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IHS Markit Ltd. (NASDAQ:INFO)
Q3 2018 Earnings Conference Call
Sept. 25, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2018 IHS Markit earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press * then 0 on your touchtone telephone. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Eric Boyer, Head of Investor Relations. You may begin.

Eric Boyer -- Head of Investor Relations

Good morning, and thank you for joining us for the IHS Markit Q3 2018 earnings conference call. Earlier this morning, we issued our Q3 earnings press release, and posted supplemental materials to the IHS Markit investor relations website.

Our discussion on the quarter based on non-GAAP measures or adjusted numbers, which excludes stock-based compensation, amortization of acquired intangibles, and other items. IHS Markit believes non-GAAP results are useful in order to enhance the understanding of our ongoing operating performance, but they are a supplement to, and should not be considered in isolation from or as a substitute for GAAP financial information.

As a reminder, this conference call is being recorded and webcast, and is the copyrighted property of IHS Markit. Any rebroadcast of this information in whole or in part without the prior written consent of IHS Markit is prohibited. This conference call, especially the discussion of our outlook, may contain statements about expected future events that are forward-looking and subject to risks and uncertainties. Factors that could cause actual results to differ materially from expectations can be found in IHS Markit's filings with SEC and the IHS Markit website.

After our prepared remarks, Lance Uggla, Chairman and CEO, and Todd Hyatt, EVP and Chief Financial Officer, will be available to take your questions. With that, it is my pleasure to turn the call over to Lance Uggla. Lance?

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Thank you, Eric. Thank you for joining us for the IHS Markit Q3 earnings call. Today, we'll talk about our strong Q3 results, operational initiatives for sustained growth, an update on the Ipreo integration, and our decision to keep our MarkitSERV business.

We had a strong quarter of financial results. The key highlights of the quarter were revenue of $1.001 billion, up 11% year-over-year, and 7% on an organic basis, excluding the impact from the prior year biennial BPBC revenue. We continued to deliver broad-based growth across the firm.

Adjusted EBITDA up $391 million, up 11% over the prior year, and margin of 39%. Normalized margin expansion was 60 basis points, excluding the impact of FX and Ipreo, as we continue to streamline our operations and benefit from the natural leverage of the model, while continuing to invest for long-term profitable growth. Finally, adjusted EPS of $0.58.

Let me now provide some highlights. I'll start with Transportation, which delivered strong, diversified, organic revenue growth of 9% in the quarter. Growth was driven broadly by the same trends we've been seeing throughout the year. Within Automotive, we continue to see strong growth from both our new and used auto businesses, and are benefiting from deepening our penetration of existing customers and continued product innovation.

As expected, our recall business moderated to a normalized level in the third quarter. Financial services reported 8% organic growth, with broad-based strength. Top performers included pricing, indices, valuation services, reg and compliance, analytics, enterprise data management, and the MarkitSERV derivatives processing.

CMS organic revenue growth was 4%, excluding the impact of BPVC, as we continue to benefit from improving end markets and operational changes within our product design, ECR, and TMT businesses.

Resources organic revenue growth was 5%, as our upstream energy business continues to improve and our mid and downstream businesses remain strong. We are particularly pleased to see continued improvement in Resources recurring revenue. We expect the price of oil to end the year higher than the industry originally thought, and we expect the level of capex spending to improve in 2019. But on the whole, our customers remain somewhat cautious with spending.

On the operational side, coming out of our product deep-dive sessions this summer, I'm particularly pleased with the sense of continued urgency and the high level of commercial engagement across the firm. I can report that we are making progress on a number of fronts, which I'll outline.

First, an increased focus on being even closer to our customers. A higher level of customer engagement from the top is cascading throughout the organization and helps us better partner with our partners and provides critical insights that fuel product innovation. Second, our teams are focused on streamlining all internal processes to increase profitability, and to self-fund future growth initiatives. We are using technology to further automate and to increase efficiency in how we create our information and solutions. We are also more effectively utilizing remote intelligence to tap into best-cost pools of talent around the world.

Third, we have increased targeted investment in product development across our business lines, which will seed sustained future growth in the years to come. Let me provide a couple of examples. As we talked about on the Q2 call, we are increasing the level of investment within our upstream business, as the industry is starting to spend again, especially on analytical offerings.

Within Automotive, we are making investments in our Carfax for life initiatives. Our automotiveMastermind-led Conquest solution, and our cross-automotive dealer network planning solution. Within Financial Services, we continue to make investments in data and indices, valuations with respect to the private capital markets, and hosted data management.

Finally, we are seeing continued momentum with merger revenue synergies, and remain on target to achieve a run rate of $35 million exiting the year. We are especially pleased with the broad-based distribution of the industry offerings being sold into our financial services customers, and we are equally gaining traction selling our EDM solutions into our energy market customers. Overall, we are very pleased with the operational execution of our teams and a really great job by all of them.

On the M&A front, in terms of capital allocation, we closed the acquisition of Ipreo on August 2nd and we are very pleased with the early days of the integration. We were able to do a lot of groundwork ahead of the closing, and we are now well on our way to the previously communicated financial targets, including 2019 adjusted EBITDA of $115 million, run rate cost synergies of $20 million by the end of '19, and revenue synergies of $35 million by the end of 2021.

Teams are working together extremely well, and with a lot of excitement around what we can achieve. Customer response continues to be very positive, and we've already seen some early revenue synergy momentum, particularly in our loans and private capital markets businesses.

Now, relative to MarkitSERV, we've decided the best financial and strategic outcome for IHS Markit at this time is to keep our MarkitSERV business. We completed a disciplined and comprehensive sales process with both strategic and private-equity parties, and could not reach agreement at a sufficient value for the asset with an ongoing, acceptable, commercial relationship.

MarkitSERV has an integral part to play in the post-trade industry consolidation that we expect to occur in the coming years, and continues to be a valued strategic partner across the whole financial markets. We look forward to continuing to invest and build this business, and will take the lead in innovating and looking for opportunities to partner with industry and our customers.

You can continue to expect IHS Markit's longer-term, organic revenue profile, including Ipreo and MarkitSERV, to be as previously stated -- 5% to 7% organic growth range, and our Financial Services segment to be in the mid to high single digits. This organic growth profile, along with our commitment for 100 basis points of margin expansion, and our $500 million annual share buyback target will generate solid double-digit adjusted earnings growth and a billion dollars-plus of free cash flow annually. We are very comfortable with this financial profile. With that, I'll turn the call over to Todd.

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Thank you, Lance. Before we get started, as Lance said, we closed Ipreo on August 2nd, and as a result, our Q3 results include a one-month stub period of Ipreo, which contributed in line with our expectations, with approximately $25 million of revenue, and $6 million of adjusted EBITDA.

Relative to Q3, we were pleased with the continuation of positive revenue and profit trends from the first half of the year. Our Q3 organic revenue growth was 7%, normalized for the BPVC impact, and included stable, recurring organic growth of 7%, and normalized, non-recurring organic growth of 6%.

Looking at segment performance. Transportation revenue growth was 16%, including, 9% organic and 7% acquisitive. Organic revenue growth was comprised of 10% recurring, and 6% non-recurring. As expected, our non-recurring growth was lower than prior quarter, as our recall business did moderate to a more normalized level.

Resources revenue growth was 5%, and organic revenue growth was also 5%. Organic revenue growth was comprised of 4% recurring, and 8% non-recurring. Recurring organic growth was led by our chemicals, PGCR, and downstream pricing businesses. Upstream revenue increased 3% on a year-over-year basis. Our Q3 annual contract value across the entire Resources segment, including OPIS, was $726 million, which was up $17 million versus beginning of year ACV.

We continue to track in line with our low to mid single-digit ACV growth expectation for the year. Non-recurring revenue growth remains strong due to improved strong consulting and software performance. Normalized CMS organic revenue growth, excluding prior year BPVC, was 4%, including recurring organic of 3%, and normalized non-recurring organic of 13%.

Financial Services revenue growth was 16%, including 8% organic and 8% acquisitive. Information organic growth was 6%, with strong performance across indices, pricing, and valuation services. Processing organic growth was 5%, led by our derivatives processing of 7%, of loan processing of 3%.

Solutions organic revenue growth was 12%, led by analytics, regulatory and compliance solutions, and continued growth in our WSO loan management and enterprise data management offerings. We expect Financial Services organic growth to moderate in Q4, with continued strength in Information and Solutions, offset by a challenging year-over-year comparison in our processing business.

Turning now to profits and margins. Adjusted EBITDA was $391 million, including a $6 million contribution from Ipreo. Adjusted EBITDA growth was 11% versus prior year. Our adjusted EBITDA margin was 39%, up 25 basis points on a reported basis, and up 60 basis points normalized for FX and Ipreo.

Regarding segment profitability, Transportation's adjusted EBITDA was $128 million, with margin of 43.1%, an increase of 30 basis points. Financial Services adjusted EBITDA was $156 million, with a margin of 44%, a decrease of 100 basis points. Excluding Ipreo, Financial Services adjusted EBITDA margin was 45.4%, an increase of 40 basis points.

Resources adjusted EBITDA was $85 million, which was $3 million lower than prior year, due to continued investment in the segment. CMS adjusted EBITDA was $30 million, down $2 million versus prior year, with a margin of 22% due to higher royalty expense. Adjusted EPS was $0.58 per diluted share, up 2% versus prior year. Prior year adjusted EPS benefited by $0.07 from a favorable tax benefit. Our adjusted EPS includes an adjusted tax rate of 19%, in line with our full-year adjusted tax rate guidance of 18% to 20%.

Our GAAP tax rate was 7%. On a full-year basis, we expect a negative GAAP tax rate, due primarily to the estimated $136 million net benefit from one-time items associated with U.S. tax reform, which were recorded in Q1.

Q3 free cash flow was $293 million. Our trailing 12-month free cash flow improved to $938 million, and represented a conversion rate of 62%. Excluding acquisition-related costs, conversion was 68%. We continued to see solid trends in our cash conversion. Our quarter end-debt balance was $6.06 billion, which represented a gross leverage ratio of approximately 3.5x on a bank-covenant basis, and we closed the quarter with $154 million of cash.

As discussed on the Ipreo acquisition call, on a business-as-usual basis, we expect to de-lever below 3x by Q3 2019. In the quarter, we completed $1.25 billion of public-debt financing, including $750 million of 10-year bonds at a 4.75% coupon rate, and $500 million of 5-year bonds at a 4.125% coupon rate.

Our quarter-end fixed debt as a percent of total debt is 61%. The fixed debt portion of our capital structure will increase as we de-lever and leverage moves back to our target leverage range.

Our Q3 weighted average diluted share count was 405 million shares. We have suspended our share buyback until we return to our target leverage range of 2 to 3x. Year-to-date, we have executed $758 million of share repurchases, and have repurchased 16 million shares at an average price of $47.34.

Regarding acquisitions, AMM continues to perform well with current-year growth of 40%, but has delivered lower than our original plan, due in part to a delay of Conquest, which will now launch in Q4. Because of this, we expect AMM financials to lag behind original plan. As a result, in Q3 we reduced the estimate for AMM acquisition-related, performance-based compensation for the future purchase price of the remaining 22% interest in AMM. This is a forward-based calculation that can be adjusted up or down based on actual or future performance.

In terms of guidance, we are updating our prior ranges for revenue and adjusted EBITDA to reflect tightening of the ranges with modest increase to high end of prior ranges, and also to include Ipreo for the 4-month stub period. We are also updating adjusted EPS to the mid to high end of prior range, due to over-performance of adjusted EBITDA, offset by slight dilution from Ipreo.

The guidance provides for revenue of $4 to $4.2 billion, including organic growth of 6%; $30 million revenue benefit from FX; and $100 to $110 million from Ipreo. We also expect adjusted EBITDA of $1.55 to $1.56 billion, including $25 to $30 million from Ipreo. Margin will be negatively impacted by approximately 30 basis points from FX, and 40 basis points from Ipreo. We expect adjusted EPS of $2.25 to $2.27.

We will provide 2019 guidance in November, and expect to guide in line with our longer-term financial commitments. We continue to deliver solid financial results and are focused on delivering the shareholder commitments we made at the beginning of the year, while continuing to invest in the business to drive long-term growth. With that, I will turn the call back over to Lance.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Thanks, Todd. We continued to execute very well, accomplished a lot in the quarter, and have set ourselves up to deliver a very strong year of financial results. We look forward to providing you our 2019 outlook early in November. Operator, we're ready to open the lines for Q&A.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, please press the *, followed by the number 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key. Once again, to ask a question, please press * and then 1 now. Our first question comes from the line of Jeff Meuler from Baird. Your line is open.

Jeff Meuler -- Robert W. Baird & Co. -- Analyst

Thank you. Maybe a little bit more on MarkitSERV. I think where you left us, it sounded like there was a pretty robust process going on. It sounds like maybe there's more than just the price of the transaction. Could you just maybe go into more detail? I think there was a comment about reaching some sort of relationship after closing the transaction. What part of MarkitSERV did you need to continue to draw data from or whatever that comment was? And then to the extent to which that market may be consolidating, I heard that you're going to continue to invest, but if you're not going to be a seller at this time, does that mean that you're likely to be an acquirer in that space?

Lance Uggla -- Chairman of the Board and Chief Executive Officer

That's a good, broad question. I'll try to hit all those points. First off, I think in putting MarkitSERV up for sale, our belief is that the post-trade derivative processing arena should be consolidated. There's 3 or 4 strategic assets in the marketplace globally, and we saw an opportunity for either private capital or one of the strategics to take the lead to do that consolidation.

We thought that in that we could sell MarkitSERV at a sufficient value level to participate properly in that consolidation. We didn't find that strategic buyer or the private-equity buyer at the value proposition that we wanted for our asset to minimize any dilution was possible to reach.

We thought about it in a very disciplined way and felt the best way -- even in the quarter, we had a 7% derivatives processing growth, so giving us more belief that our asset was at the baseline after many years of declining revenues. We felt that we're at a baseline, and the asset value should represent both participation and a consolidation, and to a fair value for the EBITDA that the asset generates.

So, in not achieving that, we decided to keep the asset. Therefore, what does that mean going forward? We don't see ourselves being highly acquisitive within derivatives processing. But we do think we've made a loud statement to the marketplace that there's opportunities for the strategic consolidation of certain assets. If some of the strategic participants wish to discuss or participate in those types of activities, we're going to be open to do that. But we're also quite open to manage the asset. We're a key strategic market participant. We have valued customer relationships and we'll be in a good position to continue to offer the services we do.

The last piece was the commercial arrangements. Within the Financial Services structure of IHS Markit, we do have some analytic products around FRTB, for one, where the MarkitSERV product offering and our FRTB analytic offering come together, where customers see that can better allow them to model out their risk factors to support those risk calculations.

Next question.

Operator

Thank you. Our next question from Peter Appert from Piper Jaffray. Your line is open.

Peter Appert -- Piper Jaffray -- Analyst

Thanks. Good morning, Lance. Just thinking on MarkitSERV for a sec. Given that you won't get the liquidity associated with selling it, I'm wondering how this impacts the timing of a resumption of buybacks. I'm thinking that maybe you will not be able to get to the $500 million next year. Related to that, should we assume that the appetite for M&A is diminished here on a near-term basis? Again, in the context of leverage.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

I'll talk, and I'll hand it to Todd in terms of the leverage numbers. Clearly, at 3.5x lever, we need to de-lever first. I believe that Todd said that our de-leverage back into the 2 to 3x range can happen in Q3. Our goal once we de-lever, is that we will on an annual basis buy back $500 million approximately of our stock each year. In terms of M&A, I think that we've spent a lot of time for two years on less M&A and more on organic growth. And I think we've found a good balance and pace within the firm. I think the organic numbers support our forward-growth path, regardless of M&A activities. But once we de-lever, we get back to our capital plans in terms of buybacks. We will look at both on acquisitions, as we were doing before. Todd, do you want to add?

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Peter, we continue to drive good, strong cash. We're confident in the ability to get below the 3x into our target leverage range by Q3 of next year. We'll provide the specific 2019 guidance in November, but I think there's a path to get toward the $500 million buyback in 2019. But certainly it will be very back-ended loaded.

Peter Appert -- Piper Jaffray -- Analyst

Thanks.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Next question?

Operator

Thank you. Our next question from Bill Warmington from Wells Fargo. Your line is open.

William Warmington -- Wells Fargo -- Analyst

Good morning, everyone.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Hi, Bill.

William Warmington -- Wells Fargo -- Analyst

A question on automotiveMastermind. You mentioned that you weren't going to be paying out, or you were going to pay out a different level of the earn-out for the coming year. I wanted to ask if there had been -- what was going on? If there had been a change in the fundamentals there. Clearly, it's still highly accretive to the overall company organic revenue growth, but I just wanted to ask what had changed in that?

Lance Uggla -- Chairman of the Board and Chief Executive Officer

That's a good question. As Todd said, we've grown the asset in terms of its top line growth -- 40% year-over-year. We're happy with the growth of the asset. But within the acquisition, and it happens a lot when we're acquiring an asset from an entrepreneur, in order to complete that process, we put in a performance-related piece. In this case, it's 22% of the purchase. That piece of the transaction, of course, can move up or down based on the actual performance the asset. Based on where we are after one year, we made an adjustment to the tag-end performance-based compensation, and that could either go up or down on a forward basis. Todd outlined that.

In terms of how the group is performing, I would have to say we're extremely pleased in terms of how automotiveMastermind fits into our Automotive franchise, and helps us drive our forward high single-digit growth. What we've said before is being on the dealer floor, coupled with our Polk registration data, our Carfax franchise, and our digital marketing franchise around the building of audiences, we need a presence on the dealer floor. The reason to acquire this asset and pay what we did for the asset is to ensure our presence on the dealer floor. That's been established.

The piece that didn't perform as well as we wanted is there's two parts of the Mastermind forward-looking revenues. One piece is around retention of the customer, and one piece is around Conquest. When we started looking at the platforms on a go-forward basis, originally we felt about building a new Conquest platform separate from the Mastermind's retention platform. But after doing our analysis, we felt that it was much better to build the two together.

Therefore, we put a delay into the release of Conquest. But we feel it's much better for the dealer franchises to both have the retention model and the Conquest model built into a single database and a single service. So, we pushed ourselves into a 12-month delay. That's reflected into the numbers. But nothing's changed in terms of the corporate view on the fit of the asset and the go-forward performance within our Automotive franchise. Next question.

Operator

Thank you. Our next question from Tim McHugh from William Blair and Company. Your line is open.

Timothy McHugh -- William Blair -- Analyst

Thanks. Can you just elaborate a little bit more on the spending in the Resources segment, and the margin drive there? I know you talked about some incremental investments. How long does that period of increased investment likely need to continue, as growth improves here? And what's the outlook in general for the resources margin as we think moving forward for the next year or two?

Lance Uggla -- Chairman of the Board and Chief Executive Officer

I guess the way we look at all of our, well, the whole firm, as well as the individual segments, the whole firm we've told you go forward 5% to 7% organic growth, up from 4% to 6% with the Ipreo acquisition. We talk about and reconfirm regularly the 100 basis points of margin, and we tell you that we're going to drive double-digit earnings growth. So, that's how we're managing the firm, and that's what your expectations of us should be.

Within the merger of IHS and Markit, we said that we were going to use our ability to drive our operational efficiencies to give you the 100 basis points, and anything incrementally we could across the firm we wanted to reinvest.

Within Resources, we've seen significant opportunity in the upstream part of our business to invest in analytics, data analytics, our software offerings. We've seen some great growth year-over-year within our software offerings, within our upstream energy businesses.

So, the timing of that particular reporting of financial numbers, to me, personally, it's a timing issue. I don't see anything changing in terms of our margin expansion or our growth plans into the low moving to mid-single digits in the energy section. I don't think there's much to pull out on that, except that those investments show up on the year-over-year basis. I don't know, Todd, if you want to add to that.

Todd Hyatt -- Executive Vice President and Chief Financial Officer

The only thing I would call out is some investment in the downstream pricing, as we add additional --

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Into OPIS, yes.

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Into OPIS as we add additional spot-market pricing. Energy is, I would say of all the segments, it has certainly the highest level of operating leverage. It's an area that certainly moving forward on a long-term basis we would expect to have opportunity to expand margin and energy. But this is the right time to put a little bit more money back into the business.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

I have to say that the team, Dave and Brian, working with Jonathan, Natul, Dan, they really have done a great job. We've got ourselves back first quarter in mid single-digit organic revenue growth. That's a real positive. Hats off to them and I think they're right on track. Next question.

Operator

Thank you. Our next question from Manav Patnaik from Barclays. Your line is open.

Manav Patnaik -- Barclays -- Analyst

Thank you, guys. Maybe you can touch on the auto business a little bit. I guess the longer term, despite the slowdown by automotiveMastermind and all, I guess we're still in the same range, same drivers. I was just wondering if you guys could hash that out, look a little bit more?

Lance Uggla -- Chairman of the Board and Chief Executive Officer

I think Automotive division is doing exactly what we've said it would do, which is high single digits. Occasionally we've been above that. But if I look at all the components, if you take Carfax, Carproof, you take automotiveMastermind, you take our digital marketing, our automotive forecasting, our V-pack, and our Polk, our registration franchise, and the audience building, all of those have strong fundamentals and are well-supported to deliver a forward, high single-digit growth.

In this quarter, we've called out that recall. We had a big recall previously that would moderate; it did. That probably pulled us more back into that high single digits, rather than slightly over that. But there's nothing within Automotive in terms of the forward-looking franchise that doesn't support a combined high single-digit organic growth. That's what we've been saying and we continue to expect that. Next question.

Operator

Our next question from Andrew Jeffrey from SunTrust. Your line is open.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Hi, good morning, guys. Thanks for taking the question. Lance, I think you mentioned that you still see a little bit of reluctance, perhaps, by some of your upstream customers to spend, or just generally I think the comment was on Resources capex. Can you conjecture a little bit on what you think changes the demand environment? Is it a sustained higher price of oil? Is there something structural in the market? When do we get back to maybe a period of sustained higher capex in the Resources segment?

Lance Uggla -- Chairman of the Board and Chief Executive Officer

I think one thing that I would say in speaking to our energy customers, is that I don't think any of them are returning to the previous days in terms of the amount of capex, and the spending levels that existed. There's just a much more cautious and certain approach to how the energy companies are spending money on a forward basis.

But higher oil prices support a capex spending level that you can see drifting upwards. We do see increases in capex as we look forward. But when we look at the current oil price, we see a whole bunch of market-based factors that are creating some uncertainty in terms of where the oil price is. You've got the Iran sanctions; you've got Permian supply challenges that are capping what can come out of the Permian at the moment; you've got a cartel that's holding very strongly in spite of the President's calls for some lightening up in terms of supply distribution; and you have Venezuela. You've got a whole bunch -- and still, when we look at our forecast, we look at 3% global GDP growth, and that also supports a continued strong demand.

Therefore, when you add all those things up, we're seeing a market with energy oil prices much higher than we had forecast or the market had thought, but I still think the energy producers will remain cautious and will still be looking at their capex based off a much lower energy price. I think it bodes well for IHS Markit. It just means that projects that are looked at are certain when they start. They're going to have long-term needs from us for support.

They're global; we're participating in offshore Africa and Brazil. We're very active in the Permian. North Sea is very active again. I feel our position is very well supported in terms of our mid single-digit growth, in terms of our upstream business that will be supported going forward.

And I don't see any reason to put any risk parameters on that scenario as we've laid out to the marketplace. But there is caution. I think that's going to stay. There is an energy oil price at the moment that based on all the market conditions I laid out, continues to drift higher. But that's not where we see the energy price in 12 to 24 months time. We see it lower. Thank you. Next question.

Operator

Thank you. Our next question from George Tong from Goldman Sachs. Your line is open.

George Tong -- Goldman Sachs -- Analyst

Hi, thanks, good morning. I'd like to dive a bit deeper into your margin outlook. You EBITDA margin expanded 60 bps in the quarter, normalized for FX and Ipreo. You had discussed plans for elevated investment activity in your various segments. Can you elaborate on the timing and quantification of your various investments and the potential sources of upside or downside, outside of your investment activities, your targeted 100 bps of annual market expansion of the near-term?

Todd Hyatt -- Executive Vice President and Chief Financial Officer

George, we're always balancing a level of investment in the business and delivery of financial commitments. We're driving good growth. We're driving a good level of profit flow-through in that growth, and we're also making an appropriate level of investment in the company. If we look on a year-to-date basis normalized, we've delivered above the 100-point target for the year. We're doing that as we're also delivering better revenue and better overall total profit growth. We're comfortable with how the business is performing, and how we're managing delivery of profit to shareholders at the same time, while we're making forward investment decisions.

There isn't going to be a large, lumpy item that's going to significantly change the trajectory, certainly that I foresee. You should just continue to expect more of the same.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Thanks, Todd. Next question.

Operator

Thank you. Our next question from Hamzah Mazari from Macquarie. Your line is open.

Hamzah Mazari -- Macquarie Capital -- Analyst

Good morning. My question is mostly focused on what you're seeing regionally, specifically in Europe. It seems like there's been a little bit of a slowdown there. Any updated view on China tariffs, how that affects your business indirectly?

Lance Uggla -- Chairman of the Board and Chief Executive Officer

I just came back from Asia. I have to say, reading the press and reading all the rhetoric with respect to tariffs, you'd expect to feel in Asia from the markets that we're in, wouldn't be that exciting, but I have to say I felt the exact opposite. I attended the Temasek Singapore Summit. There was lots of enthusiasm for business and opportunity. But there was also a lot of talk about the general geopolitics, and the impact of tariffs, and a lot of discussion.

I think for a company like ourselves, that's information-and-services based, has a small consulting angle to it, I think that we bring a light on markets to help people make decisions in many different environments. Sometimes a market that's got some turmoil to it requires more support from experts.

IHS Markit, we have 1,700 research analysts out of our 14,000-15,000 people globally that are very specialized in a variety of market activities across energy, transportation, aerospace and defense, technology, financial markets. If anything, we see strong double-digit growth in Asia throughout this year. We expect that to continue into next year.

We see that we're able to operate at 1.5 to 2x GDP in Europe in terms of our growth, and similarly in the U.S. That's driving an overall mid to upper single-digit organic growth for the company. I don't see the impact of tariffs changing our growth on a forward basis. Next question.

Operator

Thank you. Our next question from Jeff Silber from BMO Capital Markets. Your line is open.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Thanks so much. I wanted to talk big-picture strategy question. Now that you've completed the Ipreo acquisition and decided to hold onto MarkitSERV, would it be correct to say that the Financial Services segment is probably going to continue to be the biggest part of your portfolio and an area that you're going to focus on the most?

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Not at all. I think that our focus is on the activities we do as a company. We're highly focused on participating in the forward-growth dynamics of the energy market as it continues to recover. We feel we're very well leveraged there to the upside.

Automotive has consistently been driving, or Transportation high single-digit growth. Our investments back into ABS and maritime and trade are supporting a continued upside into those high single digits, and we see that continuing. High single-digit growth in Automotive, if that continues for the next 2 to 3 years, you could easily see us pass Financial Markets in terms of size.

I think the thought is that because I come from a financial markets background, that's going to be the place we focus. That's not the case. We want to focus in all our segments and drive consistent growth as we described it, high single digits in Transportation; mid to high now with Ipreo in Financial Markets; mid on a forward basis in Resources; and low to mid in our CMS division. That's our focus.

As we do that, and we focus on our costs, we focus on our customers, we focus on our people, we increasingly feel confident in delivering that 5% to 7%, the 100 basis points, and we see that mix being something that diversifies us in a different way than our peers sit that are a bit more narrowly focused. Next question.

Operator

Thank you. Our next question from Toni Kaplan from Morgan Stanley. Your line is open.

Toni Kaplan -- Morgan Stanley -- Analyst

Hi, good morning.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Hi, Toni.

Toni Kaplan -- Morgan Stanley -- Analyst

Your stock comps guidance is up a little bit from your prior guide, and I'm assuming it's because of Ipreo being included now. Could you just remind us of your longer-term strategy or philosophy around stock comp? I just wanted to see if it's the same as the way Jerry was thinking about it? Anything you can add there would be helpful.

Todd Hyatt -- Executive Vice President and Chief Financial Officer

We are seeing stock comp come down post-merger. So, it was 262 last year and we're going to see that number come down. So, we are making progress. Certainly, coming out of the merger, we had an elevated level of stock-based comp expense. The targets that we provided at the time of the merger was the 1.25% of outstanding shares in Year 1. We took that down to 1% for 2018 in terms of stock comp shares that would be issued. We'll expect to stay in line with that target, and look for opportunities to improve that target as we move forward. But its basically the 1% of outstanding shares.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Thanks, Todd. Thanks, Toni. Next question.

Operator

Thank you. Our next question from Joseph Foresi from Cantor Fitzgerald. Your line is open.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

You've had pretty good performance across the board here. I wonder if you could help us understand which vertical you think is seeing the strongest improvement in the demand backdrop? And then maybe just update us on the Ipreo integration, and any regulation concerns there. Thanks.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Well, it's interesting because Automotive, or Transportation and Financial Services clearly are seeing 8% and 9% organic growth, are definitely, as I would see them, they're just very well diversified across the markets they operate in, and are getting a set of diversified upside that's supporting that high single-digit growth in both those segments. So, it would be easy to think those were the divisions that were performing the best.

I have to say that if I look at Resources since the date of, it's 2 years since merger, and another 6 or 8 months ahead of that as we got everything lined up. Looking at Resources and seeing it come from where it was, negative organic growth, back to 5% organic growth. I'd say that division within the IHS Markit has the best single leverage to the upside. It's got pretty much every customer in the space. It has C-suite access.

It has thought leadership around Sarah Week and Dan Yergin and his team. It has the leading position in chemicals. OPIS, a leading player in the downstream pricing and news for gas, for coals, for chemicals. We're competing square on with Argus and Platts. Great single-digit growth. We've got a growing PGCR franchise that's well positioned. When I look at Resources, I go, wow, we're well positioned. That 5% is a substantive achievement by the team and I think there's continued upside.

When I then go to CMS, it's interest in CMS. We've got 3 businesses in CMS. One, we provide economic and country risk. In a world with geopolitics and tariffs and all sorts of tensions, providing economic and country risk forecasts I think is a good position, and that should bode for mid single-digit growth or low to mid single digits.

Our TMT business under Ian Weightman, it's world-class. The things we do are outstanding. If you compare us there to other technology benchmarking end providers, you should expect mid to upper single digits in terms of TMT. Ian is bringing us back into that fold.

Then you've got our big product design business, which has been dragged a bit by increasing royalties. We do distribute for others. We don't set the royalty payments; we negotiate them. That's dragged our earnings there. But you have to think of a world with 3% GDP growth, you should expect engineering and projects around the world to be buoyant, and therefore I think we're well positioned. So, I take the CMS and I look at that at low to mid single digits.

When you look at all that, I'm proud of the performance of all the divisions. They've all done a substantive job. It's great that Transportation and Financial Services are dragging us up above mid single digits, but at the same time, to return to mid single digits in Energy, and start to get operational leverage into our CMS division and focus, I have to say that gives us a very, very good position and bodes well going forward.

As well as, we do believe that with technology efficiencies and opportunity for best cost, we can continue to give you 100 basis points each year until we get into the mid 40s. Next question.

Operator

Thank you. Again, ladies and gentlemen, to ask a question, please press * and then 1. Our next question comes from Andrew Steinerman from J.P. Morgan. Your line is open.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Hey, Andrew.

Michael Cho -- J.P. Morgan Securities -- Analyst

This is Michael Cho for Andrew this morning. Good morning.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Okay. Hi, Michael.

Michael Cho -- J.P. Morgan Securities -- Analyst

Hi. I just wanted to touch on the Resources segment one more time. You gave some color on the ACV trends earlier. I was wondering what the third quarter Resources ACV trends were year-over-year on a constant currency basis, including OPINIONS? And there were some comments around the expectation of higher capex spend by oil companies. Does that capex spend you're expecting driven by oil companies expanding into new geographies?

Lance Uggla -- Chairman of the Board and Chief Executive Officer

The capex that I focused on is that it's cautious, the capex. But we expect continued improvements or increases in capex. That's based on energy companies spending more year-over-year with respect to capex, which is supported by the higher energy prices. We expect them to be cautious and careful in the allocation of those dollars. We don't just put a trend line with the energy price and capex spending in a way that would see substantive increases in capex. We think they'll all remain cautious, and they feel there are a lot of geopolitical factors hanging over the high energy price that we're seeing at the moment. Todd, do you want to do the ACV?

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Yeah, Eric will keep me honest here. But if believe that the first half year-to-date ACV was up $5 or $6 million. So, the Q3 was up $12 million. If you look at the context of that $12 million in terms of renewal base that would have been available to renew in the quarter, probably $175 million. So, a pretty good quarter when we look at the performance of the ACV growth.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Thanks, Todd. Next question.

Operator

I am showing no further questions from our phone line, sir.

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Good. Well, on that note, we'll wrap it up. I just want to say thank you once again to all the team globally, not just the businesses, but all the shared services that support us and the great work that they're doing. And to our analysts and investors, thank you for your support.

Eric Boyer -- Head of Investor Relations

This call can be accessed via replay at 855-859-2056, or international dial-in 404-537-3406, conference ID 4978218 beginning in about two hours and running through October 2nd. In addition, the webcast will be archived for one year on our website at www.ihsmarkit.com. Thank you, and we appreciate your interest and time.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.

Duration: 54 minutes

Call participants:

Lance Uggla -- Chairman of the Board and Chief Executive Officer

Todd Hyatt -- Executive Vice President and Chief Financial Officer

Eric Boyer -- Head of Investor Relations

Jeff Meuler -- Robert W. Baird & Co. -- Analyst

Peter Appert -- Piper Jaffray -- Analyst

William Warmington -- Wells Fargo --Analyst

Timothy McHugh -- William Blair -- Analyst

Manav Patnaik -- Barclays -- Analyst

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

George Tong -- Goldman Sachs -- Analyst

Hamzah Mazari -- Macquarie Capital -- Analyst

Jeffrey Silber -- BMO Capital Markets -- Analyst

Toni Kaplan -- Morgan Stanley -- Analyst

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Michael Cho -- J.P. Morgan Securities -- Analyst

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