Markit Q4 revenues up

Financial highlights for fourth quarter and full year 2015

Fourth quarter revenue increased 7.4% to $291.5 million, on a constant currency basis up 9.4% comprising organic revenue growth of 1.1% and acquired revenue growth of 8.3%
Full year revenue increased 4.5% to $1.113 billion, on a constant currency basis up 7.4% comprising organic revenue growth of 3.6% and acquired revenue growth of 3.8%
Fourth quarter Adjusted EBITDA margin was 45.6% while Adjusted diluted earnings per share was $0.37
Full year Adjusted EBITDA margin was 45.0% while Adjusted diluted earnings per share was $1.44
Share repurchase programme of up to $500 million over two years was authorised by the board of directors
"Our first full year as a public company resulted in revenue growth, solid margins and value creation for shareholders through disciplined capital allocation. I am especially pleased with the solid organic growth this year in our Information and Solutions divisions and with the immediate contributions from the acquisitions we made in 2015,” said Lance Uggla, chairman and chief executive officer of Markit.

“We will continue to address the needs of our customers and invest in key growth opportunities as evidenced by the index deals with HSBC and UBS that we recently announced. As we move further into 2016, we are confident in our ability to deliver growth and long term returns for our shareholders.”

Revenue increased by $20.1 million, or 7.4%, to $291.5 million for the three months ended December 31, 2015, from $271.4 million for the three months ended December 31, 2014. On a constant currency basis, our revenue growth was 9.4%.

Organic revenue growth was $2.9 million, or 1.1%. This was driven by new business wins and increased customer assets under management across our Solutions and Information segments, partially offset by a decrease in revenue in our Processing segment, mainly as a result of previously announced price reductions in our derivatives processing product and lower primary loan issuance volumes in our loans processing product.

Acquisitions contributed $22.6 million, or 8.3%, to revenue growth. In our Solutions segment, thinkFolio, Tax Solutions and Information Mosaic were acquired in January 2014, July 2014 and July 2015, respectively. In our Processing segment, DealHub was acquired in September 2015, and in our Information and Solutions segments, CoreOne was acquired in October 2015.

We experienced an adverse movement in exchange rates period-over-period, which decreased our revenue growth by $5.4 million, or 2.0%. Our revenue currency exposure for the three months ended December 31, 2015 was 71.5% in US dollars, 22.2% in British pounds and 6.3% in other currencies.

Recurring fixed revenue as a percentage of total revenue increased to 58.2% for the three months ended December 31, 2015, from 53.8% for the three months ended December 31, 2014.

Operating expenses

Operating expenses increased by $16.1 million, or 11.6%, to $155.4 million for the three months ended December 31, 2015, from $139.3 million for the three months ended December 31, 2014. This increase was primarily due to acquisitions and continued investment in new initiatives.

Income tax expense

Income tax expense was $19.9 million for the three months ended December 31, 2015, compared to $19.7 million for the three months ended December 31, 2014, an increase of $0.2 million, or 1.0%. Our effective tax rate was 29.9% for the three months ended December 31, 2015, compared to 55.6% for the three months ended December 31, 2014. The decrease in the effective tax rate principally reflects the difference in the exceptional impairment charges in the three months ended December 31, 2014 compared to the three months ended December 31, 2015 which are not deductible for tax purposes.

Share based compensation and related items

Share based compensation and related items increased by $5.4 million to $14.6 million for the three months ended December 31, 2015, from $9.2 million for the three months ended December 31, 2014.

Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA of $131.8 million for the three months ended December 31, 2015 increased by $7.1 million, or 5.7%, from $124.7 million for the three months ended December 31, 2014. This increase was driven by the Solutions segment, partially offset by a decrease in the Processing segment, and reflects the operating performance as described above. Adjusted EBITDA also includes a $3.9 million loss in the three months ended December 31, 2015 associated with our share of the KYC joint venture which is included in our Solutions segment.

Adjusted EBITDA margin decreased to 45.6% for the three months ended December 31, 2015, compared to 46.3% for the three months ended December 31, 2014, largely as a result of reduced revenue in the Processing segment.

Adjusted earnings and Adjusted earnings per share, diluted

Adjusted earnings for the three months ended December 31, 2015, reduced $0.3 million, to $68.8 million from $69.1 million for the three months ended December 31, 2014. Adjusted earnings per share, diluted for the three months ended December 31, 2015 was $0.37, unchanged compared to the three months ended December 31, 2014.

Full year 2015 results

Revenue

Revenue increased by $48.3 million, or 4.5%, to $1,113.4 million for the year ended December 31, 2015, from $1,065.1 million for the year ended December 31, 2014. On a constant currency basis, our revenue growth was 7.4%.

Organic revenue growth was $38.3 million, or 3.6%. This was driven by new business wins and increased customer assets under management across our Solutions and Information segments, offset by a decrease in our Processing segment mainly as a result of previously announced price reductions in our derivatives processing product and lower primary loan issuance volumes in our loans processing product.

Acquisitions contributed $41.1 million, or 3.8%, to revenue growth. In our Solutions segment, thinkFolio, Tax Solutions and Information Mosaic were acquired in January 2014, July 2014 and July 2015, respectively. In our Processing segment, DealHub was acquired in September 2015, and in our Information and Solutions segments, CoreOne was acquired in October 2015.

We experienced an adverse movement in exchange rates period-over-period, which decreased our revenue growth by $31.1 million, or 2.9%. Our revenue currency exposure for the year ended December 31, 2015 was 71.7% in US dollars, 23.7% in British pounds and 4.6% in other currencies.

Recurring fixed revenue as a percentage of total revenue increased to 56.1% for the year ended December 31, 2015, from 52.5% for the year ended December 31, 2014.

Operating expenses

Operating expenses increased by $31.2 million, or 5.5%, to $600.4 million for the year ended December 31, 2015, from $569.2 million for the year ended December 31, 2014. This increase was driven primarily due to acquisitions and continued investment in new initiatives.

Exceptional items

Exceptional items for the year ended December 31, 2015 were $48.7 million. These pertain to the agreement to settle the consolidated U.S. antitrust class action lawsuit regarding credit derivatives and related markets for $45.0 million and legal advisory fees of $3.7 million associated with the antitrust class action lawsuit as well as the related ongoing antitrust investigations by the U.S. Department of Justice and the European Commission.

Income tax expense

Income tax expense was $70.0 million for the year ended December 31, 2015 compared to $56.5 million for the year ended December 31, 2014, an increase of $13.5 million, or 23.9%. Our effective tax rate was 31.5% for the year ended December 31, 2015 compared to 25.6% for the year ended December 31, 2014. The increase in effective tax rate in 2015 is primarily the result of prior period adjustments being recognised during the year ended December 31, 2015. In addition, the impact on deferred tax balances of a change to US state taxes had the result of increasing the tax charge and effective tax rate in the year ended December 31, 2015.

Share based compensation and related items

Share based compensation and related items increased by $34.8 million to $50.8 million for the year ended December 31, 2015, from $16.0 million for the year ended December 31, 2014.

Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA of $496.9 million for the year ended December 31, 2015 increased by $8.7 million, or 1.8%, from $488.2 million for the year ended December 31, 2014. This increase was driven by the Solutions and Information segments, partially offset by a decrease in the Processing segment and reflects the operating performance as described above. Adjusted EBITDA also includes a $14.0 million loss in the year ended December 31, 2015 associated with our share of the KYC joint venture, which is included in our Solutions segment.

Adjusted EBITDA margin decreased to 45.0% for the year ended December 31, 2015, compared to 46.0% for the year ended December 31, 2014, largely as a result of reduced revenue in the Processing segment.

Adjusted earnings and Adjusted earnings per share, diluted

Adjusted earnings for the year ended December 31, 2015, decreased $5.1 million, or 1.8%, to $273.9 million from $279.0 million for the year ended December 31, 2014. This reflects an increase in the depreciation and amortisation charge and cash interest expense for the period which outweighed the increase in Adjusted EBITDA for the period.

Adjusted earnings per share, diluted for the year ended December 31, 2015 was $1.44 compared to $1.51 for the year ended December 31, 2014. This reflects the decrease in year-on-year adjusted earnings as well as increased dilution from a higher, post-IPO share price and the associated impact on share option dilution, in addition to dilution from share option exercises since December 31, 2014.

Share repurchases and financing activities

In 2015, our board of directors authorised share repurchases of up to $550 million. In June, we repurchased shares from certain shareholders for an aggregate purchase price of approximately $350 million. In December, we entered into an aggregate $200 million accelerated share repurchase (ASR), which delivered on commencement shares representing an aggregate principal amount of approximately $150 million, and we may be entitled to receive additional shares at the final settlement of the ASR, which we currently expect to be completed in the third quarter of 2016.

On November 4, 2015 we issued two series of senior unsecured notes having an aggregate principal amount of $500 million to certain institutional investors. One series of the notes was issued in an aggregate principal amount of $210 million, bears interest at a fixed rate of 3.73% and matures on November 4, 2022. The other series of the notes was issued in an aggregate principal amount of $290 million, bears interest at a fixed rate of 4.05% and matures on November 4, 2025. The proceeds from the notes were used to pay down debt drawn on our existing revolving credit facility.

In February 2016 our board of directors authorised the repurchase of up to $500 million of our common shares over the next two years, at the discretion of our management and subject to market conditions.

Fourth quarter 2015 segment results

Information

Revenue in our Information segment increased by $8.4 million, or 6.8%, to $131.6 million for the three months ended December 31, 2015, compared to $123.2 million for the three months ended December 31, 2014. Organic revenue growth was 4.7%. Acquired revenue growth was 4.0%, following the acquisition of CoreOne in October 2015, which is reported across the Information and Solutions segments. Adverse movements in exchange rates period-over-period offset this growth, reducing Information revenue growth by 1.9%.

Organic revenue growth was largely driven by new business wins within the Pricing and Reference Data, and Indices sub-divisions, as well as increased customer assets under management in products benchmarked to our indices.

Processing

Revenue in our Processing segment decreased by $8.7 million, or 12.7%, to $59.8 million for the three months ended December 31, 2015, from $68.5 million for the three months ended December 31, 2014. Organic revenues decreased 14.7%. Adverse movements in exchange rates period-over-period contributed 1.9% to the decrease in revenue. Partially offsetting this was the acquisition of DealHub in September 2015, which contributed an increase of 3.9% to Processing revenue.

The organic revenue decrease reflects the impact of previously announced price reductions in our derivatives processing product introduced on April 1, 2015 in the rates asset class, decreased volumes in the credit asset class in 2015 and one-off regulatory reporting revenue in 2014. In addition, we saw lower revenues in our loans processing product associated with reduced primary loan issuance volumes period over period.

Solutions

Revenue in our Solutions segment increased by $20.4 million, or 25.6%, to $100.1 million for the three months ended December 31, 2015, from $79.7 million for the three months ended December 31, 2014. Organic revenue growth was 9.0%. Acquired revenue growth was 18.8%, driven by the acquisitions of thinkFolio, Tax Solutions, Information Mosaic and CoreOne in January 2014, July 2014, July 2015 and October 2015, respectively. Adverse movements in exchange rates period-over-period reduced Solutions revenue by 2.2%.

Organic revenue growth was driven by new business wins across our Enterprise Software and Managed Services sub-divisions, as well as increased customer assets under management in our Managed Services sub-division.

Full year 2015 segment results

Information

Revenue in our Information segment increased by $15.1 million, or 3.1%, to $501.6 million for the year ended December 31, 2015, compared to $486.5 million for the year ended December 31, 2014. Organic revenue growth was 5.2%. Acquired revenue growth was 1.0%, driven by the acquisition of CoreOne in October 2015, which is reported across the Information and Solutions segments. Adverse movements in exchange rates period-over-period offset this growth, reducing Information revenue growth by 3.1%.

Organic revenue growth was largely driven by new business wins within the Pricing and Reference Data and Indices sub-divisions, as well as increased customer assets under management in products benchmarked to our indices.

Processing

Revenue in our Processing segment decreased by $28.9 million, or 10.1%, to $256.0 million for the year ended December 31, 2015, from $284.9 million for the year ended December 31, 2014. Organic revenues decreased 8.2%. Adverse movements in exchange rates period-over-period contributed 3.2% of the decrease in revenue. Partially offsetting this was the acquisition of DealHub in September 2015, which contributed an increase of 1.3% to Processing revenue.

The decrease in organic revenue reflects decreased revenue in our derivatives processing product due to previously announced price reductions introduced on April 1, 2015 in the rates asset class, reduced volumes in the credit asset class and one-off regulatory reporting revenue in the prior year comparator. In addition, we saw lower revenues in our loans processing product associated with reduced primary loan issuance volumes period over period, partially mitigated by increased secondary trading levels.

Solutions

Revenue in our Solutions segment increased by $62.1 million, or 21.1%, to $355.8 million for the year ended December 31, 2015, from $293.7 million for the year ended December 31, 2014. Organic revenue growth was 12.3%. Acquired revenue growth was 11.1%, driven by the acquisitions of thinkFolio, Tax Solutions, Information Mosaic and CoreOne in January 2014, July 2014, July 2015 and October 2015, respectively. Adverse movements in exchange rates period-over-period reduced Solutions revenue by 2.3%.