Business Overview and History
IHS Markit Ltd. (INFO) is a world-leading provider of critical information, analytics, and solutions for major industries and markets that drive economies worldwide. With a rich history spanning over six decades, the company has established itself as a trusted partner, delivering next-generation information, analytics, and solutions that empower its diverse customer base to make well-informed, confident decisions.
IHS Markit was formed in 2016 through the merger of IHS Inc., a company founded in 1959 and publicly traded since 2005, and Markit Ltd., which was founded in 2003 and went public in 2014. The merger combined the expertise and capabilities of these two industry leaders, creating a powerhouse that is uniquely positioned to serve customers across a wide range of sectors.
The company leverages technology and data science to provide insights, software, and data to help its customers make better informed decisions. IHS Markit organizes its operations into four industry-focused segments: Financial Services, Transportation, Resources, and Consolidated Markets Solutions (CMS). Each segment leverages the company's deep domain expertise, innovative technology, and vast data resources to deliver tailored solutions that drive growth, performance, and efficiency for its customers.
A key strength of IHS Markit's business model is that the majority of its revenue comes from recurring fixed and variable fee arrangements, which has historically provided stable revenue and predictable cash flows. This stability has helped the company navigate challenges and continue to invest in innovation and growth.
In recent years, IHS Markit has faced and overcome several challenges. In 2020, the company had to moderate the impact of the COVID-19 pandemic on its business, implementing cost reduction programs and incurring restructuring charges. Additionally, in 2021, IHS Markit had to navigate regulatory feedback related to its planned merger with S&P Global, leading it to divest certain business lines like Oil Price Information Services and Base Chemicals.
Despite these challenges, IHS Markit has achieved significant milestones. In 2021, the company reported 9% organic revenue growth and expanded its Adjusted EBITDA margin, demonstrating its ability to deliver solid financial and operational performance even in a difficult environment. The company has also continued to innovate and expand its product offerings, leveraging its data assets and analytics capabilities to provide enhanced solutions for its customers across its core end markets.
Financial Performance and Liquidity
IHS Markit's financial performance has shown resilience and growth in recent periods. For the fiscal year 2021, the company reported total revenue of $4.66 billion, representing a 9% increase compared to the previous year. This growth was primarily driven by 9% organic revenue growth, partially offset by a 1% negative impact from acquisitions and divestitures, and a 1% positive impact from foreign currency.
In the most recent quarter, IHS Markit generated revenue of $1.18 billion and net income of $731.5 million. The company's financial position remains robust, with $293.1 million in cash and cash equivalents as of the latest reporting period. IHS Markit also maintains a $1.25 billion senior unsecured revolving credit facility that matures in November 2024, of which approximately $0.5 million in letters of credit were outstanding, leaving about $1.3 billion available under the facility.
The company's liquidity position is strong, with a current ratio and quick ratio both at 0.676. This indicates that IHS Markit has sufficient short-term assets to cover its short-term liabilities, although it's worth noting that these ratios are slightly below the general benchmark of 1.0 for optimal liquidity.
Segmental Performance and Growth Drivers
IHS Markit's four operating segments have demonstrated varying levels of performance and growth over the years.
The Financial Services segment has been a consistent performer, contributing significantly to the company's total revenue. This segment includes three main product offerings: Information, Solutions, and Processing. The Information offerings provide enriched content such as pricing and reference data, indices, and valuation services across asset classes. The Solutions offerings provide configurable enterprise software platforms, managed services, and hosted solutions to automate trading, post-trade processing, and data and risk management. The Processing offerings provide trade processing products and services globally for syndicated loans and, prior to September 2021, over-the-counter derivatives and foreign exchange.
The Transportation segment, which includes the company's Automotive and Maritime Trade offerings, has been a key growth driver. The Automotive offerings provide authoritative analysis and forecasts of sales, production, powertrain, components, and technology systems across the automotive value chain, as well as sales and marketing tools for OEMs, dealers, and agencies. The Maritime Trade offerings provide comprehensive data, analytics, and forecasting on the global maritime trade industry.
The Resources segment includes the company's Upstream and Downstream offerings. The Upstream offerings provide technical information, analytical tools, and market forecasting and consulting for the upstream oil and gas industry. The Downstream offerings provide market forecasting, midstream market analysis and supply chain data, refining and marketing economics, and oil product pricing information for the chemicals, refined products, agriculture, and power industries. This segment has faced some headwinds due to the COVID-19 pandemic's effect on the energy industry, though the company has seen a gradual recovery in recent quarters.
The Consolidated Markets Solutions (CMS) segment includes the company's Product Design, Economics & Country Risk, and Technology, Media & Telecom (TMT) benchmarking offerings. The Product Design solutions provide technical professionals with information, insight, and software-based decision engines to support product design, engineering, and supply chain management. The Economics & Country Risk offerings provide economic and risk data, analytics, forecasts, and scenario tools to support customers' strategic planning, procurement, supply chain, and risk management. The TMT benchmarking offerings provided performance and cost benchmarking analysis to the technology, media, and telecom industries until the company divested this business in December 2021.
In fiscal year 2021, the Financial Services and Transportation segments were the primary contributors to the organic revenue growth, with 10% and 16% organic growth respectively. The Resources segment saw a 2% organic decline, while the CMS segment grew organically by 5%. Recurring revenue, which includes fixed and variable subscription-based offerings, represented approximately 87% of total revenue in 2021.
Profitability and Cash Flow
IHS Markit's profitability metrics have shown improvement in recent periods. The company's Adjusted EBITDA, a key profitability metric, grew 11% year-over-year to $2.03 billion in fiscal 2021, with the Adjusted EBITDA margin expanding 80 basis points to 43.6%. This margin expansion was driven by the strong organic revenue growth and continued focus on cost management.
Free cash flow also demonstrated significant growth, increasing by 27% to $1.19 billion in fiscal 2021. This highlights the company's ability to efficiently convert its earnings into cash, providing financial flexibility for investments, debt reduction, and shareholder returns.
Guidance and Outlook
While specific forward-looking guidance is not available, IHS Markit's management has emphasized the continued demand for the company's data, analytics, and solutions across its key end markets. The successful integration of recent acquisitions and ongoing investment in new product development are expected to drive future growth.
The company has also highlighted its focus on driving operational efficiency and maintaining a strong financial position, which should support its ability to navigate the current economic environment and capitalize on future growth opportunities.
Risks and Challenges
Like any major global enterprise, IHS Markit faces a variety of risks and challenges that could impact its future performance. These include:
1. Competitive landscape: The company operates in highly competitive markets, with larger and smaller players vying for market share. Maintaining its competitive edge through innovation and customer service will be crucial.
2. Regulatory changes: As a provider of data and solutions to regulated industries like finance and energy, IHS Markit must remain agile in adapting to evolving regulatory requirements across its global footprint.
3. Cybersecurity and data privacy: The company's reliance on critical data and information systems exposes it to the risk of cyber threats and data breaches, which could damage its reputation and disrupt operations.
4. Macroeconomic conditions: Fluctuations in global economic activity, geopolitical tensions, and other macroeconomic factors could affect demand for the company's products and services, particularly in cyclical industries like energy and automotive.
5. Integration challenges: The successful integration of past and future acquisitions will be essential to realizing the expected synergies and growth opportunities.
Conclusion
IHS Markit's long history of innovation, its diverse portfolio of industry-leading products and services, and its strong financial position position the company well to navigate the challenges and capitalize on the opportunities in the rapidly evolving global marketplace. The company's ability to deliver solid organic growth, expand its profit margins, and generate strong free cash flow demonstrates the resilience and strength of its business model.
As IHS Markit continues to invest in developing cutting-edge solutions, enhancing its operational efficiency, and leveraging its deep domain expertise across its four main segments, it remains poised to drive sustainable growth and create value for its shareholders. The company's focus on recurring revenue streams, which account for a significant portion of its total revenue, provides stability and predictability to its financial performance.
With its robust liquidity position and access to substantial credit facilities, IHS Markit has the financial flexibility to pursue strategic initiatives, weather potential economic headwinds, and capitalize on growth opportunities as they arise. As the global economy continues to evolve and the demand for data-driven insights grows, IHS Markit's comprehensive suite of information, analytics, and solutions positions it well to meet the critical information needs of its diverse global client base and drive long-term success.