Q2 15 results presentation final

23
Second quarter 2015 financial results August 12 th , 2015

Transcript of Q2 15 results presentation final

Page 1: Q2 15 results presentation final

Second quarter 2015 financial results August 12th, 2015

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Important notice

Forward-looking statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the

Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this presentation that address activities,

events or developments that Markit Ltd. (“Markit” or the “Company”) expects, believes or anticipates will or may occur in the future are

forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this presentation may

include the expectations of management regarding plans, strategies, objectives and anticipated financial and operating results of the

Company. Markit’s estimates and forward-looking statements are mainly based on its current expectations and estimates of future events and

trends, which affect or may affect its businesses and operations. Although Markit believes that these estimates and forward-looking

statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information

currently available to Markit. When used in this presentation, the words “anticipate,” “believe,” “intend,” “expect,” “plan,” “will” or other similar

words are intended to identify forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties,

many of which are beyond the control of Markit, which may cause actual results to differ materially from those implied or expressed by the

forward-looking statements. Further information on such assumptions, risks and uncertainties is available in Markit’s filings with the United

States Securities and Exchange Commission (“SEC”) including its annual report on Form 20-F. Markit’s SEC filings are available at

www.sec.gov or on the investor relations section of its website, www.markit.com. Markit undertakes no obligation and does not intend to

update these forward-looking statements to reflect events or circumstances occurring after the date of this presentation. You are cautioned not

to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. All forward-looking

statements are qualified in their entirety by this cautionary statement.

Non-IFRS financial measures

This presentation also includes measures defined by the SEC as non-IFRS financial measures. Markit believes that these non-IFRS

measures can provide useful supplemental information to securities analysts, investors and other interested parties regarding financial and

business trends relating to its financial condition and results of operations when read in conjunction with the company’s reported results.

Definitions and reconciliations of these non-IFRS measures to most directly comparable IFRS financial measures are available in the

Appendix of this presentation and in Markit’s earnings release dated August 12th, 2015.

Copyright ©2015, Markit Group Limited. All rights reserved and all intellectual property rights are retained by Markit.

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Agenda

Second quarter 2015 overview

Lance Uggla, CEO

Second quarter and six months 2015 financial results

Jeff Gooch, CFO

Appendix

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Second quarter 2015 overview

Lance Uggla

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Q2 2015 overview

Q2 2015 financial highlights and recent developments

─ Revenue increased +6.7% on a constant currency basis with

organic revenue growth +5.1% ─ Information organic revenue growth +4.9%

─ Solutions organic revenue growth +13.2%, acquired growth +6.1%

─ Processing organic revenue decline (2.5)%

─ Continued profitability with strong margins maintained ─ Adjusted EBITDA margin of 44.6%

─ Adjusted Earnings of $68.4 million

─ Adjusted diluted EPS of $0.36

─ Announced acquisitions of Information Mosaic and

CoreOne Technologies

─ Completed $650m secondary offering with $350m concurrent

share repurchase

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Acquiring and building businesses that expand the

breadth and depth of our products and services

CDS pricing

CDS

reference

entity

identifiers

Dividend

forecasting

Index

management

Loan pricing

Daily equity &

commodities

data

ABS pricing

Credit event

auctions

OTC

derivatives

buy-side

valuations

Metrics

Research

aggregation

Instant

messaging

Desktop and

data feed

solutions

OTC

derivative

trade

processing

Portfolio

reconciliation

Structured

finance

cashflow

modelling

Loan CDS

indices

& pricing

Bespoke

indices

Document

management

Macro -

economic data

Portfolio

compression

Syndicated

loan portfolio

management

software

Trade

confirmations

Loan

mapping

service

Environmental

registry

Evaluated

bond pricing

Credit trade

confirmation

Market share

analysis

Loan

settlement

Valuations

management

Entity

identifiers

Mobile

applications

Broker voting

SmartText

Online

advertising

manager

Liquidity

metrics

Loan

processing

Risk analytics

Quantitative

research

and trading

analytics

FX trade

processing

Commission

management

Loan index

Securities

finance

Enterprise

data

management

Credit factors

Instrument

reference data

ETF data &

analytics

ISDA

amendment

service

RED

acquired

Totem &

DaDD

acquired

LoanX

acquired

Chasen

acquired

Communicator

acquired

MarketXS

acquired

BOAT

acquired

CDS IndexCo

acquired

International

Index

Company

acquired

NTC

Economics

acquired

FCS acquired

SwapsWire

acquired

DTCC

DerivSERV

joint venture

created

TZ1 acquired

ClearPar

acquired

STORM

acquired

Wall Street on

Demand

acquired

QuIC acquired

Logicscope

acquired

QSG acquired

Data

Explorers

acquired

Cadis

acquired

26 94 140 313 470 1,081 1,439 2,041 2,414 2,849 3,278

CLO pricing

RMBS index

Tri-Party repo

data

Corporate

actions

Private equity

valuations

Loan

analytics

Credit

checking

Tax document

management

Collaboration

services

50% of

MarkitSERV

acquired

GCA acquired

Credit indices

European

ABS

performance

monitoring

European

equity trade

reporting

platform

Quote

parsing

Operational

benchmarking

2004 2005

2006

2008 2009

2011

2012

2013

2007

2010

2003

Investment

management

solutions

Social media

research

signals

Flash Japan

manufacturing

PMI

Client

onboarding

Intraday

iNAVs

Tax

compliance

services

RMB bond

index

2014

thinkFolio

acquired

Majority stake

in CTI

acquired

3,616

Employees

Q2 2015 overview

Acq

uis

itio

ns

Pro

du

cts

Securities

processing

Loan trade

closing

FX broker

affirmations

FX option

confirmations

Prime

brokerage

software

Loan

custodian

services

4,000+

2015

Agreed to

acquire

Halifax House

Price Index

Information

Mosaic

acquired

Agreed to

acquire

CoreOne

Technologies

Denotes Loans business

Denotes Valuations business

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Accretive acquisitions to drive growth

Q2 2015 overview

─ Positions Markit as a leading provider of end to

end securities processing solutions

─ Strong synergies with Markit Corporate Actions

allows us to support the full corporate actions

trade lifecycle

─ Helps customers improve operational efficiency

through automation

─ Closed July 1st and will be integrated into

Solutions division

─ A leading provider of index management, data

management, regulatory reporting and prime brokerage

services to financial institutions

─ Will benefit from our global sales relationships and

distribution capabilities

─ Further strengthens Markit executive team

─ To be integrated across Information and Solutions divisions

─ Timing subject to customary closing conditions

─ Key products:

RegOne Solutions: trade execution quality and

regulatory reporting solution

DeltaOne Solutions: index and ETP data

management services

VistaOne Solutions: data warehouse,

reporting and documentation tools

PrimeOne Solutions: hosted global prime

brokerage application services

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Management actions to deliver EPS1 growth

Management actions in 2015:

─ Share buyback of $350m as part of secondary

offering

─ Agreed to acquire Halifax House Price Index

─ Acquisition of Information Mosaic

─ Announced acquisition of CoreOneTechnologies2

─ Expected execution of remaining $150m share

buyback authorisation3

─ Expected terming out of debt structure3

~10%

2016 Adjusted DilutedEPS

2016 Adjusted DilutedEPS (inclusive of

management actions)

Additional Adjusted

Diluted EPS growth

expected from

management actions4

1. Adjusted diluted earnings per share

2. Subject to regulatory approval and closing conditions

3. Subject to conditions at the time

4. Net impact of all management action through 2015

Q2 2015 overview

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Q2 and 6 months 2015 financial results

Jeff Gooch

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Q2 and 6M 2015 financial results

Summary financial results

($ million)

Q2 2015 Q2 2014 YoY% 6M 2015 6M 2014 YoY%

Revenue 273.1 264.6 3.2% 544.6 524.0 3.9%

Constant currency growth - - 6.7% - - 7.4%

Adjusted EBITDA (1) 120.9 120.0 0.8% 241.6 236.7 2.1%

Adjusted EBITDA margin (2) 44.6% 45.4% N/A 44.7% 45.2% N/A

Adjusted Earnings (3) 68.4 68.3 0.1% 136.9 141.2 (3.0)%

Adjusted EPS, diluted (4) $0.36 $0.37 (2.7)% $0.72 $0.78 (7.7)%

Weighted average number of shares

used to compute earnings per share,

diluted (million)

190.8 182.8 4.4% 191.1 180.7 5.8%

1. Adjusted EBITDA is defined as profit for the period from continuing operations before income taxes, net finance costs, depreciation and amortisation on fixed assets and

intangible assets (including acquisition related intangible assets), acquisition related items, exceptional items, share based compensation and related items, net other

gains or losses, including Adjusted EBITDA attributable to joint ventures and excluding Adjusted EBITDA attributable to non-controlling interests.

2. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue, excluding revenue attributable to non-controlling interests.

3. Adjusted Earnings is defined as profit for the period from continuing operations before amortisation of acquired intangibles, acquisition related items, exceptional items,

share based compensation and related items, net other gains or losses and unwind of discount, less the tax effect of these adjustments and excluding Adjusted Earnings

attributable to non-controlling interests.

4. Adjusted EPS diluted is defined as Adjusted Earnings divided by the weighted average number of shares used to compute earnings per share diluted.

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Q2 and 6M 2015 financial results

Revenue growth ($ million)

$264.6

$13.5 $4.3 $(9.3)

$273.1

Q2 2014revenue

Organicgrowth

Acquiredgrowth

FX /Currency

impact

Q2 2015revenue

+5.1%

(3.5)% +1.6%

+3.2%

Q2 2015 vs. Q2 2014

$524.0

$29.2 $9.7 $(18.3)

$544.6

6M 2014revenue

Organicgrowth

Acquiredgrowth

FX /Currency

impact

6M 2015revenue

+5.6%

+1.8% (3.5)%

+3.9%

6M 2015 vs. 6M 2014

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Q2 and 6M 2015 financial results

Revenue mix

($ million) Q2 2015 % Q2 2014 % YoY %

Recurring fixed $150.6 55.1% $134.5 50.8% $16.1 4.3%

Recurring variable $107.8 39.5% $116.0 43.9% $(8.2) (4.4)%

Non-recurring $14.7 5.4% $14.1 5.3% $0.6 0.1%

Total Revenue $273.1 $264.6 $8.5

Q2 overview:

─ Recurring fixed revenue

increase primarily due to

new business wins in

Information and Solutions

─ Recurring variable revenue

decrease driven by

Processing, including impact

of price changes

─ Greater mix of recurring

fixed revenue offers better

stability and predictability of

earnings

─ Q2 renewal rate over 90%

50.8% 55.1%

43.9% 39.5%

5.3% 5.4%

Q2 2014 Q2 2015

Non-recurringrevenue

Recurringvariablerevenue

Recurringfixedrevenue

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Q2 and 6M 2015 financial results

Operating expenses

($ million)

Q2 2015 Q2 2014 YoY% 6M 2015 6M 2014 YoY%

Personnel

costs (91.8) (89.3) 2.8% (183.7) (178.4) 3.0%

Non

personnel

costs

(56.7) (55.3) 2.5% (111.6) (108.9) 2.5%

Total

operating

expenses

(148.5) (144.6) 2.7% (295.3) (287.3) 2.8%

Q2 overview:

─ Personnel costs increased

due to acquisitions and new

hires

─ Non personnel costs

increased due to public

company running costs

including SOX compliance

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Q2 and 6M 2015 financial results

Information

($ million)

122.2 123.3

58.6 59.3

0

20

40

60

80

100

120

140

Q2 2014 Q2 2015

Revenue Adjusted EBITDA

+0.9%

Q2 2015 Q2 2014 YoY% 6M 2015 6M 2014 YoY %

Revenue 123.3 122.2 0.9% 243.9 239.9 1.7%

Organic growth - - 4.9% - - 5.6%

Adjusted EBITDA 59.3 58.6 1.2% 117.5 113.8 3.3%

Adjusted EBITDA margin 48.1% 48.0% 0.1% 48.2% 47.4% 0.8%

Q2 overview:

─ Continued growth across

fixed income pricing and

reference data products

─ Double digit organic growth

in Indices

─ Maintained strong Adjusted

EBITDA margin

Organic

revenue

growth

+4.9%

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Q2 and 6M 2015 financial results

Processing

($ million)

Q2 overview:

─ Impact from electronic trading

and clearing reduced revenue by

approximately $5m

─ Increased volumes in the rates

asset class were partially offset

by weaker performance in credit

─ Strong Adjusted EBITDA margin

72.1 67.5

38.9 36.2

0

10

20

30

40

50

60

70

80

Q2 2014 Q2 2015

Revenue Adjusted EBITDA

(6.4)%

Q2 2015 Q2 2014 YoY% 6M 2015 6M 2014 YoY %

Revenue 67.5 72.1 (6.4)% 134.9 144.2 (6.4)%

Organic growth - - (2.5%) - - (2.4)%

Adjusted EBITDA 36.2 38.9 (6.9)% 71.6 78.2 (8.4)%

Adjusted EBITDA margin 53.6% 54.0% (0.4)% 53.1% 54.2% (1.1)%

Organic

revenue

growth

(2.5)%

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Q2 and 6M 2015 financial results

Solutions

($ million)

70.3

82.3

22.5 25.8

0

10

20

30

40

50

60

70

80

90

Q2 2014 Q2 2015

Revenue Adjusted EBITDA

+17.1%

Q2 2015 Q2 2014 YoY% 6M 2015 6M 2014 YoY%

Revenue 82.3 70.3 17.1% 165.8 139.9 18.5%

Organic growth - - 13.2% - - 13.8%

Acquisition related - - 6.1% - - 6.9%

Adjusted EBITDA 25.8 22.5 14.7% 53.6 44.7 19.9%

Adjusted EBITDA margin 31.3% 32.0% (0.7)% 32.3% 32.0% 0.3%

Q2 overview:

─ Strong organic revenue growth

─ Largest businesses – On

Demand, WSO, EDM – continue

to deliver strong growth

─ Corporate Actions continues to

grow strongly; acquisition of

Information Mosaic expected to

enhance future growth

─ Maintained Adjusted EBITDA

margin while continuing to invest

in new initiatives

Organic

revenue

growth

+13.2%

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Q2 and 6M 2015 financial results

Net debt / leverage

($ million)

June

30th, 2015

December

31st, 2014

Bank borrowings 371.9 224.5

Share buyback 170.2 211.1

Total borrowings 542.1 435.6

Cash and cash equivalents (119.5) (117.7)

Net debt 422.6 317.9

LTM Adjusted EBITDA(1) 493.1 488.2

Leverage (2)

H2 2015 management actions

0.86x 0.65x

─ Acquisition of Information Mosaic

─ Acquisition of CoreOne Technologies3

─ Expected $150 million share buyback4

Pro forma leverage

(Year end 2015) ~ 1.5x

6M overview:

─ Strong operating cash flow of

$197.9 million with significant

contribution from positive

working capital movements

─ Disciplined deployment of capital

expenditure of $63.6 million for

6M 2015

─ $394.1 million outflow on share

buybacks

─ Net debt increased $104.7

million

1. LTM Adjusted EBITDA is defined as Adjusted EBITDA for the previous twelve month period to date reported

2. Leverage is defined as net debt divided by LTM Adjusted EBITDA

3. Subject to regulatory approval and closing conditions

4. Subject to conditions at the time

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187.3

191.7 190.8

~182

~180 ~182

4.4

2.3 ~2

~2

3.2

~11

~4

Q4 2014 Dilution Q1 2015 Dilution Sharerepurchase

Q2 2015 Dilution Sharerepurchase

Q3 2015 Dilution Sharerepurchase

Q4 2015 FY 2016

Estimated in-quarter weighted average number of shares, diluted

Managing diluted shares outstanding

1

─ $350m share repurchase (~14m shares) completed June 10th, 2015

─ $150m remainder of authorised share buyback programme expected to be utilised by year end

─ Future buybacks expected to offset dilutive impact of annual compensation awards and option exercises

(million)

Expected

Dilution refers to dilutive impact of employee options and restricted stock.

Q2 and Q3 share repurchase totals refer to June 10, 2015 share repurchase of approximately $350m. Q4 share repurchase total is time-weighted and assumes utilisation of remaining

$150m authorisation in Q4 2015 (subject to conditions at the time) and share price of $26.30.

Q3 and Q4 dilution assumes average share price of $26.30 and option exercise of over 3m shares in each quarter.

2016 assumes a flat average share price, the exercise of 12.6m options and that all proceeds from exercise are utilised to repurchase shares.

Q2 and 6M 2015 financial results

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Appendix

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Q2 and 6M 2015 financial results

Shares outstanding

Summary

─ Average share price is a key driver of the

dilution calculation, an indicative estimate of

the impact of share price fluctuations on

diluted share count is shown in the table

─ Weighted average number of shares, diluted

is calculated in accordance with IFRS

─ The majority of options with a strike price

below $26.70 vested on IPO

─ Options with a strike price at $26.70 largely

vest in tranches over a 5 year period from

IPO date or January 2014

─ Option exercises will generate substantial

cash inflows as well as cash tax benefits

(million except share price) Q2 2015 Q2 2014

Number of shares outstanding at the reporting date 176.7 180.9

Weighted average number of shares, basic 183.1 177.3

Option dilution 6.5 4.8

Restricted shares dilution 1.2 0.7

Weighted average number of shares, diluted 190.8 182.8

Share price used for 2Q15 dilution calculation $26.30 $21.80

Illustrative average

share price

Illustrative diluted average

number of shares (million)

$23 188.0

$27 191.3

$30 196.5

Exercise price Outstanding (million) Unvested (million)

< $15.00 3.4 –

$15.00- $19.99 4.3 –

$20.00- $26.69 18.3 6.2

> $26.69 30.5 27.5

Total 56.5 33.7

Three months ended June 30th – Reported

Illustrative weighted average diluted number of shares three

months ended June 30th 2015

Total outstanding options at June 30th 2015

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Q2 and 6M 2015 financial results

Reconciliation to Adjusted EBITDA

($ million)

Q2 2015 Q2 2014 6M 2015 6M 2014 FY2014

LTM ended

June 2015

Profit for the period 44.5 29.4 99.0 69.2 164.1 193.9

Income tax expense 22.6 9.6 43.4 25.2 56.5 74.7

Finance costs – net 3.7 3.9 7.8 8.3 16.9 16.4

Depreciation and amortisation - other 26.4 23.5 51.3 46.8 100.1 104.6

Amortisation – acquisition related 14.4 14.1 28.8 28.3 57.9 58.4

Acquisition related items - 2.2 - 5.0 (12.4) (17.4)

Exceptional items 1.8 31.3 3.2 42.4 84.9 45.7

Share based compensation and related

items 8.7 3.1 18.6 6.1 16.0 28.5

Other (gains) / losses – net (0.2) 2.9 (8.1) 5.4 6.0 (7.5)

Share of results from joint venture not

attributable to Adjusted EBITDA (0.6) -- (1.3) - (1.1) (2.4)

Adjusted EBITDA attributable to non-

controlling interests (0.4) -- (1.1) - (0.7) (1.8)

Adjusted EBITDA 120.9 120.0 241.6 236.7 488.2 493.1

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Q2 and 6M 2015 financial results

Reconciliation to Adjusted Earnings

($ million)

Q2 2015 Q2 2014 6M 2015 6M 2014

Profit for the period 44.5 29.4 99.0 69.2

Amortisation – acquisition related 14.4 14.1 28.8 28.3

Acquisition related items - 2.2 - 5.0

Exceptional items 1.8 31.3 3.2 42.4

Share based compensation and related items 8.7 3.1 18.6 6.1

Other (gains) / losses – net (0.2) 2.9 (8.1) 5.4

Unwind of discount(1)

2.3 2.4 4.8 4.9

Tax effect of above adjustments (2.7) (17.1) (8.3) (20.1)

Adjusted Earnings attributable to non-controlling interests (0.4) - (1.1) -

Adjusted Earnings 68.4 68.3 136.9 141.2

Weighted average number of shares for computation of

earnings per share, diluted 190,780,009 182,777,170 191,085,644 180,724,370

1. Unwind of discount represents the non-cash unwinding of discount, recorded through finance costs – net in the income statement, primarily in relation to our share buyback liability.

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Q2 and 6M 2015 financial results

Definitions

Revenue growth

We measure revenue growth in terms of organic revenue growth, acquisition related revenue growth, foreign currency impact on revenue growth and constant currency revenue growth. We

define these components as follows:

Organic – Revenue growth from continuing operations from factors other than acquisitions and foreign currency fluctuations. We derive organic revenue growth from the development of new

products and services, increased penetration of existing products and services to new and existing customers, price changes for our products and services and market driven factors such as

increased trading volumes or changes in customer assets under management.

Acquisition related – Revenue growth from acquired businesses through the end of the fiscal year following the fiscal year in which the acquisition was completed. This growth results from our

strategy of making targeted acquisitions that facilitate growth by complementing our existing products and services and addressing market opportunities.

Foreign currency – The impact on revenue growth resulting from the difference between current revenue at current exchange rates and current revenue at the corresponding prior period

exchange rates.

Constant currency – Total revenue growth, excluding the impact of exchange rate movements from the prior period to the current period. This is equal to the combination of organic and

acquisition related revenue growth, as described above.

Revenue by type

Revenue by type is how we classify the income recognised from the sale of our products and services into three groups as defined below:

Recurring fixed revenue – Revenue generated from contracts specifying a fixed fee for services delivered over the life of the contract. The fixed fee is typically paid annually, semiannually or

quarterly in advance. These contracts are typically subscription contracts where the revenue is recognised across the life of the contract. The initial term of these contracts can range from one to

five years and usually includes auto-renewal clauses.

Recurring variable revenue – Revenue derived from contracts that specify a fee for services which is typically not fixed. The variable fee is typically paid monthly in arrears. Recurring variable

revenue is based on, among other factors, the number of trades processed, assets under management or the number of positions we value. Many of these contracts do not have a maturity

date while the remainder have an initial term ranging from one to five years.

Non-recurring revenue – Revenue that relates to certain software license sales and the associated consulting revenue.

Other Non-IFRS Measures

Adjusted EBITDA is defined as profit for the period from continuing operations before income taxes, net finance costs, depreciation and amortisation on fixed assets and intangible assets

(including acquisition related intangible assets), acquisition related items, exceptional items, share based compensation and related items, net other gains or losses, including Adjusted EBITDA

attributable to joint ventures and excluding Adjusted EBITDA attributable to non-controlling interests.

Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue, excluding revenue attributable to non-controlling interests.

LTM Adjusted EBITDA is defined as Adjusted EBITDA for the previous twelve month period from date reported.

Adjusted Earnings is defined as profit for the period from continuing operations before amortisation of acquired intangibles, acquisition related items, exceptional items, share based

compensation and related items, net other gains or losses and unwind of discount, less the tax effect of these adjustments and excluding Adjusted Earnings attributable to non-controlling

interests.

Adjusted EPS diluted is defined as Adjusted Earnings divided by the weighted average number of shares used to compute earnings per share, diluted.