IHS' CEO Hosts 2013 Financial Guidance Conference (Transcript)

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IHS Inc. (IHS)

2013 Financial Guidance Conference

December 12, 2012 8:00 am ET

Executives

Andrew Schulz - Senior Director of Investor Relations

Jerre L. Stead - Chairman of the Board and Chief Executive Officer

Scott C. Key - President and Chief Operating Officer

Richard G. Walker - Chief Financial Officer and Executive Vice President

Analysts

Peter P. Appert - Piper Jaffray Companies, Research Division

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Suzanne E. Stein - Morgan Stanley, Research Division

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

William Sutherland - Northland Capital Markets, Research Division

William A. Warmington - Raymond James & Associates, Inc., Research Division

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Kelly A. Flynn - Crédit Suisse AG, Research Division

Brian Karimzad - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the IHS Inc. 2013 Financial Guidance Conference Call. My name is Sue, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Mr. Andy Schulz, Vice President of Investors. Please proceed, sir.

Andrew Schulz

Thank you, Sue. Good day, and thank you for joining us for this special conference call. We issued our guidance news release earlier this morning. If you do not have this release, it is available on our website at ihs.com. Please note that we filed an 8-K and posted a presentation to our website, which we hope will be of use in summarizing one of the main takeaways from this call. The presentation is available under the Investor Relations tab at ihs.com. The purpose of this call is to discuss our 2013 guidance. As many of you know, we are in the midst of compiling our 2012 fourth quarter and full year results and completing the related audit. As a result, it is not our intent to discuss the current quarter's performance.

Some of our comments and discussions today are based on non-GAAP measures. The non-GAAP results are a supplement to our GAAP financial statements. Our website includes reconciliations of non-GAAP measures to their nearest GAAP equivalent. As a reminder, this conference call is being recorded and webcast, and is the copyrighted property of IHS. Any rebroadcast of this information, in whole or in part, without the prior written consent of IHS is prohibited.

Please keep in mind that this conference call 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 and vary materially from expectations can be found in IHS's filings with the SEC and on the IHS website.

With that, it is my pleasure to turn the call over to Jerre Stead, IHS Chairman and CEO. Jerre?

Jerre L. Stead

Thank you, Andy. Good morning and welcome to all of our investors and IHS colleagues on this conference call and webcast. Thank you for taking the time to be with us today as we close out 2012 and look forward to continued profitable growth in 2013.

I'll start with a quick review of events and results through Q3. As we reported in September, through Q3, we've grown revenue 17%; adjusted EBITDA, 23%; adjusted EPS, 11%; adjusted free cash flow, 22%; and adjusted free cash flow per share, 20%, while exceeding $5 per share of free cash flow on a trailing 12-month basis for the first time.

As we completed our planning process for 2013 and the development of the guidance we're giving you today, we saw a continuation of the dynamics and trends that we discussed on the Q3 call. As a reminder of what we shared in September, our subscription business was solid and continued to grow at a high single-digits rate of organic growth, 7% or better for 9 consecutive quarters, with good price traction and no increase in cancellations or decline in renewal rates. We did not see the acceleration of growth that we were expecting from new businesses and nonrecurring revenue pipelines in Q3. We had seen in Q3 a sudden weakening in key markets, as customers delayed or put on hold many decisions in the uncertain environments.

Also, on a regional basis in Q3, we saw a slowing of organic growth in EMEA and slower than anticipated growth in APAC, Latin America and the Northern American markets. In general, we saw a slowing in customers' new spending decisions that most significantly impacted our nonrecurring pipelines, creating a disproportionate impact on the overall business and growth rates. As you know, our fiscal calendar puts us a month ahead of most other companies while reporting financial -- when reporting financial results.

On our Q3 call, we described a slowing that was surprising to some. And there was concern that our performance was weak relative to what other companies were expected to report. After our Q3 call, we saw the vast majority of earning reports come in lower than expectations, and many with negative growth. A good number of these companies are our customers. 61% of companies reporting Q3 results were below expectations, with nearly 1% overall decline in revenue growth. A significant number of these companies also lowered forward-looking guidance.

We do see continued uncertainty around us. However, we continue to have solid profitable growth and are making great infrastructure progress. With that as a context, we're pleased to provide you with our guidance for 2013, which contains an outlook for continued positive organic growth and continued progress on expansion of margins.

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