IHS MARKIT LTD. The following discussion of our financial condition and operating results should be read in conjunction with other information and disclosures elsewhere in this Form 10-K, including our consolidated financial statements and accompanying notes, as well as "Website and Social Media Disclosure." The following discussion includes forward-looking statements as described in "Cautionary Note Regarding Forward-Looking Statements" in this Form 10-K. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is outlined under "Item 1A. Risk Factors" in this Form 10-K. Executive Summary Business Overview We are a world leader in critical information, analytics, and solutions for the major industries and markets that drive economies worldwide. We deliver next-generation information, analytics, and solutions to customers in business, finance, and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. We have more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world's leading financial institutions. Headquartered inLondon , we are committed to sustainable, profitable growth.
To best serve our customers, we are organized into the following four industry-focused segments:
•Financial Services, which includes our financial Information, Solutions, and Processing product offerings; •Transportation, which includes our Automotive and Maritime & Trade product offerings; •Resources, which includes our Upstream and Downstream product offerings; and •Consolidated Markets & Solutions, which includes our Product Design, Economics & Country Risk, and TMT benchmarking product offerings (until we divested our TMT offerings inDecember 2021 ). Our recurring revenue streams represented approximately 87 percent of our total revenue in 2021. Our recurring revenue is generally stable and predictable, and we have long-term relationships with many of our customers. During 2021, we focused our efforts on increasing revenue and Adjusted EBITDA profit margin, innovating and developing new product offerings, and responding effectively to the COVID-19 pandemic, including the following results and activities: •Our total organic revenue increased 9 percent, as our recurring and non-recurring revenue streams recovered from the COVID-19 pandemic effects on our 2020 revenue. •Our Adjusted EBITDA profit margin increased by 80 basis points, primarily as a result of improved revenue growth that allows us to leverage our cost base. •We continued to introduce or enhance many of our product offerings, including ourIHS Markit Data Lake . •We contributed our MarkitSERV derivatives processing business to OSTTRA, a new 50/50 corporate joint venture with CME Group, inSeptember 2021 . •We increased our quarterly dividend from$0.17 per share in 2020 to$0.20 per share in 2021.
For 2022, we expect to focus our efforts on the following actions:
•Closing the merger with S&P Global Inc. and integration activities.
•Increase in geographic, product, and customer penetration. We believe there are
continued opportunities to add new customers and to increase the use of our
products and services by existing customers. We plan to add new customers and
build our relationships with existing customers by leveraging our existing sales
channels, broad product portfolio, global footprint, and industry expertise to
anticipate and respond to the changing demands of our end markets.
•Introduce innovative offerings and enhancements. In recent years, we have
launched several new product offerings addressing a wide array of customer
needs, and we expect to continue innovating using our existing data sets and
industry expertise, converting core information to higher value advanced
analytics. We also intend to continue to invest across our business to increase
our customer value proposition.
•Improve efficiency, productivity, and financial strength. We are striving to
strengthen our operational excellence by consistently improving productivity and
efficiency, particularly as we work through the effects of the COVID-19
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pandemic. We also continue to build on our strong financial foundation,
balancing capital allocation between returning capital to shareholders
(targeting an annual capital return of 50 to 75 percent of our annual capital
capacity through share repurchases and cash dividends) and completing mergers
and acquisitions, focused primarily on targeted transactions in our core end
markets that will allow us to continue to build out our strategic position. The
merger agreement restricts our ability to purchase our shares and therefore our
share repurchase program, which had been suspended during 2021, expired on
November 30, 2021 , other than for the repurchase of shares associated with tax
withholding requirements for share-based compensation; consequently, our cash
balance is higher than we would typically strive to maintain.
On November 29, 2020 , we, S&P Global Inc., a New York corporation ("S&P
Global"), and Sapphire Subsidiary, Ltd. , a Bermuda exempted company limited by
shares and a wholly-owned subsidiary of S&P Global ("Merger Sub"), entered into
an agreement and plan of merger, which was subsequently amended on January 20,
2021 , pursuant to which Merger Sub will merge with and into IHS Markit , with IHS
Markit surviving such merger as a wholly-owned, direct subsidiary of S&P Global
(the "merger"). The merger intends to bring together a unique portfolio of
highly complementary assets, as well as innovation and technology capability to
accelerate growth and enhance value creation. At the completion of the merger,
each IHS Markit share that is issued and outstanding (other than dissenting
shares and shares held by IHS Markit in treasury) will be converted into the
right to receive 0.2838 fully paid and nonassessable shares of S&P Global common
stock, and, if applicable, cash in lieu of fractional shares, without interest,
and less any applicable withholding taxes. If the merger is completed, IHS
Markit shares will cease to be listed on the New York Stock Exchange and IHS
Markit shares will be deregistered under the Securities Exchange Act. The merger
was approved by IHS Markit and S&P Global shareholders on March 11, 2021 , but is
still subject to antitrust and regulatory approval requirements, as well as
other customary closing conditions. As a result of regulatory feedback, we
decided to sell our Oil Price Information Services; Coal, Metals and Mining; and
Petrochem Wire businesses (collectively, the "OPIS group") and have entered into
an agreement to sell the OPIS group to News Corp for approximately $1.15 billion
in cash. We also decided to sell our Base Chemicals business in response to
regulatory feedback and in December 2021 , we entered into an agreement to sell
that business to News Corp for approximately $295 million in cash. The OPIS
group sale is expected to be completed at the close of the merger between IHS
Markit and S&P Global, and the Base Chemicals business sale is expected to be
completed shortly thereafter. We currently anticipate closing the merger with
S&P Global during the calendar first quarter of 2022.
Key Performance Indicators
We believe that revenue growth, Adjusted EBITDA (both in dollars and margin), and free cash flow are key financial measures of our success. Adjusted EBITDA and free cash flow are financial measures that are not recognized terms underU.S. generally accepted accounting principles ("non-GAAP"). Revenue growth. We review year-over-year revenue growth in our segments as a key measure of our success in addressing customer needs. We measure revenue growth in terms of organic, acquisitive, and foreign currency impacts. We define these components as follows:
•Organic - We define organic revenue growth as total revenue growth from continuing operations for all factors other than acquisitions and foreign currency movements. We drive this type of revenue growth through value realization (pricing), expanding wallet share of existing customers through up-selling and cross-selling efforts, securing new customer business, and selling new or enhanced product offerings.
•Acquisitive - We define acquisitive revenue as the revenue generated from
acquired products and services from the date of acquisition to the first
anniversary date of that acquisition. This type of growth comes as a result of
our strategy to purchase, integrate, and leverage the value of assets we
acquire. We also include the impact of divestitures in this metric.
•Foreign currency - We define the foreign currency impact on revenue as the
difference between current revenue at current exchange rates and current revenue
at the corresponding prior period exchange rates. Due to the significance of
revenue transacted in foreign currencies, we believe it is important to measure
the impact of foreign currency movements on revenue.
In addition to measuring and reporting revenue by segment, we also measure and
report revenue by transaction type. Understanding revenue by transaction type
helps us identify and address broad changes in product mix. We summarize our
transaction type revenue into the following three categories:
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•Recurring fixed revenue represents revenue generated from contracts specifying
a relatively fixed fee for services delivered over the life of the contract. The
initial term of these contracts is typically annual (with some longer-term
arrangements) and non-cancellable for the term of the subscription, and may
contain provisions for minimum monthly payments. The fixed fee is typically paid
annually or more periodically in advance. These contracts typically consist of
subscriptions to our various information offerings and software maintenance,
which provide continuous access to our platforms and associated data over the
contract term. Subscription revenue is usually recognized ratably over the
contract term or, for term-based software license arrangements, annually on
renewal.
•Recurring variable revenue represents revenue from contracts that specify a fee
for services, which is typically not fixed. The variable fee is usually 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, and revenue is recognized based on the specific factor used
(e.g., for usage-based contracts, we recognize revenue in line with usage in the
period). Most of these contracts have an initial term ranging from one to five
years, with auto-renewal periods thereafter. Recurring variable revenue was
derived entirely from the Financial Services segment for all periods presented.
•Non-recurring revenue represents consulting, services, single-document product
sales, perpetual license sales and associated services, conferences and events,
and advertising. Our non-recurring products and services are an important part
of our business because they complement our recurring business in creating
strong and comprehensive customer relationships.
Non-GAAP measures. We use non-GAAP financial measures such as EBITDA, Adjusted
EBITDA, and free cash flow in our operational and financial decision-making. We
believe that such measures allow us to focus on what we deem to be more reliable
indicators of ongoing operating performance (Adjusted EBITDA) and our ability to
generate cash flow from operations (free cash flow). We also believe that
investors may find these non-GAAP financial measures useful for the same
reasons, although we caution readers that non-GAAP financial measures are not a
substitute for U.S. GAAP financial measures or disclosures. None of these
non-GAAP financial measures are recognized terms under U.S. GAAP and do not
purport to be an alternative to net income or operating cash flow as an
indicator of operating performance or any other U.S. GAAP measure. Throughout
this MD&A, we provide reconciliations of these non-GAAP financial measures to
the most directly comparable U.S. GAAP measures.
EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are used by securities
analysts, investors, and other interested parties to assess our operating
performance. For example, a measure similar to Adjusted EBITDA is required by
the lenders under our revolving credit agreement. We define EBITDA as net income
plus or minus net interest, plus provision for income taxes, depreciation, and
amortization. Our definition of Adjusted EBITDA further excludes primarily
non-cash items and other items that we do not consider to be useful in assessing
our operating performance (e.g., stock-based compensation expense, restructuring
and impairment charges, acquisition-related costs and performance compensation,
exceptional litigation, net other gains and losses, pension mark-to-market and
settlement expense, the impact of equity-method investments and noncontrolling
interests, and discontinued operations).
Free Cash Flow. We define free cash flow as net cash provided by operating activities less payments for acquisition-related performance compensation and capital expenditures.
Non-GAAP measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies comparable to us, many of which present non-GAAP measures when reporting their results. These measures can be useful in evaluating our performance against our peer companies because we believe the measures provide users with valuable insight into key components ofU.S. GAAP financial disclosures. For example, a company with higherU.S. GAAP net income may not be as appealing to investors if its net income is more heavily comprised of gains on asset sales. Likewise, excluding the effects of interest income and expense moderates the impact of a company's capital structure on its performance. However, non-GAAP measures have limitations as an analytical tool. Because not all companies use identical calculations, our presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. They are not presentations made in accordance withU.S. GAAP, are not measures of financial condition or liquidity, and should not be considered as an alternative to profit or loss for the period determined in accordance withU.S. GAAP or operating cash flows determined in accordance withU.S. GAAP. As a result, these performance measures should not be considered in isolation from, or as a substitute analysis for, results of operations as determined in accordance withU.S. GAAP.
Global Operations
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Approximately 40 percent of our revenue is transacted outside of the United
States ; however, only about 20 percent of our revenue is transacted in
currencies other than the U.S. dollar. As a result, a strengthening U.S. dollar
relative to certain currencies has historically resulted in a negative impact on
our revenue; conversely, a weakening U.S. dollar has historically resulted in a
positive impact on our revenue. The largest foreign currency exposures for
revenue are the British Pound, Euro, and Canadian Dollar.
The impact of foreign currency movements on operating income is mitigated due to
offsetting revenue and operating expense exposures denominated in currencies
other than the U.S. dollar. Our largest net foreign currency exposures are the
Indian Rupee, Euro, Canadian Dollar, and Singapore Dollar. See "Quantitative and
Qualitative Disclosures About Market Risk - Foreign Currency Exchange Rate Risk"
for additional discussion of the impacts of foreign currencies on our
operations.
Pricing Information
We customize many of our sales offerings to meet individual customer needs and base our pricing on a number of factors, including various price segmentation models which utilize customer attributes, value attributes, and other data sources. Attributes can include a proxy for customer size (e.g., barrels of oil equivalent and annual revenue), industry, users, usage, breadth of the content to be included in the offering, and multiple other factors. Because of the level of offering customization we employ, it is difficult for us to evaluate pricing impacts on a period-to-period basis with absolute certainty. This analysis is further complicated by the fact that the offering sets purchased by customers are often not constant between periods. As a result, we are not able to precisely differentiate between pricing and volume impacts on changes in revenue comprehensively across the business.
Other Items
Cost of operating our business. We incur our cost of revenue primarily through acquiring, managing, and delivering our offerings. These costs include personnel, information technology, data acquisition, and occupancy costs, as well as royalty payments to third-party information providers. Our selling, general and administrative expense includes wages and other personnel costs, commissions, corporate occupancy costs, and marketing costs. A large portion of our operating expenses are not directly commensurate with volume sold, particularly in our recurring revenue business model. Stock-based compensation expense. We issue equity awards to our employees primarily in the form of restricted stock units and performance stock units, for which we record cost over the respective vesting periods. The typical vesting period is three years. As ofNovember 30, 2021 , we had approximately 6.0 million unvested RSUs.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance withU.S. GAAP. In applyingU.S. GAAP, we make significant estimates and judgments that affect our reported amounts of assets, liabilities, revenue, and expense, as well as disclosure of contingent assets and liabilities. We believe that our accounting estimates and judgments are reasonable when made, but in many instances, alternative estimates and judgments would also be acceptable. In addition, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on historical experience and other assumptions that we believe are reasonable, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which are discussed further below. Revenue Recognition. Most of our offerings are provided under agreements containing standard terms and conditions. Approximately 87 percent of our 2021 revenue was derived from recurring revenue arrangements, which generally are initially deferred and then recognized ratably over the contract term. These recurring revenue arrangements typically do not require any significant judgments about when revenue should be recognized. A limited number of recurring revenue arrangements and certain non-recurring revenue arrangements contain multiple performance obligations. We apply judgment in identifying the separate performance obligations to be delivered under the arrangement and allocating the transaction price based on the estimated standalone selling price of each performance obligation. Business Combinations. We apply the purchase method of accounting to our business combinations. All of the assets acquired, liabilities assumed, and contingent consideration are allocated based on their estimated fair values. Fair value determinations involve significant estimates and assumptions about several highly subjective variables, including future cash flows, discount rates, and expected business performance. There are also different valuation models and inputs for each 35 -------------------------------------------------------------------------------- Table of Contents component, the selection of which requires considerable judgment. Our estimates and assumptions may be based, in part, on the availability of listed market prices or other transparent market data. These determinations will affect the amount of amortization expense recognized in future periods. We base our fair value estimates on assumptions we believe are reasonable, but recognize that the assumptions are inherently uncertain. Depending on the size of the purchase price of a particular acquisition, the mix of intangible assets acquired, and expected business performance, the purchase price allocation could be materially impacted by applying a different set of assumptions and estimates. In 2021, 2020, and 2019, we recorded approximately$42.1 million ,$3.7 million , and$61.5 million , respectively, of intangible assets associated with business combinations. The structure of certain business combinations may also require the application of significant assumptions and estimates. For example, in 2017, we acquired 78 percent of automotiveMastermind ("aM"); in exchange for the remaining 22 percent, we issued equity interests in aM's immediate parent holding company to aM's founders and certain employees. The acquisition of these interests over the five years post-acquisition is based on put/call provisions that tie the valuation to the underlying adjusted EBITDA performance of aM. Since the purchase of these interests requires continued service of the founders and employees, we are accounting for the arrangement as compensation expense that is remeasured based on changes in the fair value of the equity interests. We had preliminarily estimated a range of$200 million to$225 million of unrecognized compensation expense related to this transaction, to be recognized over a weighted-average remaining recognition period of approximately four years. InNovember 2019 , the option holders exercised 62.5 percent of their remaining 22 percent for$76 million , which was paid inDecember 2019 , and we estimated the compensation expense associated with the remaining equity interests to be approximately$70 to$75 million . In subsequent periods during 2020 and 2021, upon reassessment of near-term financial expectations and their impact on the earn-out calculations, we further reduced our estimated compensation expense range for the remaining equity interests to$55 million to$60 million . As ofNovember 30, 2021 , approximately$47 million of compensation expense has been recognized, with the remaining amount to be recognized throughSeptember 2022 . We will acquire the remaining 8 percent of aM no later thanDecember 2022 based on an earn-out mechanic tied to preceding year Adjusted EBITDA performance.Goodwill and Other Intangible Assets. We make various assumptions about our goodwill and other intangible assets, including their estimated useful lives and whether any potential impairment events have occurred. We perform impairment analyses on the carrying values of goodwill and other intangible assets at least annually. Additionally, we review the carrying value of goodwill and other intangible assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Examples of such events or changes in circumstances, many of which are subjective in nature, include the following: •Significant negative industry or economic trends; •A significant change in the manner of our use of the acquired assets or our strategy; •A significant divestiture or other disposition activity; •A significant decrease in the market value of the asset; •A significant change in legal factors or in the business climate that could affect the value of the asset; and •A change in segments.
If an impairment indicator is present, we perform an analysis to confirm whether an impairment has actually occurred and if so, the amount of the required charge.
As ofNovember 30, 2021 and 2020, we had approximately$3.0 billion and$3.8 billion , respectively, of finite-lived intangible assets. For finite-lived intangible assets, we review the carrying amount at least annually to determine whether current events or circumstances indicate a triggering event which could require an adjustment to the carrying amount. A finite-lived intangible asset is considered to be impaired if its carrying value exceeds the estimated future undiscounted cash flows to be derived from it. We exercise judgment in selecting the assumptions used in the estimated future undiscounted cash flows analysis. Any impairment is measured by the amount that the carrying value of such assets exceeds their fair value. As ofNovember 30, 2021 and 2020, we had approximately$9.4 billion and$9.9 billion , respectively, of goodwill. For goodwill, we use both qualitative and quantitative analysis to determine whether we believe it is more likely than not that goodwill has been impaired. In 2021, we used a qualitative analysis for each reporting unit in determining that no impairment indicators were present. In 2020, we used a quantitative analysis in evaluating each of our reporting units, determining that we had a material excess of fair value over carrying value for each reporting unit. Our qualitative and quantitative analyses require a number of significant assumptions and judgments, including assumptions about future economic conditions, revenue growth, and operating margins, among other factors. The use of different estimates or assumptions could result in significantly different fair values for our goodwill and other intangible assets. 36 -------------------------------------------------------------------------------- Table of Contents Income Taxes. We exercise significant judgment in determining our provision for income taxes, current tax assets and liabilities, deferred tax assets and liabilities, future taxable income (for purposes of assessing our ability to realize future benefit from our deferred tax assets), our permanent reinvestment assertion regarding foreign earnings, and recorded reserves related to uncertain tax positions. A valuation allowance is established to reduce our deferred tax assets to the amount that is considered more likely than not to be realized through the generation of future taxable income and other tax planning opportunities. To the extent that a determination is made to establish or adjust a valuation allowance, the expense or benefit is recorded in the period in which the determination is made.
If actual results differ from estimates we have used, or if we adjust these estimates in future periods, our operating results and financial position could be materially affected.
We monitor and evaluate tax law changes; for example, the Tax Cuts and Jobs Act significantly changed existingU.S. tax law and included numerous provisions that affect our business. Subsequent regulations and interpretations can change our initial estimates and assumptions. We assess the impact of new guidance or regulations fromU.K. ,U.S. , and other tax authorities on our corporate structure and transactions between our consolidated entities. Adjustments to our consolidated financial statements are recognized as discrete income tax expense or benefit in the period the guidance is issued. Stock-Based Compensation. Our stock plans provide for the grant of various equity awards, including performance-based awards. For time-based restricted stock unit grants, we calculate stock-based compensation cost by multiplying the grant date fair market value by the number of shares granted, reduced for estimated forfeitures. The estimated forfeiture rate is based on historical experience, and we periodically review our forfeiture assumptions based on actual experience. For performance-based restricted stock unit grants, including those with a market-based adjustment factor, we calculate stock-based compensation cost by multiplying the grant date fair market value by the number of shares granted, reduced for estimated forfeitures. Each quarter, we evaluate the probability of the number of shares that are expected to vest and adjust our stock-based compensation expense accordingly.
Results of Operations
Total Revenue
Total revenue for 2021 increased 9 percent compared to the same period of 2020.
Total revenue for 2020 decreased 3 percent compared to the same period of 2019.
The table below displays the percentage point change in revenue due to organic,
acquisitive, and foreign currency factors when comparing 2021 to 2020 and 2020
to 2019.
Increase (Decrease) in Total Revenue
Foreign
(All amounts represent percentage points) Organic Acquisitive Currency
2021 vs. 2020 9 % (1) % 1 %
2020 vs. 2019 (1) % (2) % - %
Organic revenue growth for 2021, compared to 2020, was led by strong performance
in the Transportation segment as the economic environment continues to recover
from the COVID-19 pandemic. Financial Services segment organic revenue growth
was strong as well. We experienced negative organic revenue growth in the
Resources segment for 2021, but organic revenue growth turned positive in the
fourth quarter of 2021. CMS segment organic revenue growth accelerated in the
fourth quarter of 2021, as well as benefiting from Boiler Pressure Vessel Code
("BPVC") sales associated with the BPVC release in the third quarter of 2021.
Organic revenue growth in Financial Services for 2020, compared to 2019, was
more than offset by either flat or negative organic revenue growth in the
Resources, Transportation, and CMS segments, primarily due to the economic
environment impacting Resources Upstream product offerings, the cancellations of
Resources and Transportation events in the second quarter of 2020, and the
off-year cycle of the BPVC biennial release. Additionally, our dealer-facing
products in the Transportation segment were most negatively impacted in the
second quarter of 2020, with recovery beginning in the third and fourth quarters
of 2020.
The acquisition-related revenue decline for 2021 was primarily due to the
divestiture of the Financial Services MarkitSERV business line to the OSTTRA
joint venture on September 1, 2021 . The acquisition-related revenue decline for
2020 was primarily due to the A&D business line divestiture that we completed at
the beginning of 2020 and the TMT market
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intelligence assets divestiture in the third quarter of 2019, partially offset
by the Agribusiness acquisition in the third quarter of 2019.
Foreign currency movements had a slightly positive effect on our 2021 revenue
growth and a minimal effect on our 2020 revenue growth. Due to the extent of our
global operations, foreign currency movements could continue to positively or
negatively affect our results in the future.
Revenue by Segment
Year ended November 30, % Change 2021 % Change 2020
(In millions, except percentages) 2021 2020 2019 vs. 2020 vs. 2019
Revenue:
Financial Services $ 1,940.7 $ 1,784.0 $ 1,701.5 9 % 5 %
Transportation 1,354.4 1,151.6 1,246.1 18 % (8) %
Resources 846.5 863.1 933.8 (2) % (8) %
CMS 516.5 489.1 533.2 6 % (8) %
Total revenue $ 4,658.1 $ 4,287.8 $ 4,414.6 9 % (3) %
As a percent of total revenue:
Financial Services 42 % 42 % 39 %
Transportation 29 % 27 % 28 %
Resources 18 % 20 % 21 %
CMS 11 % 11 % 12 %
The percentage change in revenue for each segment is due to the factors described in the following table.
2021 vs. 2020 2020 vs. 2019
(All amounts represent percentage Foreign Foreign
points) Organic Acquisitive Currency Organic Acquisitive Currency
Financial Services revenue 10 % (2) % 1 % 5 % - % - %
Transportation revenue 16 % - % 1 % (2) % (6) % - %
Resources revenue (2) % - % - % (9) % 1 % - %
CMS revenue 5 % (1) % 1 % - % (8) % - %
Financial Services revenue experienced broad-based organic growth in both 2021
and 2020. Within our Information product offerings, we experienced 7 percent
organic revenue growth in 2021 and 5 percent organic revenue growth in 2020,
primarily due to continued strong demand for our pricing, reference data, and
valuation offerings, as well as continued growth in our equities regulatory
reporting and trading analytics platforms. Solutions organic revenue growth of
13 percent in 2021 benefited from robust market activity in equities and loan
markets, combined with a broad-based rebound of investment by our customers in
our software solutions and our corporate actions and regulatory and compliance
offerings. Solutions organic revenue growth of 5 percent in 2020 was due to
strength in global and private capital markets offerings, as well as in
corporate actions offerings. Processing organic revenue growth of 9 percent for
2021 was driven by steady market activity in loan markets, partially offset by
decreased derivative processing activity. Processing organic revenue growth of 2
percent in 2020 was primarily due to solid derivative processing activity in the
second quarter of 2020 resulting from increased market volatility during that
period.
Transportation revenue experienced very strong organic revenue growth in 2021.
The dealer-facing portion of our automotive offerings experienced strong growth
across CARFAX and automotiveMastermind, as we built back from the effects of the
pandemic in 2020. Other parts of our automotive offerings, such as products
supporting OEMs, parts manufacturers, and banking and insurance clients
contributed organic revenue growth, albeit at a more stable pace. The
Transportation organic revenue decline for 2020 was due to the onset of the
COVID-19 pandemic in the second quarter of 2020. Revenue from the dealer-facing
portion of our automotive offerings in the second quarter of 2020 was negatively
impacted by our temporary price relief for dealer customers, a pause in new
sales activity, and cancellations from financially distressed customers.
Non-recurring Transportation organic revenue for 2020 declined significantly,
primarily reflecting lower recall and marketing revenues. Our automotive product
offerings continue to provide the largest contribution to Transportation
revenue, and our diversification in used and new car product offerings allows
for balanced opportunities for growth.
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Resources revenue declined slightly organically in 2021, with our Upstream product offerings continuing to be negatively impacted by constrained industry capital expenditure spend. The Upstream declines have been partially offset by the return of our CERAWeek energy conference, which we held virtually inMarch 2021 , and organic growth from our Downstream offerings. The pronounced Resources organic revenue decline for 2020 was primarily a result of the COVID-19 pandemic, which resulted in significant pressure on the Upstream portion of our Resources revenue and the cancellation of our annual CERAWeek event inMarch 2020 . Our Resources annual contract value ("ACV"), which represents the annualized value of recurring revenue contracts, increased$14 million during 2021, compared to a$74 million decrease during 2020. CMS revenue experienced organic growth largely due to recurring revenue improvements in our Product Design offerings, as well as sales associated with the biennial release of the BPVC in the third quarter of 2021. CMS organic revenue growth for 2020 was flat compared to 2019, with recurring revenue improvements in Product Design offerings offset by the off-year cycle of the BPVC biennial release. The acquisitive revenue decline in 2020 was due to the TMT market intelligence assets divestiture.
Revenue by Transaction Type
Year ended November 30, % Change 2021 vs. 2020 % Change 2020 vs. 2019
(In millions, except percentages) 2021 2020 2019 Total Organic Total Organic Revenue: Recurring fixed$ 3,395.7 $ 3,165.2 $ 3,162.4 7 % 7 % - % 2 % Recurring variable 669.9 616.3 572.9 9 % 12 % 8 % 7 % Non-recurring 592.5 506.3 679.3 17 % 16 % (25) % (21) % Total revenue$ 4,658.1 $ 4,287.8 $ 4,414.6 9 % 9 % (3) % (1) % As a percent of total revenue: Recurring fixed 73 % 74 % 72 % Recurring variable 14 % 14 % 13 % Non-recurring 13 % 12 % 15 % The recurring-based business represented 87 percent of total revenue in 2021, compared to 88 percent and 85 percent of total revenue in 2020 and 2019, respectively. Recurring revenue represents a steady and predictable source of revenue for us. Recurring fixed revenue increased 7 percent and 2 percent organically for 2021 and 2020, respectively. Transportation recurring revenue increased 18 percent organically in 2021, compared to 3 percent in 2020, when growth was negatively affected by the effects of the COVID-19 pandemic. Financial Services offerings provided continued solid growth in 2021, with recurring fixed organic growth at 7 percent, compared to 6 percent in 2020. Resources recurring offerings declined 6 percent organically in 2021, compared to 3 percent in 2020, largely due to the effects of the COVID-19 pandemic on our customer base. CMS recurring offerings increased 4 percent in 2021, compared to 2 percent in 2020. Recurring variable revenue was comprised entirely of Financial Services revenue for all periods, and grew 12 percent organically in 2021 and 7 percent organically in 2020. Non-recurring organic revenue increases for 2021 were primarily driven by strength in our Financial Services Solutions offerings, more normal activity in our Transportation offerings, the return of our annual conference events, and the BPVC release. Non-recurring revenue decreased 21 percent organically in 2020, due primarily to the COVID-19 pandemic that led to the cancellation of our large customer events in the second quarter of 2020, lower OEM activity within our Transportation segment, and lower energy consulting revenue, as well as a difficult year-over-year comparison in Financial Services and the off-year cycle of the BPVC biennial release. 39 -------------------------------------------------------------------------------- Table of Contents Operating Expenses
The following table shows our operating expenses and the associated percentages of revenue.
Year ended November 30, % Change 2021 % Change 2020
(In millions, except percentages) 2021 2020 2019 vs. 2020 vs. 2019
Operating expenses:
Cost of revenue $ 1,708.3 $ 1,590.0 $ 1,657.0 7 % (4) %
SG&A expense 1,181.0 1,128.0 1,197.9 5 % (6) %
Total cost of revenue and SG&A expense
$ 2,854.9 6 % (5) %
Depreciation and amortization expense
$ 573.1 (1) % 3 % As a percent of revenue: Total cost of revenue and SG&A expense 62 % 63 % 65 % Depreciation and amortization expense 13 % 14 % 13 %
Cost of Revenue and SG&A Expense
In managing our business, we evaluate our costs by type (e.g., salaries and benefits, facilities, IT) rather than by income statement classification. The decrease in absolute total cost of revenue and SG&A expense in 2020 was primarily due to the execution of cost reduction activities we put in place at the onset of the COVID-19 pandemic, with the 2021 increase in absolute total cost of revenue and SG&A returning to more normal levels as revenue improved. As a percent of revenue, cost of revenue and SG&A expense have been steadily decreasing, primarily because of the ongoing cost management and rationalization efforts associated with acquisition integration, as well as the incremental cost reduction efforts in 2020 to mitigate the effects of the COVID-19 pandemic, which cost reduction continued into 2021. Within our cost of revenue and SG&A expense, stock-based compensation expense as a percentage of revenue was 5 percent, 6 percent, and 5 percent, respectively, for the years endedNovember 30, 2021 , 2020, and 2019. The higher stock-based compensation percentage in 2020 was largely due to our higher share price, related employer tax impacts associated with the exercise of stock options, and accelerations for employees impacted by cost reduction activities.
Depreciation and Amortization Expense
Depreciation expense has been increasing primarily as a result of increases in capital expenditures for our various infrastructure and software development investments, while amortization expense has leveled off or decreased recently, as our last significant acquisition was in 2018.
Restructuring and Impairment Charges
Please refer to Note 11 to the Consolidated Financial Statements in this Annual Report on Form 10-K for a discussion of costs associated with our cost-reduction initiatives. In 2021, 2020, and 2019, we incurred approximately$31.4 million ,$161.1 million , and$17.3 million , respectively, of direct and incremental costs associated with restructuring and impairment charges. The 2020 charges included employee severance and the abandonment or partial abandonment of various office locations around the world in response to the COVID-19 pandemic, which continued into 2021.
Acquisition-Related Costs
Please refer to Note 12 to the Consolidated Financial Statements in this Annual Report on Form 10-K for a discussion of our acquisition- and divestiture-related cost activities. In 2021, 2020, and 2019, we incurred$125.8 million ,$45.3 million , and$70.3 million , respectively, of costs associated with acquisitions and divestitures, including employee severance charges and retention costs, contract termination costs for facility consolidations (prior to the adoption of ASC Topic 842), Synaps litigation settlement costs (in 2021), legal and professional fees, and compensation costs of$10.4 million in 2021,$6.9 million in 2020, and$41.5 million in 2019, related to the performance awards granted in connection with the purchase of aM. We expect to incur an additional$8 to$13 million of acquisition-related costs related to the aM performance awards over the next 12 months.
Other Income, Net
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Other income for 2021 includes an approximate$489 million gain on the divestiture of our MarkitSERV business line, with the remaining gain on sale coming from a small product-offering divestiture inNovember 2021 . Other income for 2020 includes an approximate$377 million gain on sale of our Aerospace & Defense business line, and other income for 2019 includes an approximate$112 million gain on the sale of the majority of our Technology, Media & Telecom market intelligence assets portfolio.
Segment Adjusted EBITDA
Year ended November 30, % Change 2021 % Change 2020
(In millions, except percentages) 2021 2020 2019 vs. 2020 vs. 2019
Adjusted EBITDA:
Financial Services $ 962.0 $ 886.1 $ 786.2 9 % 13 %
Transportation 645.0 514.7 520.9 25 % (1) %
Resources 339.5 357.3 403.5 (5) % (11) %
CMS 130.8 126.5 121.1 3 % 4 %
Shared services (47.0) (47.9) (52.8) (2) % (9) %
Total Adjusted EBITDA $ 2,030.3 $ 1,836.7 $ 1,778.9 11 % 3 %
As a percent of segment revenue:
Financial Services 49.6 % 49.7 % 46.2 %
Transportation 47.6 % 44.7 % 41.8 %
Resources 40.1 % 41.4 % 43.2 %
CMS 25.3 % 25.9 % 22.7 %
Total Adjusted EBITDA for 2021 increased primarily due to strong Transportation
and Financial Services revenue performance, as well as our cost containment
efforts in the current COVID-19 pandemic environment, which containment efforts
continued in 2021. We continue to focus our efforts on organic revenue growth
and cost management to improve overall margins. Financial Services segment
Adjusted EBITDA was largely flat, reflecting increased organic revenue growth,
offset by increased investment in segment product offerings. The increase in
Adjusted EBITDA for the Transportation segment was primarily due to organic
revenue growth, which improved substantially compared to the prior year, when it
was negatively impacted by the pandemic. Resources Adjusted EBITDA and
associated margin decreased due to the organic revenue decline as a result of
the COVID-19 pandemic, and CMS Adjusted EBITDA and margin declined slightly due
to lower margins associated with BPVC sales, as well as product offering mix
shift.
Total Adjusted EBITDA for 2020 increased primarily because of the leverage in
our business model and cost reduction efforts, partially offset by the sale of
our A&D business line and the impact of the COVID-19 pandemic and the associated
economic disruption on our revenue growth. Financial Services segment Adjusted
EBITDA and associated margin increased because of organic revenue growth,
favorable product mix, and cost management activities related to the pandemic.
Transportation segment Adjusted EBITDA was lower due to the negative organic
revenue growth in 2020 as a result of the COVID-19 pandemic, as well as the
first quarter 2020 divestiture of the A&D business line; however, Transportation
Adjusted EBITDA margin increased as we carefully managed costs in a lower
revenue environment. Resources Adjusted EBITDA and associated margin decreased
due to the slowdown in organic revenue growth as a result of the COVID-19
pandemic.
Provision for Income Taxes
Our effective tax rate for continuing operations for the year ended
The increase in our tax rate for 2021, compared to 2020, is primarily due to a decrease in excess tax benefits on stock-based compensation of approximately$68 million , partially offset by the tax-efficient divestiture of the MarkitSERV business line (U.K. share sales are exempt from tax) and an increase in the R&D tax credit. The decrease in our tax rate for 2020, compared to 2019, is primarily due to an increase in excess tax benefits on stock-based compensation of approximately$51 million and the tax-efficient divestiture of the A&D business line (U.K. share sales are exempt from tax), partially offset byU.S. minimum tax and aU.K. tax rate change. 41 -------------------------------------------------------------------------------- Table of Contents Please refer to Note 1 3 to the Consolidated Financial Statements in this Annual Report on Form 10-K for further information about our income taxes.
EBITDA and Adjusted EBITDA (non-GAAP measure)
Year ended November 30, % Change 2021 % Change 2020
(In millions, except percentages) 2021 2020 2019 vs. 2020 vs. 2019
Net income attributable to IHS Markit Ltd. $ 1,206.8 $ 870.7 $ 502.7 39 % 73 %
Interest income (0.3) (1.0) (1.9)
Interest expense 220.2 236.6 259.7
Provision (benefit) for income taxes 135.3 13.3 242.6
Depreciation 224.8 217.5 196.1
Amortization 361.7 374.1 377.0
EBITDA $ 2,148.5 $ 1,711.2 $ 1,576.2 26 % 9 %
Stock-based compensation expense 226.9 265.7 223.8
Restructuring and impairment charges 31.4 161.1 17.3
Acquisition-related costs 115.4 38.4 28.8
Acquisition-related performance compensation 10.4 6.9 41.5
Loss on debt extinguishment - - 7.0
Gain on sale of assets (534.6) (377.3) (115.3)
Pension mark-to-market and settlement expense - 31.2 1.8
Adjusted EBITDA impacts from equity-method
investments and noncontrolling interests 32.3 (0.5) (2.2)
Adjusted EBITDA $ 2,030.3 $ 1,836.7 $ 1,778.9 11 % 3 %
Adjusted EBITDA as a percentage of revenue 43.6 % 42.8 % 40.3 %
As a percentage of revenue, Adjusted EBITDA increased 80 basis points in 2021
and 250 basis points in 2020. The 2021 increase was primarily due to organic
revenue growth without proportionate growth in expense as we continued to focus
on cost management activities as a result of COVID-19 and the current economic
environment. The 2020 increase was primarily due to cost reduction efforts to
moderate the negative impact of revenue declines from COVID-19 and the economic
environment.
Financial Condition
(In millions, except As of November As of November
percentages) 30, 2021 30, 2020 Dollar change Percent change
Accounts receivable, net $ 906.5 $ 891.7 $ 14.8 2 %
Accrued compensation $ 250.6 $ 206.1 $ 44.5 22 %
Deferred revenue $ 929.7 $ 886.2 $ 43.5 5 %
The increase in accrued compensation is primarily due to a higher current year
accrual for employee bonuses due to improved financial results in 2021 after a
difficult 2020. The deferred revenue increase was primarily due to
year-over-year organic revenue growth.
Liquidity and Capital Resources
Our principal sources of liquidity include cash generated by operating activities, cash and cash equivalents on the balance sheet, and amounts available under a revolving credit facility. As ofNovember 30, 2021 , we had cash and cash equivalents of$293 million . In 2021, we generated nearly$1.5 billion in net cash from operating activities. As ofNovember 30, 2021 , we had approximately$1.3 billion available under our revolving credit facility. We had approximately$4.65 billion of debt as ofNovember 30, 2021 , consisting almost entirely of senior notes. See " Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 10 " in Part II of this Form 10-K for additional information about our debt obligations, including maturity dates, interest rates, and other terms 42 -------------------------------------------------------------------------------- Table of Contents and conditions. In 2022, approximately$748.2 million of our senior notes will come due. We paid approximately$212.4 million in interest during 2021, and we anticipate paying slightly less in interest in 2022. Our interest expense decreased in 2021 and 2020, primarily due to lower floating interest rates and decreased borrowings on our revolving facility debt. Subject to certain exceptions, the merger agreement with S&P Global restricts our ability to borrow more than$500 million in the aggregate without the prior consent of S&P Global. OnNovember 16, 2021 , S&P Global announced that, in connection with the merger,S&P Global Market Intelligence Inc. ("Market Intelligence"), a wholly owned subsidiary of S&P Global, commenced (i) offers to exchange (collectively, the "Exchange Offers") any and all outstanding notes (the "IHS Markit Notes") issued byIHS Markit for up to$4,642,848,000 aggregate principal amount of new notes to be issued by S&P Global and cash and (ii) the related solicitations of consents (collectively, the "Consent Solicitations") to adopt the Amendments (as defined below) in each of the IHS Markit Indentures (as defined below) governing the IHS Markit Notes. OnDecember 1, 2021 , S&P Global announced that the requisite number of consents have been received to adopt the Amendments with respect to all outstanding series of IHS Markit Notes, which results were based on early tenders in the Exchange Offers and Consent Solicitations. Following the receipt of the requisite consents, onNovember 30, 2021 ,IHS Markit entered into supplemental indentures (the "Supplemental Indentures") relating to each of (i) the senior notes indenture, dated as ofJuly 28, 2016 , amongIHS Markit , the guarantors party thereto andComputershare Trust Company, N.A. , as successor toWells Fargo Bank, National Association , as trustee (in such capacity, the "Trustee"), (ii) the senior notes indenture, dated as ofFebruary 9, 2017 , amongIHS Markit , the guarantors party thereto and the Trustee, (iii) the senior notes indenture, dated as ofDecember 1, 2017 , amongIHS Markit , the guarantors party thereto and the Trustee and (iv) the senior indenture, dated as ofJuly 23, 2018 , betweenIHS Markit and the Trustee (collectively, the "IHS Markit Indentures") governing the IHS Markit Notes. The proposed amendments (the "Amendments") contained in the Supplemental Indentures amend theIHS Markit Indentures to, among other things, eliminate from each IHS Markit Indenture (i) substantially all of the restrictive covenants, (ii) certain of the events which may lead to an "Event of Default", (iii) theSEC reporting covenant, (iv) the restrictions onIHS Markit consolidating with or merging into another person or conveying, transferring or leasing all or any of its properties and assets to any person and (v) the obligation to offer to repurchase the IHS Markit Notes upon certain change of control transactions. The Supplemental Indentures provide that the Amendments become effective and binding upon execution and delivery thereof by the parties thereto, but will only become operative upon consummation and settlement of the Exchange Offers, which are conditioned upon, among other things, the consummation of the merger. Our Board of Directors approved quarterly cash dividends of$0.20 per share during each quarter in 2021 and$0.17 per share during each quarter of 2020, which resulted in approximately$318.6 million and$270.4 million of cash payouts during 2021 and 2020, respectively. Any quarterly dividends paid in 2022 are limited by the merger agreement to$0.20 per share. Please refer to Part II, Item 5 of this Form 10-K for a discussion of our dividend policy. Our Board of Directors authorized a share repurchase program of up to$2.5 billion ofIHS Markit common shares throughNovember 30, 2021 , to be funded using our existing cash, cash equivalents, marketable securities, and future cash flows, or through the incurrence of short- or long-term indebtedness, at management's discretion. The merger agreement with S&P Global restricted our ability to purchase our shares through this program throughNovember 30, 2021 . The repurchase program expired onNovember 30, 2021 , and we do not intend to authorize a new share repurchase program due to the pending merger with S&P Global. Please refer to Part II, Item 5 and " Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 17 " in Part II of this Form 10-K for additional information about our share repurchase programs. Our Board of Directors has separately authorized, subject to applicable regulatory requirements, the repurchase of our common shares surrendered by employees in an amount equal to the exercise price, if applicable, and statutory tax liability associated with the vesting of their equity awards, for which we pay the statutory tax on behalf of the employee and forgo receipt of the exercise price of the award from the employee, if applicable. See " Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 7 " in Part II of this Form 10-K for information about our lease obligations, including maturities of operating lease obligations. In 2022, we expect to pay approximately$59.2 million for our operating lease obligations. We also have material cash requirements for noncancellable purchase commitments and other executory contracts associated with the normal conduct of our business operations. As a result of the pending merger with S&P Global, we have been striving to manage our contract renewal periods to one year in order to minimize potential duplicative costs post-merger. For 2022 through 2026, we anticipate making annual payments of approximately$80-$90 million related to these commitments. In 2022, we expect to pay cash to acquire the remaining aM equity interests. The amount of cash to be paid is based on put/call provisions that tie the valuation to underlying adjusted EBITDA performance of aM. Based on our current estimates, we believe that the purchase price for the remaining equity interests will be approximately$55 million to$60 million . 43
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Based on our cash, debt, and cash flow positions, we believe that we will have
sufficient liquidity to meet our ongoing working capital and material cash
requirements. We do not believe that the merger agreement restrictions related
to borrowings, share repurchases, or dividends will impact our liquidity to meet
our ongoing working capital and material cash requirements. Our future cash
requirements will depend on many factors, including the number and magnitude of
future acquisitions, amount of share repurchases and dividends, the need for
additional facilities or facility improvements, the timing and extent of
spending to support product development efforts, information technology
infrastructure investments, investments in our internal business applications,
and the continued market acceptance of our offerings. We could be required, or
could elect, to seek additional funding through public or private equity or debt
financings; however, additional funds may not be available on terms acceptable
to us. We are focused on maintaining higher levels of liquidity and capital
structure flexibility, particularly as we anticipate the close of our merger
with S&P Global. We maintain a solid balance sheet, investment grade rating, a
well-positioned debt maturity ladder, and a strong diversified bank group. We
expect to continue to operate within our capital policy target range of
2.0x-3.0x gross leverage.
Cash Flows
Year ended November 30, % Change 2021 % Change 2020
(In millions, except percentages) 2021 2020 2019 vs. 2020 vs. 2019
Net cash provided by operating activities
$ 1,251.3 31 % (9) % Net cash (used in) provided by investing activities$ (598.4) $ 205.0 $ (271.5) (392) % 176 %
Net cash used in financing activities
(48) % 40 %
The increase in net cash provided by operating activities in 2021 was primarily
due to improved working capital as we began recovering from the effects of the
COVID-19 pandemic. In addition, we made various payments in 2020 that did not
repeat in 2021: acquisition-related performance compensation associated with the
aM acquisition, distributions associated with the settlement of our U.S. and
U.K. pension plans, higher payroll tax payments on stock option exercises, and
tax payments associated with divestiture activities. The decrease in net cash
provided by operating activities in 2020 was primarily due to those same
activities that were unique to 2020, as well as cash payments related to
restructuring activities and negative impacts on working capital as a result of
COVID-19 market conditions.
The decrease in net cash provided by investing activities in 2021 was primarily
due to the current year acquisition of Cappitech, investment in Gen II, and
incremental cash buy-up for the OSTTRA joint venture and no significant cash
divestiture activities in 2021 (the A&D business line was divested in the first
quarter of 2020). The increase in net cash provided by investing activities in
2020 was primarily due to the sale of the A&D business line.
The decrease in net cash used in financing activities is primarily due to the
decrease in share repurchases in 2021, compared to 2020 (the merger agreement
with S&P Global restricted our ability to repurchase our shares in 2021),
partially offset by higher proceeds from stock option exercises in 2020 and
higher dividend payouts in 2021. The increase in net cash used in financing
activities in 2020 is primarily due to the $950 million in share repurchases
that we made, as well as our $270 million in dividend payouts.
Free Cash Flow (non-GAAP measure)
The following table reconciles our non-GAAP free cash flow measure to net cash provided by operating activities.
Year ended November 30, % Change 2021 % Change 2020
(In millions, except percentages) 2021 2020 2019 vs. 2020 vs. 2019
Net cash provided by operating activities $ 1,486.2 $ 1,138.8 $ 1,251.3
Payments for acquisition-related performance
compensation - 75.9 -
Capital expenditures on property and equipment (294.3) (274.8) (278.1)
Free cash flow $ 1,191.9 $ 939.9 $ 973.2 27 % (3) %
The increase in 2021 free cash flow was primarily due to increased operating
performance and working capital balances, as well as the absence of one-time
pension and tax payments that were paid in the prior year. The payments for
acquisition-related performance compensation in 2020 are associated with the
exercise of put provisions by aM equity interest holders. The decrease in free
cash flow in 2020 was primarily due to distributions associated with the
settlement of our U.S. and U.K.
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pension plans, cash payments related to restructuring activities, and negative
impacts on working capital from COVID-19 market conditions.
Our free cash flow has historically been positive due to the robust cash generation attributes of our business model, and we expect that it will continue to be a significant source of funding for our business strategy of growth through organic and acquisitive means.
Recent Accounting Pronouncements
Please refer to " Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 " in Part II of this Form 10-K for a discussion of recent accounting pronouncements and their anticipated effect on our business.
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