馬基特 (INFO) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the IHS Second Quarter 2020 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Eric Boyer, Senior Vice President of Investor Relations. Thank you. Please go ahead, sir.

Good morning, and thank you for joining us for the IHS Markit Q2 2020 Earnings Conference Call. Earlier this morning, we issued our Q2 earnings press release and posted supplemental materials to the IHS 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 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 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 fillings with the SEC and on the IHS Markit website.

Before we get started, I want to direct your attention to our supplemental slides posted on our IR website which we'll be referencing today.

After our prepared remarks, Lance Uggla, Chairman and CEO; and Jonathan Gear, 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?

Okay. Thank you, Eric, and thank you, everybody, for joining us for the IHS Markit Q2 Earnings Call.

In light of the recent events in the U.S., specifically the murder of George Floyd, I want to say that IHS Markit stands in solidarity with our black colleagues and with all those who face discrimination in our communities around the world. I've learned a lot in the last few weeks and have much more to learn. At IHS Markit, we are committed to inclusivity and equality, will not tolerate any racial prejudice in our workplace, and we'll take aggressive actions in the coming weeks and months to improve diversity and inclusion in our firm and in the communities around us. These actions will not be temporary reactions to current events, but long-term commitments to change.

As expected, Q2 was a challenging quarter due to the COVID pandemic. However, I'm extremely pleased with the way the organization responded and are positioned to deliver results within the scenario ranges we provided on our Q1 call. This includes recurring organic revenue growth, strong margin expansion and double-digit earnings growth on a normalized basis. Through our strong cost management, we have also protected profit against further revenue downside and funded investments for our growth initiatives. A great result in a challenging period, and I personally want to thank my team globally for their hard work and dedication in this new adjusted work model.

For today's financial discussion, when we speak to the normalized results, we are excluding the impact of the aerospace and defense divestiture as well as the events cancellation on growth rates for revenue, EBITDA and EPS.

So let's start with the financial highlights in the quarter. Revenue of $1.08 billion, down 3% on a normalized organic basis. Adjusted EBITDA of $454 million and margin of 44.2%, which is up 320 basis points year-over-year due to strong cost management. And adjusted EPS of $0.69, up 11% over the prior year, again, on a normalized basis.

On our Q1 call, we provided 2020 guidance based upon macro and market recovery assumptions, and we suggested 3 potential scenarios: a Q3, a Q4 and a 2021 recovery. I can say, since our call in Q1 in March, we now have clarity on how our markets and customers are reacting, giving us a lot of confidence in our revenue assumptions. Additionally, our cost actions executed early in the year have given us strong line of sight into adjusted EBITDA and adjusted EPS for the year. As such, we are now comfortable providing a tight guidance range for 2020 revenue, adjusted EBITDA and adjusted EPS.

Now let me provide some segment commentary for our Q2 and rest of the year assumptions. Financial Services provided strong resilience for the firm with Q2 organic growth of 3%. This was achieved with very strong results from information and processing, somewhat offset by temporary slower growth in solutions. Information's key areas of strength included pricing and valuation services, indices and equities information. Within processing, the derivatives business benefited from increased market volatility which led to higher volumes. Solutions was pressured from a hard year-over-year comparison: last year in Q2, it was a 15% quarter; and some services, of course, being delayed through the COVID period in terms of implementation. Going forward, we expect mid- single-digit organic revenue growth for the year with continued strength in information, improving growth in solutions as customers are resuming their normal operations and processing to normalize to pre-COVID volume levels.

Transportation in Q2 reported a normalized organic revenue decline of 16%. Revenue from the used car portion of our auto business was impacted by our voluntary price relief for dealer customers, a pause in new sales activity and some cancellations. Our new car business was negatively impacted around new sales activity and a pause in nonrecurring services around recall and marketing. Our Maritime & Trade business performed as expected.

Our revenue guidance for Transportation is now for a decline of low to mid-single digits for the year. We expect our used car business to benefit as consumer demand continues to improve, and our new car business to be somewhat negatively impacted as customers remain in conservation mode until late second half. Within Maritime & Trade, we assume a gradual improvement over the second half with the shipping industry -- as global trade begins to improve.

Now moving to Resources, which reported a normalized organic revenue decline of 1%. Our downstream organic growth was offset by a challenged upstream environment. The industry remains on pace for global CapEx reductions in the 30% range for the year, in line with our previous expectations. As such, we expect normalized organic revenue growth for the year to be negative low single digits.

CMS organic revenue growth was low single digits, as expected, with strength in product design somewhat offset by weakness in our TMT business. For the year, we continue to expect organic growth in the low single digits, excluding the impact of the boiler, pressure vessel code.

Moving to our cost actions. I have to say I'm very pleased with the speed and level of cost reductions that were achieved. Focusing on both near-term necessities and long-term optimization, we exceeded our initial objectives.

Overall, we're well positioned to deliver solid earnings growth this year and to return to strong organic revenue growth in 2021, which I'll detail after Jonathan goes over our Q2 results. Jonathan.

Great. Thanks, Lance. Q2 results included the following: Revenue of $1.03 billion, organic decline of 7% and total revenue decline of 10%. Normalized organic decline was 3%. Net income of $71 million and a GAAP EPS of $0.18. Adjusted EBITDA of $454 million which is an increase of 9% on a normalized basis with margins of 44.2%. This represents a margin expansion of 320 basis points. And finally, adjusted EPS of $0.69, an increase of 11% on a normalized basis.

Regarding revenue, our Q2 normalized organic decline of 3% included recurring organic growth of 1% and nonrecurring organic decline of 26%. This decline in nonrecurring was primarily driven by a tough year-on-year comp in Financial Services, lower OEM auto activities and lower energy consulting.

Now moving on to segment performance. Our Financial Services segment drove organic growth of 3%, including 6% recurring in the quarter. Information and processing had a strong performances, delivering 7% and 8% organic growth, respectively. While solutions had a 3% organic decline due to a difficult comp to prior year quarter and lower software and consulting delivery driven by COVID delays.

Our Transportation segment delivered normalized organic decline of 16% in the quarter. This included a decline of 10% recurring and a decline of 31% in nonrecurring primarily driven by delayed in digital marketing, recalls and the retail portion of our used car business.

Our Resources segment had 1% organic decline, normalized for events, which is comprised of 1% recurring growth and 15% nonrecurring decline. Q2 organic ACV decreased by $20 million in the quarter, and our trailing 12-month organic ACV is negative 0.7%.

Our CMS segment delivered 2% total growth, including 2% recurring and flat nonrecurring.

Turning now to profits and margins. Our adjusted EBITDA was $454 million, down $11 million versus prior year. Adjusted EBITDA grew 9% on a normalized basis. Our adjusted EBITDA margin was 44.2%, which is up 320 basis points.

Moving to segment profitability. Financial Services adjusted EBITDA was $231 million with a margin of 52.2%, up 470 basis points. Financial Services margin was driven by strong revenue flow-through benefiting from prior year cost reductions and a favorable product mix. We do expect some moderation in Financial Services margin in the second half due to increased investments and a shift in our product mix.

Transportation's adjusted EBITDA was $102 million with a margin of 41.8%, which is down 120 basis points, driven by the dealer pricing concessions which we have discussed. Resources adjusted EBITDA was $96 million with a margin of 43.9%, an increase of 10 basis points. CMS adjusted EBITDA was $35 million with a margin of 29%, up 710 basis points. This large increase was driven by the rationalization of the TMT resources post the divestiture last year and great cost control measures across product design and ECR.

Moving on to adjusted EPS. Our adjusted EPS was $0.69 per diluted share, a decline of $0.02 or 3%, albeit an increase of 11% once normalized for the AD&S divestiture and the events cancellation.

Our GAAP tax rate was 6% and our adjusted tax rate was 18%.

Our Q2 free cash flow was $209 million. As a reminder, our trailing 12-month conversion rate was impacted by several nonrecurring items, and I would call out the following: onetime tax payments in Q4 2019 associated with changes in the U.S. tax provisions; the Q2 settlement of our U.S. and U.K. pension plans; Q1 payroll taxes associated with the exercising of a majority of the remaining outstanding options; and finally, onetime costs associated with our cost-reduction efforts.

Turning to balance sheet. Our Q2 ending debt balance was $5.4 billion, and represented a gross leverage ratio of approximately 3.0x on a bank covenant basis, 2.9x net of cash, which is in line with the top end of our capital policy. We continue to manage our balance sheet to provide liquidity and flexibility in this environment. We closed the quarter with $208 million of cash and our Q2 undrawn revolver balance was approximately $750 million, representing a great liquidity position.

In Q2, we closed a very small acquisition that expands our derivatives processing capabilities within APAC and made a small investment in an AI-based retail fuel pricing solution. In June, we also divested our small product teardown business within TMT.

Our Q2 weighted average diluted share count was 400 million shares. We repurchased $252 million of shares in the quarter, including completing our $250 million Q2 ASR at an average price of $62.20. Year-to-date share repurchase is $862 million. We expect to return to share buybacks later this year or early next year while maintaining our capital policy of operating within the 2.0 to 3.0x gross leverage range.

Moving on to guidance. As Lance stated, we entered the second half with strong visibility to revenues and a very clear line of sight to earnings. Based on this, we are comfortable providing a tighter guidance range which assumes no additional major lock-ins. Our full year guidance is as follows. Revenue of $4.28 billion to $4.30 billion, this represents an organic growth rate normalized for the year of between 0% and 1%. Adjusted EBITDA of $1.825 billion to $1.835 billion, this represents a margin of 42.7%. Adjusted EPS of $2.76 to $2.78, representing 10% year-on-year growth. And we expect free cash flow to run at 50% of adjusted EBITDA.

And now I'll turn the call back to Lance to go through our outlook for 2021.

Okay. Thanks, Jonathan. I feel very confident in our 2020 guidance as shown by the tight ranges that Jonathan just provided you. Looking forward to 2021, I want to once again break with the traditional practice and actually give you a deep insight into our 2021 planning forecast. We'll look to tighten these ranges as we enter 2021. And our starting point for 2021 is that we're going to have a gradual global economic recovery, no further major lock-ins. And by major lock-ins, complete world shutting down as we've seen in Q2. There may be small, regional lock-ins like we've recently seen in Beijing, but they will be well-managed. And very conservative events revenue.

Okay. So top line, we expect organic revenue growth next year of 7% to 9%, which includes the following assumptions by segment. So first, Financial Services revenues will return to its longer-term organic revenue growth range of 6% to 8%. Strength will continue in information. We'll return to our high single-digit growth in solutions, which is well supported by a strong backlog and pipeline of orders. And processing revenues moderate back to more normal levels.

Transportation, we're expecting to grow in the range of 14% to 16%. Now this sounds high, but this is well supported by our usual growth of high single digits, plus a favorable year-over-year benefit due to 2020 dealer price concessions that were made and the resumption of a more normalized OEM service level.

In Resources, we expect organic revenue growth to be in a range of down 2% to up 2%. And this is assuming continued downstream strength, which we're seeing on a growing portion of our energies division, offset by weakness in upstream as a result of lower 2020 bookings being fully reflected in our annual recurring revenue.

And then finally, CMS, which has actually done a great job post-merger, is now expected to maintain itself in mid-single-digit organic growth range.

Okay. Let's take a look at EBITDA. Here, the team's done a lot of work in this COVID period, but we still expect approximately 100 basis points of margin expansion next year. This will put us within the mid-40s range solidly that we set as our intermediate goal when announced in the merger. And we remain confident, from this range of margin, in our ability to continue margin expansion going forward. Some of this has come from the illuminated additional opportunities for margin expansion that we've witnessed through the COVID period and working from home.

And finally, we expect adjusted EPS growth in 2021 to be in the 13% to 15% range. And that's 10% to 12% when normalized for the impact of events. So make sure you think about the events and that impact, and that puts us solidly into our 10% to 12% range. But next year, we'll be 13% to 15% with the -- without the -- without you normalizing the events.

Now as in our 2020 forecast provided on our Q1 call, we are also providing an expected floor to our 2021 forecast. So how are we thinking about the downside to that 7% to 9% scenario? The floor accounts for a potential second lockdown that would be similar in magnitude to the one just experienced. In this instance, our organic revenue growth would be approximately 5%. So we'd see an adjustment, and that's really about automotive lockdown. And adjusted EPS growth would be in the high single digits. And that combination of revenue and expense marriage in automotive around a lockdown is now well understood through Q2.

In conclusion, we've made tough decisions to protect our earnings growth during this challenging period, which I'm pleased the team have done an excellent job on. And we've created capacity to invest in substantive opportunities that will enable us to deliver within our longer-term organic revenue range of 5% to 7% for the continuing years to come. While the world still faces uncertainty, we'll continue to provide unparalleled transparency into how we're managing the business to help you, as shareholders, navigate these challenging investment times. We're firmly positioned to deliver strong results through this uncertainty, demonstrated by our 2020 tight guidance range that Jonathan provided and the outlook for even stronger performance in 2021.

Operator, we're ready to open the lines for questions.

(Operator Instructions) Our first question comes from Gary Bisbee with Bank of America Securities.

I guess I'm going to try to sneak in a 2-parter here on Transportation. The first part, just how are you seeing the business trend in recent weeks as we're seeing the reopenings begin to flow through? And I would expect impacted dealerships.

And the second part, there's been a lot of discussion in the press about auto sales moving online or a lot of the process for dealers moving online. I guess, just any thoughts on how your portfolio is impacted or plays in that transition if we see this continue, both new and/or used cars seeing more of the process going online.

Okay. Great. Yes. No, good question. I've got my management team with me on today. So Edouard Tavernier runs all Transportations on. And I'll let Edouard take that, and I'll add to it if needed. Edouard?

Great. Thank you, Lance, and thanks, Gary, for the question. So I'll take your 2-parter. On the first part, obviously, we saw a strong drop-off in activity in late March which lasted through end of April. But since late April, we have seen, as you suggested, an earlier-than-expected recovery in both used car sales and new car sales. At this point in time, the used car sales market is solid. The outlook remains solid for the rest of the year. There's a little bit of pent-up demand that's supporting us, but we have seen a corresponding increase in the volume of activity at CARFAX in particular.

In the new car market, whilst there has been a bit of a faster spike than we expected in May and June, we do expect H2 to continue to be challenged. We see total sales in the U.S. of new vehicles at $13.2 million -- or for 13.2 million units for the full year. That's down 23%. So we still see a challenging environment in the new car market, and in particular, some inventory challenges through Q3.

So 2 stories here, used cars versus new cars. But we have seen dealers coming back online and stronger levels of activity.

On your second question, you are right that if there's been one significant shift in the market in the past few months, it has been a move to online retailing by dealers. They have aggressively embraced online retailing and we are supporting them in a number of ways. We have some great digital marketing assets with which we support automotive dealers. And then our Mastermind business unit, with its sales and marketing platform, has been helping dealers who are working online drive leads to their staff who are working remotely. In that sense, we are participating in this shift to online retailing as much as we can.

Our next question comes from Manav Patnaik with Barclays.

Lance, I just wanted to understand your guidance with the floor at 5% in 2021. The assumption behind that, if I heard that correctly, means basically a similar shutdown to what we experienced this year. And so I was just curious why the revenue resiliency is so much stronger. Is it just the easier comp? Or how should we think about how you thought through that?

Yes. Well, if I look at next year at 7% to 9% and putting a Black Swan scenario at 5%, it's at least 2% below the range, which is about $90 million of revenue. So it's quite substantive. And that would more than offset what we've seen in this global shutdown here around our automotive business. So my view is, is that's a solid planning tool that I use with my teams in terms of budgeting and looking on a forward basis. And I felt that instead of just sharing with you the 7% to 9% and waiting for the question, what if there's another wave? Well, to me, how I challenged our numbers is if there was a substantive quarterly or several-month shutdown globally again, what would that look like?

My personal view as we plan is that there will be some second and third waves like we've just seen in Beijing. But I believe communities, governments, hospitals, a whole bunch of therapeutics and other things are starting to emerge, and the management of the waves will be more contained and the return to business and resumption to business will be faster.

So I do think the 5% floor is a solid floor and one that provides our shareholders with a peak to how we think in terms of a second wave. But really, our confidence is in the 7% to 9% and actually performing the businesses that we run, that we know how to run, and returning to a more normalized approach to running our business.

Jonathan, did you want to add anything else to that?

No, I think you nailed it well, Lance. And also just mathematically, Manav, it kind of goes back to your point, is the year-on-year comp would kind of help us in that point. But I think the key thing, as Lance said, we now have a clear line of sight to our own customers about how they would behave in a similar-type shutdown. The impact, as Lance said, would be primarily in automotive. And we have a view of both on how the customers will react and also how we can react and support customers, to even be -- provide commerce even in a semi-shutdown situation.

Our next question comes from Bill Warmington with Wells Fargo.

So a question for you on the cost cuts. And maybe you could talk a little bit about the cuts that you have been making on a permanent basis, those that you've been making on variable basis so far. You hinted at the potential for doing some additional ones going forward. And then I'm asking this in the context of what gives you confidence that those cost reductions are not going to harm the revenue growth potential of the business going forward?

Right. Yes. No, I think that's -- those are fair points. And I think since merger, I think we've been consistent in our approach to margin expansion heading to the mid-40s, and we probably would have thought we'd be there in another couple of years, not now. But the pandemic, for us, we had a call to action in terms of my leadership team early in the year. And we took the appropriate measures to protect our long-term earnings growth and also to protect 2020 against the potential for an even longer period of lockdown. And so I think the teams did a good job.

Now a big piece of the cuts in '20 came around compensation cuts, those will return and start to resume. Probably for some of the -- not necessarily my direct reports, but potentially their direct reports, I'll look at a return to normal salary levels at the appropriate time in the second half of this year. For my reports and myself, I think the prudent thing is to see most of this year pass and look at a return and resumption into next year, depending on the second half performance. We have a large cash bonus pool that gave us some short-term reprieve for '20. But as we perform at those levels in '21, it'll need to come back in.

We took action on -- early on some leases that were coming up and on some smaller offices where we said we'll have a changed footprint going forward. So those are more permanent cuts that required a little bit of restructuring. We executed those very rapidly with a SWAT team. We have -- the automotive cuts actually are mainly around the marketing costs. And so when the revenue declined, of course, those costs came into play. But as revenue grows, they will come back in together in parallel, so no harm done there.

And then I think the biggest thing that I'm really proud for my team is the cuts that they made around a large portion of our staff that was being hired on a contract basis, which in a lot of times, is an expensive way to staff, but sometimes accelerates initiatives, and it's easy also to manage them. And I really worked hard with my teams to put into place replacement units. So take the contractor savings but then immediately permission the restructuring into some of our better-cost footprints. And the team's done a great job. Those are permanent cost changes, won't come back. But no challenge on our initiatives.

We cut a few underperforming initiatives that maybe you only do when there is a pandemic, but we actually made some tough calls. And so net-net, I don't see any issues with any of our forward initiatives. I'm pleased with the performance to support our current products. And I feel we've got the appropriate staff levels to support our ongoing business and the appropriate investments.

I still believe, though, Bill, that there's a margin expansion to continue from the mid-40s to the upwards, from 44% to, say, 47% over the next few years as we continue to manage this much more adjustable footprint. And we've been doing a lot of surveying, a lot of studying, a lot of managing with our teams, and I do see substantive savings forward for the redevelopment of our footprint as leases expire and we look forward into the coming years.

So that's where we stand. So the business is strong. The teams are motivated. I think the Glint, the scores we have for employee satisfaction in the firm, have been the highest since our merger. And that -- they're at levels that I thought only Google and tech companies could achieve. But here we go, we've got a really satisfied workforce that's delivering great results.

Our next question comes from Jeff Meuler with Baird.

So I guess a follow-up on transport or auto. And the question is -- and the answer may be in your new car SAAR forecast, which it looks like you still have down pretty materially. But it looks like you're kind of lopping the high end of the guidance down for 2020, but then the 2021 outlook looks good and kind of a good 2-year CAGR. So I guess, just any more detail on what are you seeing that's leading both to kind of taking the top end off the guidance range for Transport in '20? And then more importantly, at this stage, what's giving you the confidence in that reacceleration to that magnitude in '21?

Edouard, do you want to take that?

Yes, great. Thanks for the question. So what we're seeing is that -- an industry which, broadly speaking, is in a better condition today than it was going into the 2008, 2010 Great Recession. And so with the signals we're getting from our customers, our partners, the OEMs and the suppliers, is that they are pushing back discretionary expenditure, they're holding on to cash, but they see the market recovering in 2021 and beyond, and they believe in the growth of the industry.

So what we are seeing from our standpoint is that a lot of that discretionary spending, which would result in onetime revenues this year, are being pushed out into Q4 and into 2021. That's why you see a moderate outlook for the second half of the year, especially driven by the new car business. But we feel good about the recovery outlook in 2021.

Our next question comes from Kevin McVeigh with Crédit Suisse.

Lance or Jonathan. Is there any way to frame this? There's really been kind of a targeted 100 basis points of margin expansion. Given some of the cost savings, it feels like that's a little bit more structural. Is it still that 100 basis points, and you're able to reinvest more in the business just to kind of accelerate the growth? Or should we expect a structural higher level of margin expansion as a result of some of the expenses that you've been able to really leverage as a result of COVID?

Yes. Maybe I'll start, and then I'll pass it to Jonathan. So I have a personal view that, since merger, that shifting from a high 30s, 40% margin and heading towards a 50% margin, that was a task that was in hand for us to do, and that over the next 5 to 7 years, we'd execute it. And so here, we sit at a 44% margin looking forward into 2021.

And my personal view, understanding all our cost levers, technology and how it can save us money forward through use of the cloud, cloud-based services and supporting a work from a home and more flexible infrastructure that can support a more flexible work footprint, means that we have opportunities to do 2 things: one, to change our footprint and take costs out over time without being disruptive; and two, through general attrition, be able to continue to build our staff into better-cost locations. And to be better-cost locations are Raleigh versus New York or Manchester versus London or Gurgaon versus Milan or it's Gdansk versus Frankfurt. So we have -- and even our CARFAX team has built up a great office across the border in Windsor, Ontario and achieved substantive cost savings in their forward planning.

So when I look at our footprint, Kevin, my view is, until I say stop, it's 100 basis points a year. And we have to be able, and at 5% or better top line growth with 3% general wage inflation, we're able to generate the appropriate amount of investments for our type of business, and we'll continue to do so. And I think the teams -- the team and ourselves, it's our fourth year post-merger, I think we've got a great cadence at executing. And we haven't missed yet, and I don't think we'll be missing going forward. Jonathan?

Yes. Just add a couple of points, Lance. I think you hit the major ones, is -- I mean, first, I would say, as Lance said, the easiest way to margin expansion is through top line organic growth. And what made this year is so unusual as we managed to deliver over 200 basis points -- or will deliver expansion, despite the fact of a challenging environment. And to me, it's really the actions by our teams across the world in addressing costs in Q2 here, particularly the permanent cost, as Lance mentioned earlier on, we actually overshot the target that we had. And in overshooting it, it gave us obviously first, confidence in this year's number, but equally, it gave us the ability to invest more right now as we're doing in the second half into initiatives which are going to drive growth and drive margin in future years. So that really has given us more flexibility than we normally have.

But I think, as Lance said, I think our focus is on, as we continue to grow with the nature of our business model, that does drive through to margin expansion. And we'll keep driving it until we think we've -- until we tell you otherwise.

Our next question comes from Andrew Steinerman with JPMorgan.

It's Andrew. In terms of the second half fiscal 2020 organic revenue growth recovery that's embedded in the fiscal 2020 guide. Could you just give us a sense of how much revenue lift is already underway in the current quarter? So I'm talking about the third quarter.

Jonathan, do you want to grab that?

Yes, I'll go ahead and tackle it, Andrew. So I mean, the biggest -- as you look to the lift, you look at the biggest changes, the biggest change is obviously in Transportation. And this key statement which Edouard covered there is really the recovery of the used car market. And if you recall, when we had this call 90 days ago, we talked about the uncertainty of both the lock-ins, would the lock-ins lift or not? And also when they did lift, what would consumer behavior be like? And I think we've answered the second part of that question. The consumer behavior in the U.S. around used car purchases is actually was pent up. And so we're seeing this resurgence come back. So that's driving a lot of confidence we have, particularly around the used car portion of our Transportation business.

And as Edouard also said, I think we've built in the appropriate amount of moderation around the new cars as OEM has kind of build back up inventory. And then as we shouldn't lose sight, Financial Services had a very, very strong Q2 as they had a very strong Q1, and we continue to see the build into it.

And the third element, within Resources. Again, we've -- Brian and the team, I think, have done an incredible job of working closely with our customers, particularly in upstream, understand the risk we have in our portfolio there, working directly with our clients. And as a result, our -- at a very detailed level, we have line of sight as to the revenue build-out, second half of the year.

So I think at this point, Andrew, it's odd, in a year where arguably there's the most uncertainty, I actually feel very, very good right now in terms of our revenue and margin for the rest of the year.

Our next question comes from Andrew Jeffrey with SunTrust.

My question is around the Financial Services business, and Ipreo in particular. Lance, I wonder if you can give us an update on your thinking of -- thinking around your positioning alternatives and how that's driving structural growth for Ipreo. And as sort of an add-on, can you just comment specifically on an apparently resurgent IPO market? And how much that factors into your pretty sanguine outlook for Financial Services in the back half and into next year?

Yes. Okay. And Adam is also with me on the call, so I'll ask him to add to what I have to say. So first off, I have to say the Ipreo assets have all performed very well through this period. The one piece that hasn't had the opportunity to perform well but is definitely having its increasing share of activities is the equities portion of the Ipreo revenues.

But when you get to alternatives in private markets, the private markets piece of Ipreo is growing in the 25% to 30% range. And when I look at our valuations business that's pinned against that is growing in the 50%-plus range. And so I really think that our move into alternatives, our team have really taken a leadership role. And we're one of a couple of assets out there that will continue to benefit in that growth in alternatives as well as the need for the independence around reporting and valuations and the tools that the other marketplaces, that are more well developed, have established.

Adam, maybe you want to talk a little bit about munis, debt, equity issuance and then the investor services business and how they're performing and the prospects looking forward.

Sure. Thanks, Lance. I think you described it well. I think the way to think about the overall set of businesses is to think about the balance across asset classes. So strong IPO markets, obviously desirable because you have a lot of new issuers coming into the market, and that gives us opportunity to provide a range of services. But when IPO markets are slow in the current period, what we've seen is a significant uptick in fixed income, municipal issuance, and global activity in markets has actually been quite strong post the initial shock of the COVID shutdowns. Even into the early periods of June, late May, we're starting to see the IPO market even start to tick back up with a lot of activity in the last few weeks.

So the numbers in our view of the business is, with asset classes largely offsetting each other, a resumption of normal levels of issuance in the IPO market, which will help drive some other businesses. But then you'll see a bit of maybe moderation in the highly active fixed income markets that we've seen over the last few weeks. So when you roll it all together, you kind of have a balanced portfolio that, through the year, we think sustains the growth that we've seen.

Our next question comes from Hamzah Mazari with Jefferies.

My question is just on capital allocation. You touched on buybacks. You did your first transaction, very small software deal, this year. Has the outlook on M&A changed in terms of doing more tuck-ins as you're seeing sort of more visibility into a recovery? You've cut a ton of cost, margin profile is up. Any thoughts if you're ready to do more transactions?

Okay. Well, I think I said in the last quarter's call that I felt the investments in some of our key organic growth initiatives looking forward, we're anchored around 2 or 3 key things across all our businesses. So continued diversification of resources. We're very focused on climate and energy transition. We see it as a big TAM, a growth market and one that we've been investing in. And those specific assets have been growing north of 10% in our current Resources division. So we're very keen to continue to invest there.

We invested through an acquisition into agriculture. In our agribusiness, we also expect forward high single digits to double-digit growth there as we've invested in the business, restaffed. And Brian's working with the team to set it on a correct path going forward. So that's organic, and that's a large TAM that we're focused on. We don't see us needing to acquire further, although there could be small tuck-ins associated to energy transition and climate-related activities.

When we go into automotive, here, Edouard is very focused with the CARFAX and AMM teams on automotive, kind of OEM Mastermind, which is looking at those digital marketing dollars and the spend. You look at the amount, for the first time ever, I think digital marketing spend has now surpassed everything else, I read it in, I think it was the Financial Times or one of the U.S. papers yesterday. And we're very well positioned to pull our assets together organically to drive OEM targeting of incentives and marketing dollars. And again, Edouard's very focused on that organically.

The continuation in financial markets with asset managers looking to cut costs. We've been working on, I mentioned in Q2, asset management platform to draw together key market participants in the design, host and build of new solutions for asset managers. That's all organic.

So when I look at that, I go, I've got -- and we've continued to invest and we have substantive organic complementary growth to our existing business, we don't really need a lot of acquisitions. So therefore, I can see capital resuming at the upper end of our range in terms of share buybacks forward, and keeping our leverage below 3x and going to the maximum on that. And that's something Jonathan and the team, Grant, working for him that runs treasury, they're on top of that. They manage it. And my view is, is use our -- use any excess capital for share buybacks. I don't see a big acquisition slew needed to support our long-term growth initiatives.

Jonathan, do you want to add anything else, or?

No. I think it captured it, Lance. And just to emphasize what you said. We remain committed to our capital policy remaining under 3x, and that's very, very important to us. And as we spend less on M&A, you end up deploying more on buybacks, is kind of where the cash goes.

Our next question comes from Seth Weber with RBC Capital Markets.

Just -- I think I just wanted to go back to the Transport segment for a second. I just want to make sure I'm understanding the messaging. Can you just -- have the dealer price concessions continued? Did they continue, I guess, into June? And is that the expectation, that, that could still bleed into the third quarter? I'm just trying to understand really whether Transportation margins can turn positive on a year-over-year basis in the back half of the year.

Edouard, might as well keep going on this one.

Yes, sure. So we have already removed the vast majority of our pricing concessions. We still have a few in place to support some segments of the market, but these will have been phased out completely by the month of August.

Did that answer the question?

Yes. Thank you, Edouard. I was on mute.

Our next question comes from Alex Kramm with UBS.

You -- on the prepared remarks, you talked about some cancellations. I think it was primarily on Resources. I think that you gave the ACV as well. But can you just talk about cancellation more broadly, what you saw in the second quarter across the business? I mean anything that you would describe as customers are using this time to look at their spend and seeing some things that may not be as mission-critical as they thought? Or has it been fairly limited? Any color would be great.

Okay. I'm going to start and then let Brian add in here in a moment. What I was refer -- I referred to, actually in the written script, I referred to, I think, was within automotive, small cancellations. And I don't think anything significant to discuss. But in the energy space and really across the firm, I took a stance with the team in beginning of Q2 that, look, this is an opportunity, IHS Markit, we've got a great reputation, to work with our customers. We're going to have some troubled customers, and I want us to be upfront in price concessions, and wherever we can, increase the price concessions for longer-term contracts. And I think the team did really well. And where there was opportunities for us to execute longer-term contracts and help our customers through a tough year, I think the team did that.

And so it's going to have an impact within '20, but also what I said in our energy minus 2%, plus 2%, I'm going to have that now dragging through into '21, with the benefit coming back in '22, '23, '24, because the contract extensions were, in general, for 3, 5, 7 years or longer. And so I think the team did a great job, and it's exactly what a good firm should do in this environment. But I don't actually see any long-term challenges beyond what we've modeled.

Now within the Permian and that lack of CapEx, lower energy prices, private equity and lenders looking for higher hurdle rates on their returns, I think there's a continued challenge. And therefore, we modeled that challenge into our numbers. And Brian, maybe you want to top-up that commentary that I just gave with some of your specifics on how you're viewing the energy recovery and some of the moves we've made through this tough period.

Yes, no. Lance, you hit it on the head. I think it's largely a North America issue. You have your production costs that are higher than the price of crude. You've seen bankruptcies go up. But what we're doing is we're working with customers on price so that we keep them and we get growth in our longer-term contracts.

And again, in our international business, for example, that's actually growing in the upstream. So I think the real focus for us has been trying to take care of those North America customers that are under a lot of pressure right now.

Our next question comes from Shlomo Rosenbaum with Stifel.

You got me there?

Great, I got you. Yes, I got you.

Just want to sneak in one, Jon. Just back on the transport, just to make sure. The 10% on the recurring revenue decline in the quarter, that was all just from the dealer concessions? There wasn't anything else that was really significant in terms of that, and that's just being phased out at this point in time?

Yes, that's correct.

Our next question comes from George Tong with Goldman Sachs.

You expect Resources organic growth to be down 2% to up 2% in fiscal 2021 with downstream strength offset by weakness in upstream due to lower 2020 bookings being fully reflected in revenues. Can you describe how OPEC discussions and oil prices need to evolve over the next year for you to achieve this target?

Yes. I'll start, and again, Brian, you can add if I don't have it all covered. So I guess the minus 2% to plus 2%, remember, I've given you a -- what isn't normally done by a company in Q2, we gave you the scenarios. Previously, we gave you the scenarios for 2020. Now what I'm doing is giving you my forecasting tools that I'm doing throughout this July, August period, so that I'm ready for our December 1 start. And currently, 6% to 8% Financial Services, mid-teens in Transportation, recovering off of that low comp, which really is high single digits. Energy is a bit different.

So energy, the whole supply/demand equation that went completely out of whack really caused some structural issues in that upstream marketplace. And you know we have about $300 million which used to be $400-plus million, pre-merger, of upstream data revenues that are very important to our customers and very sticky. But if the customer is not there, they're not buying any data. And the fact is, is some of those structural supply/demand shifts, in our view, will cause some customers to disappear.

But also some of our larger customers, we gave price concessions to. Price concessions cost us in '20. Because they're not for full year, we get full year impact in '21. So that continues to cost us. And then we built in growth going forward on our contracts from years 2 through year 7 and even longer. So I think the team's done a good job to that, and that gives us a real nice certainty on the way forward. And as you get your data revenues in upstream become about $250 million of $1 billion business and of a $4.5 billion company, it starts to become an issue of small challenges.

But in 2021, the minus 2% to plus 2% reflects the rolling out of that -- those revenue concessions that were made, some customers disappearing and CapEx down 30%. On the other hand, the rest of the business has opportunities to grow at 7% to 11%. And in the planning period, I can't tell you whether I'm going to be precise to 7%, 9%, 10%. What I can tell you that right at the moment, the combination of all I know about our Resources business would have us no worse than negative 2% and likely no better than plus 2%, unless we -- unless the $400 million of other revenues grew closer to double digits.

And in planning, that's not how I plan and how I manage the firm with the division heads. I manage for certainty, for reasonableness of error, for a strong customer pipeline and renewals with our customers. And that's what Brian and his team are doing. Brian, do you want to add anything to that?

Yes. The only thing I'd mention is there's a swing in events. If we have events or we don't have events, that's going to definitely impact the range as well.

No, that's -- sorry, Brian. I missed that. Yes. So right now, in our forecast, we put -- we haven't put events returning at the 2019 level. And honestly, you know what, there's some people if -- I guess, if I was the U.S. President, I'd put full events in for 2021. But in fact, my personal view is that in analysis with my team, we see some virtual events definitely and some smaller events potentially to come together. But we haven't put that back in.

And if you remember, right, at the time of last quarter when I disclosed some of the challenges with the events, you're talking a $40 million number, that's 4% of growth in that division or 4% of the revenue potential coming back in that division. And I don't think it's right to put that back in.

Jonathan, do you want to add to that? Just to make sure I didn't boggle any numbers there?

No, no, you have it right. I mean -- I mean, I just call out what Brian said, is on the high end of the range, we assume events coming back strong. And on the low end, we would assume events coming back in a very moderate fashion. So that is a swing item in that range.

Right. And would you -- in our top range, would we see events returning to 2019 level or a little less or a little more?

It's a little less. A little less than the '19 levels, we assumed.

Yes. Yes. Okay. So that's how I assumed. Good.

Our next question comes from Toni Kaplan with Morgan Stanley.

Could you talk about the sales cycle within solutions? I assume the pipeline's strong, but just trying to get a sense of if there's any improvement in new sales conversions at this point. Sounded like from your comments that the COVID implementation delays are over. But just wanted to understand about customers' willingness to pull the trigger on new sales.

Okay. No, good question. I'll start. Adam, if you can ready to follow-up here.

So yes, solutions sales for us, I have to say, even though the number is not reflecting it in this quarter, actually, if you normalize the year-over-year on last year's big Q2, I think normalize over 8 or 10 quarters, we're probably running at 9%, 10%. So it's a -- my view is, normalized, solution's still very strong.

The pipeline is also at an all-time high, so therefore there's lots of interest in the pipeline. And we generally feel that we'll return slowly for the rest of this year and better into next year, those customers closing that pipeline and putting it into production. And so I think if I look forward, I view solutions as a strong growth contributor to financial services back to pre-COVID levels.

Adam, do you want to add some of the highlights, lowlights, some of the challenges? And just your forecast of how we look at '21.

Yes. I think you summed it up well, Lance. The interesting thing, I think, from the COVID experience, is a lot of our customer base has looked at the solutions they use to maintain most efficient and risk management tools and has actually accelerated some of their decision-making in implementing a lot of the types of solutions that we offer. And that's been the biggest driver of the growth in pipeline. Coupled with about 6 months to a year ago, we really formalized the bringing together of a lot of our solutions and looking at larger packages of services for our customers, where our solutions can work with each other and give customers larger overall opportunity for efficiency.

So I think through this period, it's been a little bit of an accelerant. There will be a little delay in that because these are larger deals that take a little bit more time to close. But customers are quite interested in doing that.

I think what you saw through the early part of Q2 is larger software implementations as customers were adjusting to work-from-home environments, and our markets have largely stayed open. Financial markets have been active and operating through this period. But in adjusting to working from home, some of the larger software implementations maybe got delayed by 4 to 6 weeks, all of which have basically restarted at this point. So that gives you a little bit of an insight into what that little lull might have looked like and why we're pretty optimistic about the forward path.

Our next question comes from Ashish Sabadra with Deutsche Bank.

I just want to drill down further on the automotiveMastermind growth opportunity. The company launched AMM for CPO and used car vehicle actually earlier this year. So my question is just what is the current penetration of AMM at existing dealership using CARFAX? And is it possible to quantify the cross-sell or the upsell opportunity, both for new cars as well as the used car sales?

And just to follow-up to that question, AMM was growing, I believe, 30% prior to the crisis. And can AMM growth reaccelerate to strong double-digit going forward as we come out of the crisis?

Good, thanks. Edouard?

Right. So I'll start with the end of your question, Ashish, which is the growth of Mastermind. So we actually saw accelerating growth in the past few quarters until Q1. You may remember, in Q1, Mastermind delivered 36% organic growth year-on-year. So really, really strong acceleration. And now I'll pick up on your first point, which is what is driving that growth? And it is actually the synergies that we've been building between Mastermind and other parts of the automotive organization.

So to give you a few examples, we now have a conquest capability in Mastermind that is built using [Origin's] data that we have in our automotive business. And we have a service to sales capability in Mastermind that is built using CARFAX and TransUnion data.

And as you just said, we are launching in July a preowned kind of used car capability which is perfect timing for the market because that is the activity that would support many dealers in the second half of the year. And again, we use this -- we launched this used car capability, leveraging assets we have within other parts of the automotive kind of portfolio. So demand is a growth story really which is anchored on our automotive data as a foundation, and we expect that growth to resume quickly as the market opens up towards the end of this year.

Our next question comes from Andrew Nicholas with William Blair.

In terms of the events business, and you obviously touched on the range of potential outcomes you've embedded in 2021 guidance earlier. But I'm just curious, how you're thinking about the longer-term impact of the pandemic and clients' willingness to travel to and attend conferences. Is this a business you think is permanently impaired? Or is it something that will just take some time to ramp back up, in your view?

Yes. No. I guess I have a personal view, and I imagine if we pulled everybody on the phone, we'd all have slightly different views.

One, I've been quite pleased with the virtual dialogue going on in IHS Markit with our customers. So we have no issue with supporting our products and our services, our research, our data sets, our data science. And therefore, I feel we're really lucky to be so resilient against COVID. Our revenue globally from events is probably about 1% of what we do. So therefore, it's -- we've taken that impact, it's in the numbers. And so to put it back into the numbers at any reasonable scenario, my view is that there's got to be a vaccine to support that. Otherwise, I think there's going to be a mixed bag of people wanting to fly, wanting to go on subways, wanting to be in crowded rooms, speakers wanting to be in crowded rooms themselves as they help companies provide thought leadership.

So my own view is that we should expect, at our 9% scenario, something a little less than '19, as Jonathan said, so we're at 45%, maybe it's 35% to 40%, maybe it's 30%, but it's not as high. And at our low-end of the scenario, little to no events. And in our Black Swan, at 5% growth, in my view, it would definitely be none.

So as I look forward and sculpt our business, I'm very careful with the teams to be not looking at substantive. I want to maintain our flagship big, CERAWeek, Chem Week, TPM. Those are 3 flagship events. We're also leaders now around the climate dialogue. We got to support that. We'll be world-class virtually. We'll have small meetings and small events where our customers want us to. And if there's a vaccine or a trend back to bigger gatherings, we'll be prepared to go. But it's not something I put a lot of faith in for 2021, but a lot of that's more personal than it is a total view of IHS Markit. But you will get, in our forecast numbers, you should know that events will be at tempered revenue. That is never going to be the reason for us to hit numbers.

Jonathan?

Yes. I'll just add one point to what you said, Lance. Is in Q2, when we announced the events cancellation, we talked about $0.09 of EPS impact. That was a result of losing all the revenue while still having all the cost. And as Lance said, I think the events, particularly those 3 flagships, are important to us for branding reasons, thought leadership and the sense of kind of almost community within the industries we serve. But financially, the events themselves are frankly not that important to our profitability at the end of the day.

Good. Thanks, Jonathan. And all else I can say is, for our teams that lead those events, they're now focused on leading virtual events. And I have to say, just go online and catch the CERAWeek conversations. And it's everybody, from world leaders to key energy market's thought leaders. Dan Yergin, who, along with Jamie Rosenfield, are founders of CERAWeek. They've just done an outstanding job to make sure we're supporting our customers in the right dialogues, but they're having to do it virtually. And that, at a minimum, we'll be world-class at. And let's see what happens.

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

Thank you...

And I would say before you go. Eric, just before you go, I just want to say one last word. The first thing I'd like to say is thank you for the support our shareholders have given us. These are tough times. I've never thought I could have experienced anything like this in my life. And I have to say that having a strong team around you, strong shareholders, and great, great people throughout the firm globally working with our customers, we've been able to navigate. And I know for many companies, they're not that -- haven't been as fortunate. So I feel very lucky to be able to do what we've been able to do. But I couldn't have done that with all the teams.

And I know our shares have been well supported by our investors. And I just want to say thank you for that. And I hope the transparency that we're providing, you will allow us to return to pre-COVID levels once we get through this. But up through that point, I feel that we want to show market leadership in our reporting to help you navigate the challenging waters that we're navigating ourselves, and fortunately, also performing well in. So thank you very much.

Also thanks to all the employees. And I want to close that the -- some of the challenges that we're dealing in communities around us, and particularly word out to all our black colleagues in the U.S. I'm appreciating all of their support through us setting the strategy forward for IHS Markit. And once again, we want to be a firm that's action-oriented, we're out front, we're making change happening. And I appreciate all of the support from those colleagues in the firm that have been helping me. So thank you.

Eric, do you want to close?

Yes, great. 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 1089105, beginning in about 2 hours running through June 30, 2020. In addition, the webcast will be archived for 1 year on our website.

Thank you, and we appreciate your interest and time.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.