Ladies and gentlemen, thank you for standing by and welcome to the IHS Markit First Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Eric Boyer, Senior Vice President of Investor Relations. Thank you. Please go ahead, sir.

Good morning, and thank you for joining us for the IHS Markit Q1 2020 earnings conference call. Earlier this morning, we issued our Q1 earnings press release and posted supplemental materials to the IHS Markit Investor Relations website. Our discussion on the quarter based on non-GAAP measures are adjusted numbers, which exclude stock-based compensation, amortization of acquired intangibles, and other items. IHS Markit believes non-GAAP results are useful in order to enhance 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 copyrighted property of IHS Markit. Any rebroadcast of this information, 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 are 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 the SEC and on the IHS Markit website. After our prepared remarks, Lance Uggla, Chairman and CEO; and Jonathan Gear, EVP and Chief Financial Officer will be available to take your questions. With that, it's my pleasure to turn the call over to Lance.

Okay, thank you, Eric, and thank you for joining us for the IHS Markit Q1 earnings call. Before we get started, I want to direct your attention to our supplemental slides posted on our IR website, which we will be referencing today. We're certainly living in unprecedented times with the human and economic impact of the COVID-19 pandemic, financial markets in turmoil, and oil in the $20s due to both supply and demand challenges. We've analyzed the changing dynamics within our markets, and we've developed a strong plan and are taking decisive cost actions while maintaining and making room for continued investment to deliver double-digit earnings growth this year and over the coming years. In times such as these, I'm committed to providing even more unparalleled transparency to all of my colleagues and to you, our shareholders. Our markets are changing rapidly, and parts of our business will be more challenged than others, but on the whole, we're extremely fortunate that our model will be resilient. This is due in large part to our diversification across end-markets and within our end-markets, must-have products and services, low revenue concentration across products and customers, annual multi-year subscriptions with high renewal rates, and over 90% recurring revenue. We've got a CapEx light model with strong cash flow conversion, strong balance sheet, excellent liquidity, and a firm-wide culture that we've honed to drive efficiencies, profit, and continue to innovate even in challenging revenue environments. Now, with offices in APAC, we learned quickly how to manage the COVID-19 situation by conducting early business impact reviews and ensuring that our IT infrastructure, which we've been investing in, could support all, I mean all of our 16,000 employees working from home and remotely as needed, and we've certainly been tested on that. We're also using these challenging times as an opportunity to be even more visible with our customers and our management teams through virtual calls and webinars. We have the benefit that in this environment, our customers need to hear from us even more to help them through these kinds of uncertainty. Our experts, over 3,000 of them, are reaching thousands of our customers every single day, and we're using the current market conditions to ensure we're there for them and developing opportunities and adjusting our models to support them through these challenging times. Overall, I feel good about our business model, how we are managing the complexity of changing global conditions. I equally feel good about how we're helping our customers during these times with essential activities. Now, Jonathan is going to go over Q1 results, and then I'll go over our multi-year plan on how we're going to plan to achieve the earnings growth that we've suggested. Over to you, Jonathan.

Great. Thank you, Lance. Q1 results were indeed very strong. It included revenue of $1.08 billion, organic growth of 6%, and total revenue growth of 3%. We delivered net income of $484 million and a GAAP EPS of $1.20, adjusted EBITDA of $432 million, which is an increase of 8% normalized for the AD&S divestiture and a margin of 39.9%. We delivered adjusted EPS of $0.66, which is an increase of $0.07 or 12% normalized for the AD&S divestiture. Regarding revenue, our Q1 organic revenue growth of 6% included strong recurring organic growth of 7% and non-recurring organic decline of 5%. This decline in non-recurring was primarily driven by a tough year-on-year comp in financial services. Moving on to segment performance; our Financial Services segment drove organic growth of 7%, including 9% recurring in the quarter. All three subsegments delivered strong performances. Our Transportation segment delivered organic growth of 9% in the quarter. This included an excellent 12% recurring revenue growth and a decline of 1% in non-recurring, driven by the expected decline of one time in our auto business. We saw exceptional operational metrics, in particular from our CARFAX and automotiveMastermind business lines. Our Resources segment delivered 1% organic growth, which is broken down as 1% recurring growth and 2% non-recurring growth. Our Q1 organic ACV increased by $3 million, and our trailing 12-month organic ACV remained up $24 million or 3%. Our CMS segment delivered 3% total growth, including 1% recurring and a 15% growth in non-recurring. Our CMS total organic growth normalized from prior year RootMetrics customer loss was an impressive 4%. Turning now to profits and margins, adjusted EBITDA was $432 million, which is up $24 million or 8% versus prior-year normalized for AD&S divestiture. Our adjusted EBITDA margin was 39.9%, which is up 90 bps. Segment margins were in line with our expectations. The adjusted EPS was $0.66 per diluted share, which is a $0.07 or 12% improvement normalized for the divestiture. Adjusted EPS also excludes the one-time gain on the sale of AD&S of $372 million. Our GAAP tax rate was 1% and our adjusted tax rate was 17%. Q1 free cash flow was $117 million. As is typical, Q1 cash was seasonally low due to bonus payments. Our trailing 12-month free cash flow was $966 million and represented a conversion rate of 54%. Now just a reminder, our trailing 12-month conversion rates were impacted by the one-time tax payments that we had in Q4 2019. Turning to the balance sheet, our Q1 ending balance was $5.2 billion and represented a gross leverage ratio of approximately 2.9 times on a bank covenant basis, which is in line with our capital policy. We closed the quarter with $144 million of cash, and our Q1 undrawn revolver balance was approximately $925 million and represents a great liquidity position. Our Q1 weighted average diluted share count was 404 million shares. We repurchased $610 million of shares in the quarter, including completing our $500 million ASR. We also launched a $250 million ASR on March 1. And now, Lance, I'll pass it back to you.

Thank you, Jonathan. We are unable to predict the duration of disruptions caused by COVID-19 or the extent of its economic effects. To address this uncertainty, we are presenting a broader-than-usual range of possible outcomes for 2020 based on three scenarios that consider the macroeconomic and market-specific factors affecting our business for the rest of the year, detailed in the supplement. We are also implementing cost-saving measures that will enable us to achieve double-digit earnings growth, even under our most pessimistic revenue scenario. All scenarios present challenges. We are facing pressures from an economic slowdown, significantly reduced oil prices impacting our Upstream Resources business, and a general decline in new business and decision-making, along with immediate declines in consumer spending affecting our auto clients as communities shut down. In our first scenario, which represents the optimistic end of our guidance, we would expect a swift resolution globally, leading to a recovery in Q3. This scenario anticipates ongoing volatility that will sustain demand for our pricing and valuation services, a rebound in equity issuances in the latter half of the year, oil prices prompting OPEC plus to reach an agreement, Brent crude rising to the low $30s by year-end, and car buying patterns recovering in Q3 after a Q2 decline. Our second scenario shifts the recovery to Q4, with continued volatility maintaining demand for financial service solutions, and new equity issuances largely on hold for most of the year. The oil markets remain unpredictable, with any OPEC plus agreement delayed until the end of the year, leading to an average Brent price in the mid-$20s, and a U-shaped recovery in auto sales characterized by slow growth in the second half. The third scenario, which I consider the worst-case, anticipates a prolonged global recession with no recovery until 2021. I genuinely believe that we have modeled the worst-case situation here. The financial markets are under ongoing pressure, and our clients will continue to experience profit challenges in 2020, with normal conditions not returning until 2021. The OPEC plus situation has deteriorated, and we see Brent prices remaining in the low $20s through 2021, with the auto industry likely facing a sustained downturn in both new and used car sales throughout 2020. Regarding modeling, we will provide transparency each quarter, allowing you to base your forecasts on our worst-case scenario labeled the 2021 recovery scenario. We are proactively working on several initiatives that could lead to improvement as we move into Q3 and Q4 recovery phases. However, we have managed IHS Markit prudently since the merger and will align our cost strategies with our worst-case scenario to ensure strong profitability irrespective of revenue outcomes. We've already initiated over $250 million in cost-saving measures for 2020, with at least $50 million recognized as permanent reductions. We are also adjusting variable costs linked to revenue, especially in the Auto sector. Last night, my Board and I endorsed salary reductions for our top 300 executives. The Board will also evaluate further reductions in the next meeting. We will be cutting cash bonuses, reducing workforce, minimizing travel and entertainment expenses, halting non-essential projects and contractor spending, and implementing a freeze on hiring. Additionally, we are optimizing facility use, lease negotiations, and purchase expenses. These cost reductions are enabling us to sustain investments in all our segments at previous levels, including our alternatives business and the auto enterprise Mastermind product, which saw a remarkable 36% growth in the first quarter. Our climate initiatives remain unaffected as we prepare to expand those services into 2021 and beyond. Moreover, our efforts regarding a new asset management platform remain fully funded. Investment in our data lakes, teams, and technology will continue, enabling us to deliver new and innovative services that are already in development, with corresponding revenue prospects. Our migration to the cloud will also proceed as outlined in the three scenarios and our 2021 and 2022 growth forecasts. Now, let’s discuss how the current uncertainty may impact each of our segments. Starting with resources, we recognize that oil prices are being pressured due to significant global demand disruption. Our scenarios suggest an average 30% reduction in global capital expenditures for 2020, followed by an additional 15% reduction in 2021, primarily affecting North America and our upstream business, which now represents 60% of our resources revenue. We anticipate the most considerable negative impact on our data business, followed by analytics, although our insights segment has been resilient during the last downturn, and we expect even stronger performance this time as financial markets, corporations, and governments seek our information and analytical support through this challenging period. Our downstream business, accounting for 40% of our resources revenue and encompassing chemicals, power, gas, renewables, and agriculture, is expected to continue its regular growth due to its diversified customer base, which largely does not include exploration and production companies. In the Transportation sector, our previous quarter was outstanding, and I want to recognize the team for their achievements. We have maintained double-digit organic revenue growth for ten out of the last eleven quarters. However, the current environment presents challenges, especially as stay-at-home orders limit consumer car purchases, a trend we previously observed in China and are now seeing begin in North America. Dealership traffic is projected to decline significantly, impacting profits for dealers, though we believe this short-term impact does not reflect the industry's performance under normal cyclical conditions. For the Financial Services sector, which has delivered exceptional results in Q1 and over the past three years, we anticipate organic growth in the mid-single digits, driven by stable revenue in information services due to high recurring income streams and essential products during unpredictable times. Despite challenges in processing derivatives and secondary loan markets, we expect some relief due to increased volumes stemming from volatility. However, we do forecast weaknesses in software solutions due to prolonged sales cycles and reduced volumes in some issuer services. Lastly, within CMS, we are seeing strong performance and demand for our product design and economic risk insights, particularly during the COVID-19 pandemic. We foresee organic growth in this segment to be in the low single digits. Now, I'll turn the call back to Jonathan for specifics on our 2020 guidance.

That's great. Thank you, Lance. Now relative to our original guidance, as a reminder, we previously announced the cancellation of events due to the COVID-19 health concerns. Again, as a reminder, these cancellations will negatively impact Q2 revenue by $50 million and adjusted EPS by $0.09. Approximately $40 million of the revenue impact relates to the Resources segment due to the cancellation of our CERAWeek and CHEMWeek events. The remaining $10 million relates to our Transportation segment due to the cancellation of our TPM Maritime and other events. We have also adjusted for the change in foreign currency exchange rates since the beginning of the year, causing a negative FX impact on revenue of approximately $25 million. In terms of our forward view for 2020, as Lance stated, due to the uncertainty we have developed three scenarios to take into account different assumptions on how the virus, the price of oil, and economic situations evolve over the next few months and quarters. Our supplemental schedules detail the three scenarios with the following ranges; revenue of $4.75 billion to $4.425 billion; organic growth of between 1% and 4% normalized for the impact of the Q2 events; adjusted EBITDA of $1.825 billion to $1.85 billion; and adjusted EPS of $2.76 to $2.81. As Lance mentioned, we would direct your estimate to the lower end of these ranges at this time. Now in terms of cost actions, we are in the process of executing approximately $250 million of 2020 costs. We do expect approximately $50 million of these costs to be permanent go-forward reductions. The variable portion of costs will return as revenue recovers in our Auto businesses and salaries return to normal level in 2021 and 2022. Finally, we expect cash conversion of approximately 50% due to one-time costs with our cost reduction efforts and working capital delays due to market conditions. All guidance items below adjusted EBITDA are unchanged from prior guidance except for stock-based comp. Our original guidance range called for a full year stock-based comp expense of $220 million to $225 million. We now expect full year stock-based comp expense to be approximately $30 million higher than our original guidance due to higher employer taxes from the U.K. National Insurance expense on 2020 option exercises. This represents a one-time increase in our GAAP stock-based comp expenses in 2020 and will not impact our 2021 expense level. In terms of capital allocation, given the current market conditions, we are focused on maintaining high levels of liquidity and capital structure flexibility. We do plan to pause share buybacks and plan to maximize our capacity under our bank credit facility. However, the cash dividend we initiated and paid in Q1 will continue as planned. We maintain a very healthy and strong balance sheet, investor-grade rating, a well-positioned debt maturity ladder, and a strong diversified bank group. While there will be negative impacts from the current external challenges, we do have a model that can absorb the risk in this environment yet still deliver solid earnings growth. And with that, Lance, I'll turn the call back to you.

Okay. Thanks, Jonathan. As our supplemental slide layout, our cost-cutting actions are going to anchor our 2020 earnings to double-digit growth, regardless of which revenue scenario unfolds in the coming quarters. We're not providing formal guidance for 2021 and '22, but based upon our scenarios and cost actions, we would expect in each of those forward years, organic revenue growth to return to our longer-term range of 5% to 7%, adjusted EPS growth of double-digits, and as we move through the year, we'll update you on our progress with our cost actions and the conditions within our end markets against our scenarios. Now, finally, I want to thank all of my colleagues around the world who have been working tirelessly to manage the rapidly changing dynamics within our markets, local communities and to continue to serve our customers. And to you, our shareholders, I want to thank you for your support and give you my commitment of this unparalleled level of transparency in our progress against our multi-year plan during these uncertain times. My commitment will be to continue to update you against scenario one, two, and three, our worst-case scenario, and project those into 2021 and '22 and show any adjustments needed on a quarterly basis. Now, with that, operator, we're ready for questions.

Our first question comes from Gary Bisbee with Bank of America Merrill Lynch. Your line is open.

Hi, good morning. And thanks for all the color, Lance and team. I appreciate it. I feel like that's a lot more than a lot of companies are giving. Obviously, it's taken a lot of work, so we appreciate it. Given how rapidly things are changing and frankly just how dramatically things have changed in the last 10 days, what's your confidence level around the scenarios, in particular, the worst case and especially revenue being able to bounce back to that mid-to-high, single-digits so quickly if the recession coming out of this persists for a while?

Right. So, I guess, if you have to look at the numbers, how I've worked with the team, the first thing that I wanted to do with the team is make sure that the decisive nature of our response is early and protects us through our worst-case scenario and then sets us up very well for the recovery, but also its protection, given the variable nature of some of those cost returns can protect us indefinitely looking forward. If you want to ask me about my probabilities on scenarios one, two, and three, my view is, is that the scenario one with 4% organic growth is my lowest probability scenario, and I'd say that's a 10% chance that we're able to deliver that scenario. That depends on the recovery time, but also it will depend on some of the new revenue initiatives that are in place and the demands on some of our existing services that have some silver linings in difficult periods. So, let's put a 10% or maximum 15% on that scenario. I'd also say that our scenario two, with a recovery going into the end of the year, probably has a similar probability of 10% to 15%. And so therefore, what really made me focus on our worst-case scenario, which I really do believe at a 95% confidence level is more than enough to protect us through all the environments that I'm looking at in terms of the modeling today with my team. I really wanted to put that out on the table to eliminate a lot of the shareholders' fears about the what-ifs. So when we come back next quarter in Q2, I'll update you on those costs and I'll share with you the total revenue impacts and how we're tracking against each of those scenarios. And I think with that color, Gary, we'll be well-positioned to manage through this year but also will give us a great base level to start 2021. Next question?

Our next question comes from Bill Warmington with Wells Fargo. Your line is open.

Hello, everyone. I wanted to check in on how you are doing?

Good. We're all on virtual, so we're having to give each other a hand signal to see who is going to take your tough questions.

I understand. In the past, working from home carried a stigma, and any disturbances, like a barking dog, would reveal that. However, it has now become the new norm. I also want to express my appreciation for the detailed scenario analysis provided; it’s a constructive way to present the guidance. Could you clarify the assumptions regarding the ACV and resources? Additionally, could you reiterate the comments about where ACV ended up in Q1 and how you anticipate it will develop across the various scenarios?

Okay. Well, I've got all my leadership team on here virtually Brian, Edouard, Adam, and Jonathan. So, I'll pass that to Brian who's worked up his models and he can answer that question directly. Brian?

Can you hear me?

Yes.

We see ACV trailing slightly, but it's predominantly in the drilling segment of our customer base. We've focused our analysis on this segment within our Data Business, drilling down into the details. Looking ahead, we have reduced our projections for new sales in that area. However, as Lance mentioned earlier, our business is now much more diversified, and we continue to experience significant growth in our downstream businesses, which are increasing at high single-digit rates.

Good. Thanks, Brian. Jonathan, you wanted to add to that?

Yes, I was going to give you the numbers, Bill. So, as I mentioned, the Q1 organic ACV increased by $3 million and the trailing 12-month organic ACV is up $24 million or 3%.

Thanks, Jonathan. Next question.

Our next question comes from Jeff Meuler with Baird. Your line is open.

Yes, thank you. Hi, good morning. I just want to confirm that the outlook figures you provided for Transport are for the entire year, including the strong growth observed in Q1. I want to ensure my understanding is correct regarding the implications of the numbers for Q2 through Q4. Additionally, any insights you could share about Transport or Autos across different product lines and their outlook would be greatly appreciated. Thanks.

Okay. So, the numbers are for the full year, and I have Edouard Tavernier on, and he'll give you a bit of color on the Automotive and Maritime segment.

Great, thank you. Thank you, Lance. Thank you, Jeff, for the question. So, in terms of color, as we've said historically, our business is resilient to what I would call cyclical downturns. But this, as Lance said, is not a normal cyclical downturn. And as we worked with many retailers across the U.S. and Canada, we are seeing first-hand the impact of communities shutting down on automotive retail. So, our dealer partners are hurting, they're hit by an unprecedented consumer demand shock. And as you know, we are seeing an increasing number of states that are issuing stay-at-home mandates or where entire communities are shutting down. In these conditions, dealers may no longer be able to sell vehicles. Some of them have had to close temporarily. Others have seen a dramatic decline in their revenues. So, as our Q1 earnings showed, we are incredibly well positioned to support the industry going forward, and we look forward to expanding our long-term partnership with North American automotive dealers. However, in the short term, our business is being impacted by depressed levels of new business, increased levels of cancellations, and in some cases temporary price concessions to dealer partners during the month of May. They are no longer able to operate their business in normal conditions. In terms of car makers and suppliers, the entire supply chain is facing challenges in the face of COVID-19 disruption, and we continue to be very well-positioned to help them through this crisis, including helping them manage disruptions in their supply chains.

Thanks, Edouard. Next question?

Our next question comes from Manav Patnaik with Barclays. Your line is open.

Thank you. Good morning. Hey, Lance. Good morning, guys. And thanks for the color as well, but just on the financial services assumption for the full year. I was just hoping you could help us with, how much of that mid-single-digit organic growth is driven by your expectations of processing volumes helping you guys in the next couple of quarters given the volatility there?

Yes, I’d like to allow Adam to speak shortly, but I want to emphasize that we have a very cautious leadership team. Although we are beginning to observe increased derivatives volumes that should continue for the remainder of the year, they have returned to stable levels in our projections. The models we have indicated a small amount of potential growth in processing. The primary focus is on sustaining our current operations. We have a robust pipeline, and the financial markets continue to require information, especially with the implementation of new regulations and the growing demand for second and third pricing services during this period of volatility. We experienced something similar in 2008, and we are witnessing a repeat of that now. However, we do anticipate a decline in other demand areas. Adam, could you provide some additional insights on Financial Services, similar to what Brian and Edouard discussed?

Sure. Thanks, Lance, and thanks Manav. I think Lance captured the overall situation very well. Our business is quite diversified across various financial services, customer segments, and the products we offer. During volatile times like these, we may find areas within our processing business that perform exceptionally well. Volatility can influence credit markets in interesting ways, and currently, we are witnessing a notable equity issuance along with varied fixed income issuance. I view this as a balanced scenario. There could be opportunities for growth as we progress through the year, depending on the duration of current conditions and market trends over the next several months; we might also experience some overall downturns. Our full-year forecast incorporates what we believe to be a conservative estimate for each of the three scenarios. Thanks.

Thanks, Adam. Next question?

Our next question comes from Hamzah Mazari with Jefferies. Your line is open.

Hi, good morning. Thank you for the color as well. You guys spoke about the business being much more diversified, you talked of our Downstream and Upstream being lower, and also you have sort of the downturn playbook from the last cycle. Maybe if you could touch on are your contracts structured differently versus last cycle? Do you have more multi-year contracts? Is the cancellation notice period the same? And then just versus the last downturn playbook is there anything different you can do on the cost side? I know you mentioned $250 million of costs, and then $50 million permanent. So maybe just compare the downturn playbook you have this time, how it's different from last time? And then maybe any changes to contract structure, if at all? Thank you.

Okay. I'll pass that to Jonathan first and then he can pass it to Brian if necessary.

Sure. Just a couple of comments on kind of where we are in the cycle and emphasize some things that Lance says in his earlier comments. First of all, Q4 and Q1 are our heavier renewals type of periods. So you kind of gotten through those two periods, which obviously is helpful. The second thing and I'll compliment Brian and the team. They've done an excellent job of going through customer-by-customer, understanding their position, where they are in the renewal cycle and also where they are in the oil patch and identifying where we see potential risk really at a customer-by-customer level. So again, I think we have far greater transparency for analytics and control kind of where we are in this cycle. Brian, anything you want to add?

No, the only thing I'll add is coming out of the last downturn, we did focus on multi-year agreement. So we have increased our percentage. So we feel pretty good about where we are in those and we continue to sell those as well.

Excellent. Thank you. Next question?

Our next question comes from Kevin McVeigh with Credit Suisse. Your line is open.

Great, thanks. Just real quick, hey, Lance, great job. Really just, well done. Just I want to clarify on the capital allocation. Did you say, are you going to draw down on the revolver? Number one. And then number two, Jonathan, on the ASR are you going to complete that $500 million ASR or that's on hold as well?

Yes. Okay, I'll start and then I'll pass to Jonathan. So we completed the $500 million ASR. We started a $250 million ASR, that's been going through the quarter, which will be completed probably sometime in April. We have halted any further ASRs until we see better sight into the forward marketplace. In our modeling looking forward into next year and the following year with the return to growth, we modeled in about a $1 billion of buybacks in each of those years and we're not going to draw down on our liquidity lines. We've got a diversified bank group that's strong and we've talked to them all and we don't see a need to draw down on those bank lines. So that's what I'd say. Jonathan, add to that?

Yes, well, that actually covered very, very well. And the thing I'll again amplify to this, we have a very, very strong bank group, over 20 banks in that group, Atlanta, we've spoken to everyone. We really frankly don't have a need to draw down a bit. So we don't have any plans at this point to do it. But again, we certainly have the liquidity there should we choose to in the future.

Thank you. Next question?

Our next question comes from Andrew Steinerman with J.P. Morgan. Your line is open.

Hi, two questions. In the 2020 guide in the third scenario, which is the plus 1%, what's your assumption around subs versus non-subs organic revenue growth? And I also have a second question, what needs to happen during 2020 to set yourself up to get to that 6% to 7% organic revenue growth that you painted in 2021 and 2022?

I look at our performance in 2019 and Q1, the investments we're making in areas of strong demand, and our essential services across all divisions, including the investments to strengthen CMS. I feel confident about achieving our goal of 5% to 7% growth this year, especially at the high end of that range. This year presents an extraordinary situation, and I've mentioned since the merger that we're well-positioned to manage our company, improve margins, and achieve double-digit earnings growth, even if organic revenue growth falls to 4%. In the worst-case scenario of 1% growth, strong leadership decisions and a solid position for next year show that we have the ability to manage effectively. Regarding your question about the 6%, our business relies heavily on multi-year recurring revenue, and our variable portion is relatively low. We're well-diversified across customers and products in all divisions. I don’t expect the impact of the COVID-19 pandemic to lead into a prolonged global recession through 2021. However, if that does happen, you might see revenue growth of 2% to 4% in 2021, even with an extended recession. We can maintain our projected variable costs while continuing to see margin expansion and double-digit earnings growth as we navigate upcoming challenges. Our resilient model can respond differently compared to many peers and customers. The team has made tough decisions that ensure we can handle a prolonged recession into 2021 and beyond. We have implemented cost management strategies that will enable us to manage effectively, even if revenue declines and we rely on new initiatives in climate, asset management, and cost reduction within our alternative business. I am committed to the plan forward and confident that even with lower single-digit revenue growth, we can manage the company and deliver excellent results. Thank you. Next question?

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

Good morning, everyone. Thank you for taking my question. We're in unprecedented times, but I hope they will be relatively short-lived. I would like to delve a bit deeper into the cost savings projections. From my analysis, they seem quite substantial from a margin perspective as well. I’m curious about your comfort level with implementing these cost reductions, especially at an accelerated pace compared to normal circumstances, and how this might affect your ability to return to growth afterward.

That's a good question. There are two components to our cost reductions. One part consists of permanent savings, which we've identified at about $50 million. The other part involves variable costs that will need to adjust in line with our revenue as we work towards profitability. We operate with a substantial cost base of $4.5 billion in revenues and over $2.5 billion in costs. Reducing fixed costs by $50 million reflects a thorough assessment, including eliminating non-essential expenses, such as office expansions and some of our social activities. We also aim to better utilize our in-house resources instead of relying on higher-priced contractors for growth. As we return to growth, the $50 million represents only a small fraction of our overall cost structure. The variable costs include travel, entertainment, salary reductions implemented by my executive team, and slow recovery of forward events. Additionally, certain marketing expenses associated with CARFAX for used car listings will also decrease. We've planned for these variable costs to naturally come back over time. We've effectively managed to reduce fixed expenses, including negotiating lower prices for leases in our 130 offices, with some offices transitioning to a work-from-home model. Overall, I feel confident in our approach to the $50 million in fixed costs, and the variable nature of other expenses provides us with flexibility to safeguard earnings if revenues do not reach our expectations. Jonathan, would you like to add anything?

Sure, that is a great summary, Lance. One thing I would add is that the part of our business that is being most affected in this scenario here is our automotive business, particularly our support for marketing efforts for both used and new cars. And that happens to be the part of our business that has the most variable cost that flexes up and down with revenue. So there is a natural and significant flex down that comes naturally. As our dealers need less traffic, as their shops are closed. If it comes back down, they will naturally come back up. So I think the key thing that we've all done as the executive team and management team has done here, we've been very focused. And as Lance mentioned in his opening remarks, we still are investing in the key growth levers and drivers that will take us into the growth in '21 and beyond.

Thanks, Jonathan. That last point is particularly important; we have four strong long-term growth strategies that will diversify our efforts and elevate our position. We're pleased to inform our teams that we won't be cutting any of these initiatives in our future plans, as they are essential for our future. Additionally, on the cost front, we've made a commitment to provide enhanced severance and focus on any workforce reductions, ensuring that no one will leave without at least a year of continued compensation during this challenging period. This reflects an important leadership decision made collectively by my teams. Next question?

Our next question comes from Alex Kramm with UBS. Your line is open.

Good morning everyone. To revisit the guidance, I have a question that hasn't been raised yet: what factors might prevent us from achieving double-digit growth in 2020? What could cause us to fall short and run out of offsets? The same question could apply to 2021 as well.

Yes. Honestly, the way I've produced this guidance for you now in these scenarios, I don't really see a significant chance of not achieving that double-digit earnings growth in 2020 and 2021. Next question?

Our next question comes from Seth Weber with RBC Capital Markets. Your line is open.

Good morning, everyone. I just wanted to clarify the $50 million permanent cut. Should we assume that this is primarily affecting resources relative to the other segments?

No, not at all. Actually, all of our teams do a great job of expanding margins each year. It's important to note that much of our margin expansion has come from managing attrition and replacing those personnel in both near and offshore locations, which have significantly contributed to our operational development, testing, and other roles. We have 16,000 employees, with around 4,000 in locations with lower costs of living, which translates to over $100,000 in benefits per person when fully accounted for. This approach has been organic, as teams have been able to expand their staff while also reducing costs and increasing margins by utilizing our well-established footprint. Across the entire firm, we are accelerating these initiatives, examining all areas such as finance, HR, technology, development, and product management. We need to leverage our global footprint across the whole organization. Brian leads a very efficient Energy team that performs admirably, and we believe that our diversification across Upstream, Midstream, and Downstream offers significant opportunities for remarkable results. Interestingly, the challenges we currently face are largely due to our top-performing division, Automotive, influenced by the variability in the used car market and CARFAX listings. Meanwhile, although there are concerns about our performance in the energy market, this performance is outweighed by the strong results in our financial markets, CMS, and automotive sectors. Thus, while we face a challenging scenario, our cost initiatives seem wise, putting us in a flexible position for profit delivery in 2020 and allowing for variable expense returns. We are now well-prepared for 2021 and 2022, and I wanted to emphasize the importance of sharing our models with you, which may not be common among companies, but I will be updating you quarterly. Since the merger, aside from a minor hiccup, we've consistently met our targets, and we plan to continue doing so moving forward. We aim to meet these forecasts and hopefully exceed them. Okay, next question?

Our next question comes from Shlomo Rosenbaum with Stifel. Your line is open.

Hi, thank you for taking my questions. And again, I appreciate the detail around the forecasting. Lance, can you talk a little bit about what you've seen so far in Asia-Pac, in China? How you see things play out and how you believe that might be applicable to what we're seeing in other areas of the world or where you think it may not be applicable?

It's an interesting topic. That's a great question and it does take us a bit off the script, but it highlights how a recovery can occur. It began in China, where everyone was sent home to work remotely, allowing us to test our systems and understand the challenges of traveling to close deals. Currently, most of our employees are back in the office, having adapted to strict social distancing, hand washing, and mask usage. In Asia, those who don't wear masks face social disapproval, while those who do are respected. This contrasts with the situation in the UK and North America, where wearing a mask can draw strange looks and those without masks might hinder recovery. China was the first to recover, and now our office in Hong Kong is operational again, with people maintaining social distance and cleanliness while working together. Our sales pipeline remains strong, with new orders coming from Japan, China, Hong Kong, and Singapore, which gives hope for our projections. However, given the diverse opinions in Europe and North America, I'm cautious about betting on a Q3 recovery. I wanted to share a Q4 outlook as well as a full-year possible lack of recovery. If we were to follow the trajectory of Asia, we could anticipate a Q3 recovery. I’ve spoken to various individuals, including the U.S. President, who emphasize the desire to return to work quickly, although I’m not fully convinced that’s feasible. Some people still believe that staying at home isn’t the path to recovery. So we have an optimistic Q3 view aligned with the Asian recovery, possibly similar to what I’m hearing from Italy. Despite the severe numbers in Italy, my colleagues in Milan are expressing some optimism about control over the situation. If you’re skeptical about this, consider a Q4 recovery, or even worst-case scenarios. Regardless of revenue outcomes, our costs are now flexible, which protects our earnings. I'm prepared for growth opportunities when they arise, but for now, my priority is to keep the company strong, ensure fair compensation for our employees, maintain our liquidity, and deliver solid results for our stakeholders. Next question?

Our next question comes from George Tong with Goldman Sachs. Your line is open.

Hi. Thanks, good morning. I'd like to go back to the topic of cost reductions. Can you discuss the timeline for when you expect to complete your permanent cost reductions? And when you might expect to return to your prior longer-term guidance of 100 bps of annual EBITDA margin expansion?

Yes. Well, as you've seen in all scenarios this year, you'll have in excess of that margin. And if you look forward into '21 and '22, we also forecast a continuation of the 100 basis points. So our view is, even though we're going to have a strong outperformance, we still have ample scope for our organizational design that we've been working on, and we expect that to continue into the future. So my perspective, the margin story and the earnings story is really strong; this is a story about revenues that are going to come off at some unknown level. And so therefore, we need to set a set of cost reductions in place that will be constructed to never return, and to come back and return on a variable basis with the revenue. So I feel we've got a perfect model set up for the go-forward. What I would say on the permanent reductions, the $50 million that we talked about, we are already in full execution mode, and I'd expect those to have an 8-month impact for this year. I'll pass in full impact for next year. Jonathan?

Great. I'll just echo what you said, Lance. And George, what we're seeing is, even in our worst-case scenario, we expect to see a couple of hundred bips of improvements from 2019 to 2020, and then continue to have 100 bips all the way through to 2022; so we're no way backing off on margins improvement commitment.

Thanks, Jonathan.

Our next question comes from Ashish Sabadra with Deutsche Bank. Your line is open.

Thank you for taking my question. Lance, I really appreciate the insights you've shared. I have a quick follow-up regarding the variability you've mentioned on the auto or used-car listing site. Given this variability, would it be reasonable to expect that the most significant impact would be felt in the second quarter? In a worst-case scenario, should we anticipate that this segment of the business will recover more quickly than others and experience the fastest growth? Is that the correct way to think about it?

That's exactly how we think about it. But again, if you model off of that worst-case scenario, we're saying, you know, you don't have any of that recovery until next year. But our view is that bounces back very quickly, we've got a super strong model. And maybe Edouard wants to add some additional color to that.

No, I think you're spot on, Lance. Obviously, the sector is very, very responsive to consumer demand. So it will take the bigger hits right now in Q2. We've seen activity levels decline precipitously in the past two weeks; but obviously, we think this sector will rebound before the other because as soon as consumers will back into dealership logs, our dealer customers, our dealer partners will require our tools and solutions, so absolutely.

Excellent. Thank you. Next question?

Our next question comes from Joseph with Cantor Fitzgerald. Your line is open.

Hi, and thanks for the scenarios in the call. Just on oil, have you seen any real-time changes in oil CapEx spending? Our budget is being opened up and what are you building in for M&A and failures or any possibility of a deal in these scenarios? Thanks.

I'll pass it to Brian shortly. Clearly, in our worst-case scenario, we see smaller independent companies really struggling, with potential mergers, defaults, or bankruptcies. Therefore, I believe we accounted for about $100 million of that revenue, and we have modeled that aspect appropriately. We noticed Shell's announcements indicating that capital expenditures will be reduced. We actually implemented a 30% cut, followed by an additional 15% reduction in capital expenditures, which we consider significant. There will be a backlog of supply that needs to be managed in the future, but there remains a strong demand for product in the long term that must be extracted. So, I believe our model is quite solid. Brian, do you want to provide any further insights on that?

Yes, I believe that's the case. CapEx is definitely decreasing in the US and also overseas. However, some of the oil is hedged in the US, which allows smaller independent companies to stay afloat and endure the challenges. So, while CapEx will fluctuate in that region, these companies won't simply go out of business if oil prices drop to $20; there will be a delay before we start to see consolidation.

Thanks, Brian. Our next question?

Our next question comes from Andrew Nicholas with William Blair. Your line is open.

Hi, thanks for taking my question. How is the shift to working from home affected the various internal projects you have underway, whether it be the data lake project or the hiring practices tied to your shift of the employee base to lower-cost regions, or really any other projects that might have previously relied more heavily on face-to-face interaction? And then, same topic or at least relatedly, if you could provide any color on the expected impact of virtual work on your sales force's ability to sell new business and build your pipeline? That would be helpful.

Yes, that's a good question. I have to say, I’ve never been a huge supporter of working from home. However, I'm learning important lessons about it. Interestingly, productivity while working from home has significantly improved for many people, though some face challenges like managing children and family in that environment. Personally, I’ve noticed that my productivity has increased, and my connections with colleagues have become more meaningful, which I'm pleased about. This experience has prompted me to reconsider some workplace policies and the flexibilities that many companies might want. We’ve been proactive in exploring workplace analytics tools to measure productivity, and our early proof of concepts indicate that productivity at home is quite high, with people working diligently, as reflected in our pipelines and results. Most of our developers work in focused environments with headphones, enjoying the absence of commute and the ability to concentrate. While some of our professional services team need to work on-site with customers, which has slowed down somewhat, we've actually seen an increase in virtual acceptance from clients. Decision-making continues to happen effectively, and despite my initial skepticism about remote work, I’ve become a believer. I find myself working more hours at my dining room table than I would like to admit, and my colleagues worldwide have been impressive in maintaining productivity. I hope we can soon return to more social interactions in our lives.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Eric Boyer for the closing remarks.

Okay. Before you go, Eric, I want to take a moment to address all our shareholders, including those on the phone. We faced a significant decision regarding the level of transparency we wanted to provide, especially about the details for 2021 and 2022. In times like these, it's crucial to make day-to-day decisions carefully when entrusted with investors' money. We want to ensure you never have to question what's happening within the companies you invest in. Therefore, we will update this level of transparency every quarter until we believe we are back to normal. Once we return to a normal situation, I hope you understand that I will cease these updates and return to our usual management approach, with the expectation that your trust in both myself and my management team remains strong. Thank you for your support. Eric?

Great, thanks for your interest in IHS Markit. This call will be accessed via replay at 855-859-2056 or international dial-in at 404-537-3406. Conference ID 4656659 beginning in about two hours and running through March 31, 2020. In addition, the webcast will be archived for one year on our website. Thank you and we appreciate your interest and time.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.