $0.01 par value per share, 160,000,000 shares authorized, 67,621,367 shares issued, and 65,779,733 and 65,577,530 shares outstanding at May 31, 2013 and November 30, 2012, respectively 676 676
Additional paid-in capital 680,715 681,409
Treasury stock, at cost: 1,841,634 and 2,043,837 shares at May 31, 2013 and November 30, 2012, respectively (145,659 ) (139,821 )
Retained earnings 1,156,348 1,088,787
Accumulated other comprehensive loss (79,220 ) (46,693 )
Total stockholders' equity 1,612,860   1,584,358  
Total liabilities and stockholders' equity $ 3,572,941   $ 3,549,211  
 
IHS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per-share amounts)
(Unaudited)
   
Three months ended May 31, Six months ended May 31,
2013   2012 2013

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