McGraw Hill Financial Reports Third Quarter Results

NEW YORK, Nov. 3, 2015 /PRNewswire/ -- McGraw Hill Financial, Inc. (NYSE: MHFI) today reported third quarter 2015 results with revenue of $1.32 billion, an increase of 5% compared to the same period last year. Net income and diluted earnings per share from continuing operations were $252 million and $0.92, respectively.

Adjusted net income from continuing operations increased 16% to $325 million and adjusted diluted earnings per share from continuing operations increased 16% to $1.19. The adjustments in the third quarter of 2015 were associated with an estimated provision for potential legal settlements primarily in Australia, transaction costs related to the SNL acquisition, partially offset by insurance recoveries related to legal settlements.

"The performance in the quarter demonstrates the balance across the portfolio as the Company continued to deliver solid revenue growth, margin expansion and adjusted EPS growth during the third quarter despite a significant decline in global bond issuance," said Douglas L. Peterson, President and Chief Executive Officer of McGraw Hill Financial. "This year's margin expansion is the result of top-line growth and a concerted focus across the Company to deliver on our productivity targets.  As we look to continue to build shareholder value, we are ever more excited with the addition of SNL and the synergy potential with S&P Capital IQ and Platts to create an offering that is distinctive and essential to the global financial markets.  Lastly, we remain committed to actively repurchasing our shares – having repurchased 4.9 million shares in the last nine months."

Strategic Alternatives for J.D. Power Under Consideration

During the fourth quarter, the Company commenced a process to explore strategic alternatives for J.D. Power, a global marketing information services company providing performance improvement, social media and customer satisfaction insights and solutions.  In 2016, J.D. Power is currently estimated to have annual revenues approaching $350 million. The Company is increasingly focused on an interrelated set of businesses that serve the capital and commodities markets.

Return of Capital:  "The Company remains committed to meaningful return of capital," said Jack F. Callahan, Jr., Executive Vice President and Chief Financial Officer.  "With the share price continuing to present a compelling value, we have increased our share repurchases in each of the last three quarters and anticipate continuing share repurchases in the fourth quarter, subject to market conditions."  During the third quarter, the Company repurchased approximately 2.3 million shares. Year-to-date, the Company's return of capital is $775 million, which includes approximately $500 million for the repurchase of 4.9 million shares. The Company has authorization from the Board of Directors to repurchase up to an additional 40.6 million shares.

Outlook:  Based upon the strong results in the quarter, and its view of the remainder of the year, the Company is increasing its full-year guidance for adjusted earnings per share to a range of $4.45 to $4.50.  However, the Company remains cautious given the continuing volatility in the fixed income and equity markets.

S&P Capital IQ and SNL:  Soon after the close of the SNL transaction on September 1, the Company began integrating the S&P Capital IQ and SNL organizations.  The business unit is led by Mike Chinn, the previous CEO of SNL.  "The integration is well underway and we are building a team that leverages the strength of each organization.  Our confidence is growing that we are well positioned to meet and likely exceed our initial synergy target of $70 million by 2019," said Douglas L. Peterson.

Third quarter results include one month of operations for SNL as the acquisition closed on September 1. Revenue increased 14% to $356 million in the third quarter of 2015 compared to the same period last year; excluding SNL, revenue grew 7%.

Expenses increased 23% primarily due to the combined impact of SNL's operating costs as well as acquisition-related costs.  Operating profit decreased 18% to $53 million.  Adjusted expenses, which excluded acquisition-related costs, increased 11% primarily due to the addition of SNL operating costs.  Adjusted operating profit increased 25% to $85 million.

Revenue from SNL products increased in September in the mid-teens compared to September 2014 when SNL was not owned by the Company.  Annual amortization related to the transaction is anticipated to be approximately $53 million.

The S&P Capital IQ Desktop product continues to have the most meaningful impact on revenue with low-teens revenue growth resulting from a similar increase in the number of users.

International revenue increased 12% to $120 million in the third quarter and represented 34% of the business unit's total revenue.

Standard & Poor's Ratings Services:  John Berisford is now President of Standard & Poor's Ratings and is no longer in an acting role. "Since he was appointed Acting President on September 8, John has done an outstanding job in aligning the organization to focus on quality analytics within an environment that promotes a culture of risk and compliance consciousness," said Douglas L. Peterson.

Revenue declined 3% to $587 million in the current quarter, primarily due to a 20% decline in global bond issuance and foreign exchange rates which unfavorably impacted revenue by 4 percentage points.

Transaction revenue decreased 9% to $244 million compared to the same period last year. This was in part due to very weak global bond issuance, especially in Asia and Latin America. Excluding the impact of foreign exchange, transaction revenue growth decreased 7%.

Non-transaction revenue increased 3% to $343 million in the quarter.  Excluding the impact of foreign exchange, non-transaction revenue increased 8% due primarily to increased demand for Rating Evaluation Service from heightened M&A activity and growth at CRISIL.

Domestic revenue increased 8% while international revenue, impacted by weak debt issuance, decreased 14%.  International revenue represented 42% of  third-quarter revenue.

Adjusted expenses in the quarter decreased 9% due to reduced legal fees and, to a lesser extent, decreased compensation and incentive costs primarily resulting from 2014 restructuring actions, partially offset by increased risk and compliance costs.

Operating profit increased 6% to $194 million with an operating profit margin that increased 280 basis points to 33%.  Adjusted operating profit increased 5% to $280 million with an adjusted operating profit margin that increased 380 basis points to 48%, driven by decreased expenses.  

S&P Dow Jones Indices:  Revenue increased 9% to $156 million in the third quarter of 2015 compared to the same period last year. Operating profit increased 23% to $106 million. Adjusted operating profit increased 18% to $106 million.  Adjusted operating profit attributable to the Company increased 19% to $80 million.

As the volatility of equity markets increased during the quarter, trading volumes of exchange-traded derivative contracts increased.  Top-line growth in the quarter was primarily due to this sharp increase in exchange-traded derivative activity associated with S&P Dow Jones Indices.  In addition, licensing revenue associated with increased exchange-traded fund AUM, mutual fund AUM, and data subscriptions all increased. AUM in exchange-traded funds based on S&P Dow Jones Indices increased 2% to $749 billion at the end of the quarter.

Commodities & Commercial Markets:  Revenue increased 9% to $248 million. Organic revenue, excluding revenue from recently acquired Petromedia and NADA Used Car Guide, grew 5%.  Operating profit grew 30% to $93 million and adjusted operating profit grew 11% to $93 million in the third quarter of 2015 compared to the same period last year.

Platts continued to experience steady revenue growth in the high single-digits as a result of strength in petroleum price assessments and market data.  Subscription revenue from Metals, Agriculture & Petrochemicals (MAPS) delivered the highest rate of growth.

Excluding revenue from the NADA Used Car Guide, J.D. Power revenue declined due largely to the economic slowdown in China.

Unallocated Expense:  Unallocated expense includes corporate center functions and certain non-allocated items such as excess real estate. Adjusted unallocated expense increased by 11% to $36 million in the third quarter primarily due to increased professional fees in support of certain enterprise-wide initiatives.

Taxes:  During the quarter, the Company recognized a favorable tax benefit for resolution of prior year tax audits of approximately $0.06 per share.  The Company now expects a full-year adjusted effective tax rate of approximately 31.5%.

Balance Sheet and Cash Flow:  The Company issued $2.0 billion of senior notes of various maturities during the quarter to finance the acquisition of SNL at a weighted average rate of 3.6%. Cash and cash equivalents at the end of the third quarter were $1.4 billion, of which approximately $1.3 billion was held outside the United States. In the first nine months of 2015, cash used for operating activities from continuing operations was $356 million. Free cash flow from continuing operations was $(497) million, a decrease of $1,234 million from the same period in 2014. Free cash flow, excluding the after-tax payments associated with legal and regulatory settlements and insurance recoveries, was $776 million.  Our full-year guidance for free cash flow, adjusted for legal and regulatory settlements, continues to be greater than $1.1 billion.

Comparison of Adjusted Information to U.S. GAAP Information: Adjusted diluted earnings per share, adjusted diluted earnings per share from continuing operations, adjusted diluted earnings per share excluding amortization expense, adjusted net income, adjusted operating profit and margin, adjusted expense, adjusted unallocated expense, free cash flow, free cash flow excluding certain items, and adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") are non-GAAP financial measures contained in this earnings release that are derived from the Company's continuing operations. This information is provided in order to allow investors to make meaningful comparisons of the Company's operating performance between periods and to view the Company's business from the same perspective as Company management. These non-GAAP measures may be different than similar measures used by other companies. Reconciliations for the differences between non-GAAP measures used in this earnings release and comparable financial measures calculated in accordance with U.S. GAAP are attached as Exhibits 4, 5, 8 and 9.

Conference Call/Webcast Details:  The Company's senior management will review the third quarter earnings results on a conference call scheduled for today, November 3, 2015, at 8:30 a.m. EST.  Additional information presented on the conference call may be made available on the Company's Investor Relations Website at http://investor.mhfi.com.

The Webcast will be available live and in replay at http://investor.mhfi.com/phoenix.zhtml?c=96562&p=irol-EventDetails&EventId=5206476. (Please copy and paste URL into Web browser.)

Telephone access is available. Domestic participants may call (888) 391-6568; international participants may call +1 (415) 228-4733 (long distance charges will apply). The passcode is "MHFI" and the conference leader is Douglas Peterson. A recorded telephone replay will be available approximately two hours after the meeting concludes and will remain available until December 3, 2015. Domestic participants may call (866) 403-6974; international participants may call +1 (203) 369-0561 (long distance charges will apply). No passcode is required.

Forward-Looking Statements: This press release contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events, trends, contingencies or results, appear at various places in this press release and use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "forecast," "future," "intend," "plan," "potential," "predict," "project," "strategy," "target" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would." For example, management may use forward-looking statements when addressing topics such as: the outcome of contingencies; future actions by regulators; changes in the Company's business strategies and methods of generating revenue; the development and performance of the Company's services and products; the expected impact of acquisitions and dispositions; the Company's effective tax rates; and the Company's cost structure, dividend policy, cash flows or liquidity.

Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include, among other things:

• the impact of the acquisition of SNL, including the impact on the Company's results of operations; any failure to successfully integrate SNL into the Company's operations and generate anticipated synergies and other cost savings; any failure to attract and retain key employees to execute SNL's growth strategy; any failure to realize the intended tax benefits of the acquisition; and the risk of litigation, competitive responses, or unexpected costs, charges or expenses resulting from or relating to the SNL acquisition;
• the rapidly evolving regulatory environment, in the United States and abroad, affecting Standard & Poor's Ratings Services, Platts, S&P Dow Jones Indices, S&P Capital IQ and SNL, and the Company's other businesses, including new and amended regulations and the Company's compliance therewith;
• the outcome of litigation, government and regulatory proceedings, investigations and inquiries;
• worldwide economic, financial, political and regulatory conditions;
• the health of debt and equity markets, including credit quality and spreads, the level of liquidity and future debt issuances;
• the level of interest rates and the strength of the credit and capital markets in the United States and abroad;
• the demand and market for credit ratings in and across the sectors and geographies where the Company operates;
• concerns in the marketplace affecting the Company's credibility or otherwise affecting market perceptions of the integrity or utility of independent credit ratings;
• the Company's ability to maintain adequate physical, technical and administrative safeguards to protect the security of confidential information and data, and the potential of a system or network disruption that results in regulatory penalties, remedial costs or improper disclosure of confidential information or data;
• the effect of competitive products and pricing;
• consolidation in the Company's end-customer markets;
• the impact of cost-cutting pressures across the financial services industry;
• a decline in the demand for credit risk management tools by financial institutions;
• the level of success of new product developments and global expansion;
• the level of merger and acquisition activity in the United States and abroad;
• the volatility of the energy marketplace;
• the health of the commodities markets;
• the impact of cost-cutting pressures and reduced trading in oil and other commodities markets;
• the strength and performance of the domestic and international automotive markets;
• the impact on the Company's revenue and net income caused by fluctuations in foreign currency exchange rates;
• the level of restructuring charges the Company incurs;
• the level of the Company's capital investments;
• the level of the Company's future cash flows;
• the Company's ability to make acquisitions and dispositions and to integrate, and realize expected synergies, savings or benefits from the businesses it acquires;
• the Company's ability to successfully recover should it experience a disaster or other business continuity problem from a hurricane, flood, earthquake, terrorist attack, pandemic, security breach, cyber-attack, power loss, telecommunications failure or other natural or man-made event;
• changes in applicable tax or accounting requirements; and
• the Company's exposure to potential criminal sanctions or civil penalties if it fails to comply with foreign and U.S. laws and regulations that are applicable in the domestic and international jurisdictions in which it operates, including sanctions laws relating to countries such as Iran, Russia, Sudan and Syria, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010, and local laws prohibiting corrupt payments to government officials, as well as import and export restrictions.

The factors noted above are not exhaustive. The Company and its subsidiaries operate in a dynamic business environment in which new risks emerge frequently. Accordingly, the Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made, except as required by applicable law. Further information about the Company's businesses, including information about factors that could materially affect its results of operations and financial condition, is contained in the Company's filings with the SEC, including the "Risk Factors" section in the Company's most recently filed Annual Report on Form 10-K and any subsequently filed Quarterly Report on Form 10-Q.

About McGraw Hill Financial:  McGraw Hill Financial is a leading financial intelligence company providing the global capital and commodity markets with independent benchmarks, credit ratings, portfolio and enterprise risk solutions, and analytics. The Company's iconic brands include Standard & Poor's Ratings Services, S&P Capital IQ and SNL, S&P Dow Jones Indices, Platts, CRISIL, and J.D. Power. The Company has approximately 20,000 employees in 31 countries. Additional information is available at www.mhfi.com.

Investor Relations: http://investor.mhfi.com

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Contact:
Investor Relations:
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(212) 438-4321 (office)
[email protected]

News Media:
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(212) 438-1247 (office)
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