IHS' CEO Hosts Investor Day Conference (Transcript)

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IHS Inc. (IHS)

April 10, 2013 12:00 pm ET


Jerre L. Stead - Chairman of the Board and Chief Executive Officer

Scott C. Key - President and Chief Operating Officer

Stephanie Buscemi - Chief Marketing Officer and Senior Vice President

Richard G. Walker - Executive Vice President of Global Finance

Todd S. Hyatt - Chief Financial & IT Officer, Senior Vice President and Chief Information Officer

Brian Sweeney - Senior Vice President of Global Sales


Peter P. Appert - Piper Jaffray Companies, Research Division

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Jeffrey M. Silber - BMO Capital Markets U.S.

James Warby Crichton - Scout Capital Management, L.L.C.

Jerre L. Stead

If we can get everybody in here, we'll get started.


Jerre L. Stead

So the question is, what does that have to do with IHS? The answer is, absolutely nothing, but we thought we'd get you warmed up pretty quick today. We actually used that with our tick-off when we had 1,500 of our worldwide sales folks together in January.

It's a great pleasure to welcome you all here today. This happens to be our 8th Annual Investor Day. I was reflecting early this morning about the first one we did in September 2006, had not been public for 1 year then, were getting ready to do a secondary and were very pleased with the progress we've made. And I will now tell you today, much of what we'll cover, we had laid out back in 2005 and '06, of things we had to accomplish to get us to where we're at today, which is really a point for embarkment for up, up and away more than we've ever done before.

So Andy said that if I push the refer to ihs.com for detailed information, we could move on. So we've done that. Here's the presentations today. I'm going to kick it off, I'm going to give you a pretty good view of what we've been doing to get to where we're at today. Scott will do a great job of taking you from where we're at to where we're going to be. Stephanie will make her debut, I think, as our Chief Marketing Officer, came in about 5 months ago, and give you a very good view about the last piece of the missing puzzle piece, if you will, which was our marketing efforts that are now well underway. Rich will give a great overview of what's going on from an M&A standpoint, what our capacity is, where we set from a balance sheet standpoint. Todd will give you current update, including guidance for the balance of 2013. Scott will come back up with a summary, where he's actually going to give you a pretty good view of all the things we've said we were going to do and what that should roll up to from a financial return standpoint, 2016, '17. I'll come back up and we'll answer questions as long as you all choose. So that's what we've got going. We -- I should have mentioned, we will do a break after Scott's presentation and then get back in about 10 minutes for Stephanie.

Now in place for years, I've talked about the 4 Ps, if you will, as a company, we had to get done: One was people, two was process, three was products and four was platforms. I'm proud to say that I believe, for the first time today, each of those 4 Ps are fulfilled or on track to be in place by the end of 2013. People, we've built the best team in total we're ever been blessed with. And what that means to me is we now have the ability as we've put in place the process and platforms to scale this company up to $4 billion to $5 billion of revenue, which we will do together. And that allows us to have the right kind of people that we've now got in place to carry us forward.

Scott's going to spend a pretty good amount of time on products for you, including spending a fair amount of time on how we believe it's going to play out from an organic growth standpoint as we roll out the new products and new platforms. So it's like this, where we've been, our current state, and where we're going. Some of you, it's great to see you all here today again, and I thank you so much for being here. Some of you were with us pre-IPO. It was pretty interesting. It was clear we had great assets, significant untapped opportunity for success and need for change on most of the things we were working on.

Scott had joined about 10 years ago. He was actually the first one we went on the outside to hire to lead us for the future, great experience and energy. And Scott came in and started to put together the amazing set of assets we had acquired in the late '90s, particularly with energy and where we've gone from there.

So if you look back, we had a leading market position, scalable subscription model, I'll talk more about that in a minute, significant operating leverage. As a reminder, I'll show you a slide. When we went public, we were at 18.2% margins. We exited Q4 2012 at 33-plus percent, with much more to come, because it's such a great subscription-based model with significant operating leverage. Most of our assets were in energy and engineering, with many non-core assets that we work through. We were in a low-growth, low-margin massive opportunity situation, and we were, as a company, very inwardly focused, all of which led us to be able to succeed with the work we've done to get us to where we're at today.

Think about 2001 through 2004: Focused on restructuring, we sold non-core assets, paid down debt. We actually had, I think, $265 million of debt. Pulled energy assets into a much more integrated offering, Scott's first big opportunity. Continued to hire management talent. Set an IPO date. I was talking to our team about that yesterday. When I set the IPO date, I said we're going to file the S-1, and -- on February 4, 2005, happened to be in New Zealand on that day and Steve Green, our outstanding General Counsel, called me to say, "Two years ago, when you set that out, we didn't know what an S-1 was, but we just filed it at 4:00 today." And we made that happen. And then we've built, clearly, a world-class Board of Directors, ones that we're very thankful for, all former CEOs, our current CEO, CFOs, vast amount of global experience and a really significant contributor to our success.

This is just a quick refresher on the statistics, did $476 million in revenue, $87 million of EBITDA, and as I said, 18.2% margins as we exited 2005. As you know, I like to set fun personal targets. Clearly, one was to exceed the revenue we had in 2005 with the profit that we delivered in 2012, which we did do. Engineering and energy divisions, that's actually how we started, it's how we reported, very siloed individual P&Ls. We knew we needed to get that fixed. We had no scalable platforms at that time, and we had a good experienced leadership team, but leadership management strength left a great opportunity for improvement for us.

So in 2005, we set a vision for what we could be. We started to execute that. We actually laid out step-by-step, before we went public even, the whole change, if you will, of the infrastructure, what we had to do. The first thing we put in place, starting December 2004, was human resource information systems and now are 90-plus percent done with the entire infrastructure. Scott's going to give you some fun slides on statistics in a few minutes about what that means and how far we've come.

We laid out and operate very well today with the vision, mission and values that we mutually put together about where we are and where we're going to go, shifted culture to everything outside in with customer first, I'll talk more about that in a minute. As you probably know, we're, to our knowledge, the only public company in the world today that gives every colleague everywhere in our company, every full-time colleague, the opportunity to learn -- earn 40 or 50 restricted shares each year if and when we meet or exceed the very aggressive goals we've built from our customer surveys. We're just completing our first one for this year as we speak. I got an update, Scott, I think, has seen it, too. It's a great start for 2013, more to come on that.

Then we set colleague engagement, I'm going to talk more about that. But everything begins with people, no matter what organization you're in. For sure at IHS, it is a people-driven business. I'll give you some statistics on that in a minute. But that was the key measurement that we had to know and understand and make sure we rewarded our management organization for. And then we started to build and continue, to this day, build the bench strength of our organization. A foundation -- truly the foundation for our success has been vision, mission, values. Objectives, I'll talk about those. We set and report quarterly on public measurable goals that everybody in the company works towards. Nobody has more than 4 goals. Each of those tie to the corporate goals that we report on.

Then we've created, and it's one I'm very proud of, I've been blessed over the years to lead really great companies. This one we've done a better job of putting performance-based systems in place and rewarding a culture that creates perhaps high risk from the standpoint of delivering great returns for our shareowners and being driven across the company with extensive 3-year cliff vesting goals that we'll talk more about later.

Vision, we actually set this out to be the source, the source for critical information and insight that powers growth and values for our customers. Words of importance were "the" because there's only one, and growth and value for our customers, and we'll talk more about that. We worked hard in laying -- our mission should be a simple way for our colleagues anyplace in the world to be able to say, "I've got all sorts of priorities, what do I do first today?" And that's the whole purpose of the mission, to give us the binoculars of focus, translating the value of IHS global information, expertise and knowledge to enable customer success. You'll see everything we do starts with customers and create customer delight on a daily basis. Example only, we, 2.5 weeks ago, introduced a fun certification program, volunteer basis, on customer delight. Series of questions that we sent out on a voluntary basis to all of our colleagues to get them certified. As of this morning in less than 3 weeks, about 80% of the people have voluntarily done that and are now certified of what we mean by customer delight.

Values, we really work hard. We don't promote or bring anybody in from the outside unless we've made our decision that they will be great role models on a performance basis, a capability basis and equally important, as role models of the kind of values that we operate with. 100% respect for every person, total accountability. Teamwork is critical for us and obviously, integrity and innovation. Some of you may know, some may not, that 1.5 years ago, we were selected by -- we didn't apply for it, but were selected by Forbes Magazine as one of the Top 11 Innovative Companies in the world in 2011.

Foundation for our values, this is so interesting, is customers first, period. I would challenge you to go out and read, as you travel around the world as investors, read the values of many companies. Very few of them start with customers, fascinating to me. I'm sure we could all think of those that we don't feel good about. We really work that hard.

These are the goals that I was talking about earlier. It all starts with colleague success, customer delight leading to profitable top and bottom line growth, shareowner success, which we'll talk more about, relative to our peer group, and then we added, 1.5 years ago, almost 2 years ago, to be world-class in corporate sustainability. Each of our colleagues, as I said, around the world, have line-of-sight goals that perform against our corporate goals on all of those, and we call it the virtuous circle because it continues to reinvest for shareowner return.

They're very tightly interconnected. Corporate sustainability, of course, touches everything, particularly when you're the world's leader in Environmental Health, Safety and Sustainability systems and solution sales. We create, engaged and rewarded colleagues, which leads to customer delight, which results in superior company results, which we've done in resolving an ever increasing shareowner return. We do that over and over.

Here's the statistics for you. Since 2008, we've grown 29% our colleague engagement from 66% to 85%. 85% is world-class. Our goal is to be 87%, which would be a level never set by any company that's measured by the company we use on the outside before. And customer delight, 38% growth improvement during that same period of time. Our target goal for 2013, stretch goal to 69%. Our ultimate goal is 77%.

If you do the math, you'll find that we're well past halfway of achieving that goal from the 66% we accomplished 2012. Just to put that in perspective, we survey over 800,000 users a year in 130 different countries. And we do that, on many cases, daily today, and then of course, least case, quarterly. We only survey customers, the same users once a year, and that feedback, it's interesting statistic. Two key things with this: One, of all the customers that we survey that respond, 70% of them write in comments. Of those 70% that write in comments, 80% -- almost 80% are positive comments. I don't know about you, but when I fill out a customer survey, I don't usually spend my time on positive comments. Maybe I should, but I tend to respond when I'm not happy with the airline or whatever.

The other statistic, just for background, you're going to hear Scott talk about this soon, but of the customers that we survey, we ask them, who is -- unaided, who is the leading competitor against IHS on a worldwide basis? 61% of our customers say there is no competitor. It's a very good thing. It also sets a very interesting challenge for us, because to meet the benchmarks and expectations our customers have, is a benchmark that we don't have, and we're happy with that, don't have the competition to measure that. So we've got high benchmarks that our customers expect us to deliver against and we will.

So it just -- it's a remarkable situation as we've laid out the global markets that we're focused in. As I said, everything starts with people. Today, we have 6,700-plus colleagues, 31 countries, over 50 languages, 1,400 world-class researchers and analysts all over the world and 1,400-plus data transformation analysts, the very best in the world in taking raw data and creating it -- in creating world-class information, which allows us to provide the insight that we provide, which then creates the predictive analytics that we provide to our customers today.

We've worked hard, as I said earlier, with the executive leadership team, adding leaders in sales, marketing and operations. Scott's going to give you a very good view of those in a few minutes. You're going to have the opportunity to read the resumes, and I hope you do. It's the most exciting group of people I've been privileged to lead over the years. We continue to try to get 3 deep in every key management organization bench and we'll continue to work through that. It's so important for us, one, because of our fast growth that we'll continue to do as we bring in acquisitions and speed up organic growth; but two, because to scale up to where we want to be, we've got to have world-class people that can manage and lead $4 billion to $5 billion businesses.

So I'm not going to go through all these, but these are actually all of the things we laid out to do in 2004, '05 and '06. And you'll see, as the green spots show, that we've now accomplished 95% to 98% of all of those, which allows us to prepare for the next big step. It's amazing to me. I tell our organization all the time, I am so thankful for the work they've done despite the fact they didn't have the infrastructure they deserved and where we can now go with that infrastructure. Each of those changes are in place, work today and will continue to become ever better.

This chart does 2 things: One, reminds you of the industry sectors we're in and where we're focused; and the functional work streams and workflows of the 5- and the 4-plus adjacent and how they play together. I'm going to show you in just a minute how important that's been because this is the matrix we've used to fill in with acquisitions, 2005, '06, '07, '08, '09, '10, '11, '12 and '13. And you'll see how focused we've been.

All of these acquisitions are either currently global, product and service offerings are those that can be at the time of acquisition on a short period of time. And Rich will give you coverage in a little while of all the other criteria we have in place. This one, though, lays out how disciplined we've been with the acquisitions we've made. I've told Mary Joy, my wife, that -- she has this beautiful piece of art in our living room, and I told her I was going to replace that with this someday. Probably not going to work out, but yes, we've got to get Scott and team to fill in more bright colors in the future.

We've delivered sustainable double-digit growth, profit expansion since the launch of our IPO. Statistics I'm very proud of, cumulative post-shareowner return 27%; revenue growth over that period of time of 18%; all compound annual CAGR; 32% free cash flow and we're going to do better than that going forward with the tools we now have in place; and 28% compound average growth in our EBITDA. And as I mentioned earlier, improvement of 1,350 basis points of margin since we took the company public in 2005.

We've worked very hard to drive the entire organization to double-digit growth for the future, both organic and through acquisitions, and free cash flow. In fact, this year is the first year that a significant portion of all of our annual bonuses are based on free cash flow. At the end of the day, with the complexity of accounting systems today, the one thing that's crystal clear and full transparency is free cash flow, and that's where our driver is.

You'll see a slide later where Todd talks about our record that we set in Q1 of this year of $5.14 per share of free cash flow. We would expect to double that plus some. And you'll see Scott wrap up with that later. But that's the driver. Why? It allows us to operate with very conservative balance sheet, that Rich will show you later, and it allows us to provide the kind of return, either through acquisitions, capital investments and new products or in making sure that in the future, we provide cash returns to shareowners if we find a day that cash far exceeds our ability to make meaningful acquisitions.

This is one of my favorite slides because I used to talk about, this as a potentially very good company and we were going about 60 miles an hour. And I wanted to get us to at least 120 miles an hour, and I wanted to get us on the Autobahn off of the Los Angeles freeways. And we've worked hard to do that. And today, for the first time, we can scale this company to $4 billion to $5 billion, truly exciting. We will make that happen, with increased margins, increased free cash flow, EBITDA, an ever faster growth that we'll lay out for you today. As I've said, we've put in place now people, processes, products and platforms, which will allow us to provide long-term sustainable profitable growth. Those words are in meaningful sequence, long-term, sustainable, profitable growth. We've done that fine, we'll do that even better in the future.

We're truly building, today, a company unlike any other, and we'll continue to do that as we converge core information with workflows, knowledge and actionable analytics that will change and is changing world for our customers. We truly have must-have offerings, those things that customers must have to make the very best decisions. Today, we have an unmatched group of professionals, we'll continue – that I'm so proud of, we'll continue to build them for the future, and we are delivering long-term, sustainable, profitable growth.

So with that, I'm going to ask Scott to come up. As I mentioned, Scott joined us 10 years ago -- just over 10 years ago. We worked through all the plans that we've delivered in the last 10 years, and I'm delighted to say that we're about to make the next 4 to 5 years more fun than ever before. I told last night our operating leadership team and then our -- which is about 30 of our top people, our expanded leadership team this morning, 250 of our top people, how delighted I was and more importantly, myself and the board, in the selection that Scott has earned to become the next CEO of IHS. Now I promised not Scott to tell him how good I think he really will be in 2017. I'm going to let you do that yourself. But congratulations.

Scott C. Key

I'll do that, if you think I -- thank you. I appreciate it.

Jerre L. Stead

And with that, for the first time, I'm going to let you use the [indiscernible].

Scott C. Key

I appreciate it, Jerre. Thank you. It is truly a privilege to have spent 10 years in IHS, building the momentum that Jerre just outlined as a company. We have spent 10 years working together, privileged to work with great people across the world, to work with our board. And to stand here today, I will say, it is a privilege to lead a company with such great assets, with incredible momentum. It's a privilege to be able to lead a company that is -- has such capable colleagues and leaders across the globe, and we'll talk about those today. But even more exciting is, as Jerre said, is what we have in front of us. And all of this foundation building will allow us to do some incredible things in the future, and that's really the focus of today.

We'll talk first about where we've been, the financial foundation and business model of IHS and why that is such a compelling one. I'll then spend a few moments talking about, first, the strategic framework that represents the commercial model at IHS. So Jerre's shown you that framework. It's about the high-value industries where we've got an unbelievable potential to expand and grow. It's about workflows that embed us deeply in customers' decisions in those industries. And then, as Jerre said, the infrastructure. So I'll spend a moment on what that means in terms of the foundation for the future. And then finally, we'll lay out a very clear path for the next 12 quarters for IHS.

What I'd like to show you today is each of the elements that are going to take us from a very consistent level of growth delivery over the past 3 years, despite challenging markets, and propel us into the type of growth, the full opportunity on a global basis that all this foundation building will allow us to achieve.

So with that, we'll talk a little bit about the business model and the financial foundation of IHS, and why that is such an important and leveraging one for us. As Jerre discussed, we have delivered for 10 years. And despite not having the infrastructure and having all the capabilities and processes and systems, despite bringing in dozens and dozens of great assets that build the capability base, we've continued to deliver not only a solid value for shareholders, delivered continuous overall revenue growth in double digits and organic revenue growth in high single digits. But more importantly, through all that time, while we were investing in our foundational information systems and financial and operating systems, we were delivering margin expansion. And what's exciting and you'll see today is we're really just on the early edge of that curve.

So delivering market-leading returns has been based on a compelling business strategy and a business model that's tied to subscription-based revenues that have high renewal rates in high-value markets. And as a result, we've been able to not only translate growth into further growth and momentum, but translate that into a steady delivery of returns.

That's been based, as we said, on solid revenue growth every year. We don't bring an asset into IHS, as Jerre said, that doesn't have, and I said this last year, the potential to grow at double digits for a decade to come. And our ability to bring in so many assets, over my 10 years, measured in more than 60, and integrate them well and deliver growth and opportunity with each, is the foundation of our business model. And we'll talk about that more in a moment. But what's most exciting about that is it's a business model that creates unbelievable free cash flow. And what Rich will show you later as we walk through where we are and where we're headed is that, as Jerre said, it's a virtuous circle. Because of the high free cash flows, because we have the right strategy in the right markets we're able to use that cash to continue to expand the business at an incredibly positive rate.

So we talked about a foundation of subscription-based revenues, and we've been relentless in ensuring that as we've grown this business, that remains a foundation; a foundation of our financials and our delivery. So over 75%, it's been that way since we went public. And what I'll lay out at the end of the day is a path that takes us beyond 75% to 80% and what the implications for margin and future growth are.

As important as ensuring that it's a high-value subscription model is where that model is executed. So we'll spend time today talking about capital-intensive, high-opportunity markets. And so we have built scale. We've, as Jerre showed you the framework, carefully and relentlessly followed a strategic path to build scale in very attractive, connected markets.

We've also built scale globally. So Jerre said every offering has to have global potential. One of the drivers of our growth and success in the past and the future is many assets in these high-value markets that we bring in are not global. They have not expanded globally, and what we do at IHS is take this great global infrastructure that is now in place and create double, triple, quadruple the surface area for great solutions across the globe. Most important is the 30% compound average growth in Asia Pacific. So as we'll see later, more capital is being deployed in Asia Pacific. In 2012, actually, more capital was deployed for the first time in Asia Pacific than in the developed countries across the world. So these are the high-growth future markets, and we've been building scale and presence relentlessly and consistently and patiently for the past 3, 4, 5 years.

It's a business that's composed of what we call critical information. And that means in general, you can't find it anywhere else. It means it is core to our company's operating and capital decisions. But we do more than just provide required information to operate. We connect it with research and analysis and industry depth. So Jerre talked about 1,400 researchers and analysts. We've got more depth, more vertical depth and knowledge and expertise in our vertical markets than anyone else other than our customers. So that allows us to have an incredibly rich partnership and deeply embed ourselves, and we use tools and technology to do that. So IHS is uniquely connecting information, research analytics and vertical market depth and understanding with workflow tools that embed us in every work process throughout our customers' operations. And this is what is unique about IHS. So we'll talk a bit more about the leverage this creates and how it drives our growth, but it is the foundation of what and who we are as a company.

So where we've been is dozens of acquisitions that allowed us to build scale in these markets and be the market leader. We've done that, as Jerre showed you in the framework, in a very disciplined manner. What that's allowed us to do is then take that scale, and with systems and processes and infrastructure, create a future leverage of growth that we have not had in the past despite the returns we've delivered. But what I'm more excited about is where we're headed. So as I said, we'll lay out what this disciplined execution for 10 years has done for us and where it'll take us in the coming 12 quarters.

So let's talk about that strategic framework, understand the business a little more deeply and why we're so critical to our customers. It's must-have information combined with research, analytics and understanding and expertise and then tools and technology. And what it does is seamlessly embeds us from the top of corporations all the way to the bottom in not only strategic capital decisions but every daily business operating decision. And that means we are very sticky. I'll talk later about the length of these relationships, our top 1,000 customers today. Most of those relationships are decades long. So we're very embedded, and our strategy to converge these things further embeds us as a required partner.

So these workflows, each of them that make up what IHS is, is tied to a customer function. So if we're going to be embedded in their processes every day, we need to know exactly what the workflows are, the decision flows and how they're executed. So the first is strategy, planning and analysis. So roughly, 34% of IHS's annual revenues. So $0.5 billion is what this workflow supports. And it starts at the sea level: strategic planning, corporate development, M&A, investment, sales and sales and market planning. And Stephanie will talk a little bit later about how we engage those sea level executives to further embed ourselves.

The next is energy technical. So another $0.5 billion roughly in revenue this supports, and we're deeply embedding ourselves in technical operational workflows, exploration and production geoscience, engineering, commercial development, where trillions of dollars in energy capital across the globe are actioned every single day. And we'll show you some details on this one in a few moments.

Product design starts from beginning of engineering design, commodities, components, bill of materials all the way through obsolescence, maintenance and repair. So the full life cycle of something that might be built, and of course, when you're in a capital-intensive industry, this is core to what they do, about 18% of our revenue annually.

Then EHS&S, so Environmental Health, Safety and Sustainability. And it's more than just that. So think about greenhouse gas reporting. Think about water, air and waste emissions management and reporting in hundreds of jurisdictions across the world with appropriate compliance. So this is core to customers today. It's – if you think about the capital intensive industries we're in, it is operational risk for them every single day to not get this right. So when we become their core partner, it embeds us not only in their operations on a daily basis, but it embeds us in the management, their brand and reputation. And then finally, supply chain. And I'll talk in a minute about how connected these are across our core markets.

So the result is a vertical integration inside every customer. So as we've grown and as we've done this in a very targeted and disciplined way, we've ensured it allows us to connect from the sea level all the way down to the shop floor and become an incredible embedded partner for every customer.

So with that, I want to show you a short video of what one of these workflows look like. And you'll remember, for those of you here last year, I did a live demo of IHS Connect as we launched it. I'm going to talk in a minute about the milestones and roadmap for IHS Connect. But as I said, it represents this $0.5 billion in revenue or 34% of the company that it supports. And of course, is an exciting convergence of everything that we have inside IHS. So let's go ahead and watch the video.


Scott C. Key

I spent a little time last night reviewing last year's video and my live demonstration at Connect, trying to compare it to see who did a better job representing the potential here. But certainly, what you see here is it's come a long way since I debuted it last year. It represents an unprecedented opportunity for us at IHS to connect things for customers that have never been connected seamlessly before.

In the industries that we're in, study after study over decades, has shown that information gathering ahead of decision-making is where 60% of the time is spent. 60% of time of engineers, of analysts and commercial development strategists, is spent gathering information to make a decision. What we're doing is collapsing that down to almost 0. We're connecting things in ways we've never been able to, nor our customers have, on a single platform.

What's more exciting, as you watched that, all of the subscriptions available, this is the first time in 10 years that we've been able to connect all our potential subscriptions onto one platform to create a simple and easy selling motion that's connected to critical workflows. So it really unleashes unbelievable opportunity for us in upsell and cross-sell and to realize the value of all the assets you saw Jerre represent in terms of our strategic framework.

So with that said, we have built scale, and these workflow platforms apply to very large, high-value industries. So across these 4 sectors, $41 trillion in annual spend. Each of them are high growth. In fact, the slowest growth of any of these industries right now is 9%, and many of them in double digits and will be in double digits like automotive for decades to come. So we're targeting large, high-growth industries.

I'll show you in a moment that they are very interdependent. And what that means is when we become the only scale vertical player in each, which -- with unbelievable depth and breadth and expertise, we have unique skills that we can offer across these industries that no one else is capable of providing. And finally as I've said, we've scaled our vertical depth to be the player in each of them.

So let's talk about what we mean by capital intensive. We spend a lot of time talking about capital-intensive industries. You see here that 70% of our revenues today are associated with these 4 capital-intensive industry sectors. The other 30% are end markets that have to know something about these 4 sectors because they're connected to them either through investment or supply chain or their supply chains.

Most importantly, though, is the size and scale of these markets. So $32 trillion in annual spend by these companies with each other. So we talked about $41 trillion in revenue. What does that mean? It means the decisions and the dollars are significant. And relative to that, it means IHS's offerings are insignificant. They pay us a very, very, very small fraction for very, very large decision-making. And what that means in a subscription-based business, we have very high renewal rates. I'm going to show you in a little bit our top 1,000. The renewal rates are 99% in decades-long relationships. So that means stable, recurring revenues, but it also means incredible opportunity for upsell and cross-sell and pricing power. But what's most important here is the interdependency. So when we become the knowledge expert, the information expert, the convergent, analytic, information expertise and understanding expert in each, and their supply chains are so intimately connected, we create new value for them they cannot find anywhere else.

I'll give you an example. So no one realized that a year or so ago when a plant in Germany that produced nylon-12 blew up, that 80% of the world's brake linings for cars, trains, ships, planes could no longer be manufactured. So suddenly, a chemicals and plastics manufacturer impacted the supply chains of every single one of these other sectors. When we brought experts, IHS experts together after the Fukushima disaster, it was about energy. But more importantly, we brought to that call electronics experts, automotive experts, aerospace and defense experts. And what we found is when the power went out, it went out in a number of electronics plants that were critical suppliers to the vast majority of some components that impacted each of these sectors.

So IHS puts our -- we put ourselves in a very unique position to build once and sell many times. So when we build value in energy, we sell it all the way across this value chain. And of course, you'll see later that is the source of incredible opportunity not only for growth but high contribution margin and profit expansion.

So we've talked about the framework and I want to just spend a moment -- let's talk about strategy, planning and analysis. So if you go across the top, that represents -- supports about $0.5 billion in our annual revenues. We just saw IHS Connect. We've released it in the first box so up in the far left-hand corner what Connect is today is strategy, planning and analysis for energy and natural resources. So one component of that $0.5 billion opportunity and growth that's out in front of us and I'll lay out for you in a moment, the milestones to replicate that across every single industry and realize that's a build once, fixed cost, sell many times model.

What I'm showing you here is the capabilities we've built through all this acquisition and organic growth over the last 10 years, this gives you a sense for the capability penetration, not the market penetration, that we have in each workflow in each sector. So not surprisingly, we're the -- we have the greatest concentration and capability to our goal in energy and natural resources. We have a long way to go in the others and I'll talk about that scaling later. You see energy technical, product design and, of course, substantial opportunity left to deploy our capital to the right assets and organic growth to continue to build scale in each of these industries. And I'll talk at the end of the day about how that scale can take us to $0.5 billion to $1 billion revenues in each of them over the next few years.

We've also then built scale globally. So we're present with experts and analysts in every single one of these markets around the globe. And what that does is it puts us close to the customer, not only to understand their needs but to be successful in selling, cross-sell and upsell in growing our market penetration.

So when we think about the strategic framework that we've built, must-have products and services in high-growth global markets, converging information, workflow tools, research and analytics in ways no one else is doing in these markets; becoming the only scaled player in each of them with unmatched industry depth and knowledge that allows us to help our customers solve problems no one else is capable of; and, of course, as we said, the infrastructure in place to grow and scale on a global basis going forward.

So I want to shift gears now and just take a short moment to look at what this infrastructure build has brought us. So we've spent the last couple years, both Jerre and I, talking about an 8-quarter path to build out our infrastructure. We're at the end of that 8 quarters now as we stand here in Q2 of 2013. Jerre outlined quite well that we actually began the planning for that infrastructure build some 5, 6, 7 years ago but have been relentlessly executing over the last 2 to get it in place so we can move forward.

The goal has been, this is simple view, to grow revenues more rapidly than expense and, as a result, give ourselves the opportunity to consistently expand margins not only for the last 10 years but for the next 10 by doing that in critical areas. So cost of sales and efficiencies in sales, high contribution margin to our organic growth, a delivery capacity that scales at a much slower pace with every new dollar of revenue and relatively fixed infrastructure costs that today could scale us to $4 billion to $5 billion in revenue.

So think about financial systems and look at the numbers here, and imagine trying to manage performance across the globe with 65 distributed systems, 20-plus general ledgers and 40-plus billing systems. So the leverage we have now is we announced the great organization around workflows and industries. We've got leaders today that understand contribution and profitability at IHS in every part of their business that they have not ever had before. So unbelievable progress there to manage performance of the business.

If you think about free cash flow generation and speed to revenue, so entitlements and that means entitling customers to our information, 65-plus systems. It used to take us when a customer wants to buy everything from us, it can't take days to turn them on. Now we're collapsing that, and it allows us speed to revenue, lead to management, speed the cash. For the first time, we can look at a single invoice for a global client and everything they take. And of course, Centers of Excellence in the 3 regions that support our growth in each of them.

And then finally, the sales force. So you can imagine the load on the sales force with 35 customer systems, the idea of a single view of a customer, a high-value account and how you might grow it, was almost impossible to generate. Wasting countless hours of sales time so I think we've been pretty consistent in saying we thought our sales and efficiency was measured in 30% to 40%; in some places, potentially 50%. Hundreds of contracting entities. So when a sales executive at IHS wants to bring all of IHS capabilities to a single customer, in the past, it involved hundreds of contracts. It now involves one. We've got 5 contracting entities around the world in each region in large high-growth market to facilitate rapid closure of sales and move to cash. And of course, we don't want salespeople spending time figuring out how they get paid. So we've streamlined in significant ways that allows us to now take that inefficiency and deploy it to growth, deploy it to high-growth, high opportunity markets.

And then finally, in terms of scaling and incremental contribution margin, we've taken 160 data delivery systems and hundreds of servers across the globe and collapsed those to allow us to entitle and deliver information, tools and technology to customers in a very simple way at a very low incremental cost. So the result is a lot of leverage, and we're at -- just at the end of that phase an incredible build and capital deployment that gives us a single view of the customer from which now to focus on growth. Simplified contracting entities and structures that not only creates sales efficiency but simplifies the life for customers when they want to deepen their partnership with us. Scaled regional centers, of course, that will allow us to get into each of these geo markets where we can see great growth. And of course, as we said, a surface area now with the customer across everything that we have, that will be the source of upsell and cross-sell.

So probably the most exciting for the day is to talk about where we're headed. So we have created a foundation to enable us into a new phase of growth for IHS. And what I want to lay out is what those next 12 quarters, next 3 years of growth look like. What are the specific milestones that you can expect us to deliver against and what value will it bring. So workflow platforms as we streamline those. Existing customer relationships, so our top 1,000, and we'll talk about how we take all this great capability and make sure we deliver upsell and cross-sell potential there, and then new high-value relationships, and I'll talk about our target 1,000, those customers that should be substantial customers of IHS but are not today.

So let's start with our workflow platforms. We will integrate the broad capabilities that are IHS onto common platforms. This allows us, as you saw in the Connect, to cement significant market differentiation and competitive advantage because you will not be able to get this anywhere else. It transforms the cross-sell and upsell motion. Imagine walking into a customer and having 100 products to sell and having 100 product discussions as opposed to a critical workflow discussion, a single discussion. And of course, more importantly for margin, it has a dual benefit of retiring costs. When we say IHS is a convergence of information, technology, research and analytics, it's because 800 software developers are inside IHS. So we are a technology company. And when we can retire legacy systems and costs and simplify technologies, think about the cost savings and potential when 80% of those 800 right now are supporting legacy systems, upgrades and enhancements on a daily basis, not new products and growth.

So as we look at each of these, I'm going to show you a roadmap to 2015 of very specific milestones. And those show you how we build value. We are an annuity-based company selling subscriptions. So we start with an introduction into a market. We then launch with sales, and we have an annual subscription contract renewal cycle that we then embed these new opportunities and subscriptions into, and then we'll begin to see performance sales growth. As then we move through that full contract cycle in a year, we'll see further embedding, and then we'll see the release into revenue streams. And then as we move customers off old platforms and onto these new and force that move, we'll take legacy costs out. And then finally, at the end of this path, all the releases across all industries are out, and we begin to see the full stream revenue impact and cost advantage of what we've done.

So we'll start to -- with a view of energy technical and we'll show you a brief video of what this capability looks like.


Scott C. Key

So this is a great example of embedding ourselves in a very high-value workflow. Trillions of dollars is spent every year building out the world's energy infrastructure. And it is the beginning of every supply chain. In fact, right now, the energy landscape in production and where production happens is transforming the industrial landscape certainly in the U.S. and elsewhere. So we are right in the middle of that workflow. So the only provider of comprehensive information, but we do a lot more than that because then we connect workflow tools on the specific decision-making about drilling and development where the capital is deployed that puts us right in the middle of core workflows.

So if you think about energy technical, it's again about $0.5 billion, supports about $0.5 billion in IHS annual revenue today around exploration, production, geoscience, commercial development and our plan, as you're seeing, is streamlining existing offerings to make a seamless single experience. But it's a great example of our strategic development of a workflow. So you saw us acquire a great software asset, Petra, a few years ago. Double-digit organic growth that we took to organic growth in the 20% annually by connecting our information to it. That was geologist tool. So if you think about an asset team, how do you develop a well and how do you develop a field and how do you deploy a capital. You take a geologist, you take a geophysicist or geoscientist and you take engineers and a commercial development team and they work as an asset team to make decisions on development and disposable assets or purchase.

So we captured the geologist with Petra and all of our information. We then acquired KINGDOM, a couple years ago, captured the geophysicist and connected all of our information. We just announced the acquisition of Fekete, which allows us to capture the engineer. So now we have a single IHS platform that supports the entire asset team, they don't ever have to get out of our applications and our information is seamlessly connected. So this is this convergent strategy and what you saw in Pangaea and in Connect, is then the ability to bring relevant insight onto both of those platforms. So we're excited about the path for Pangaea and Vantage. So common interfaces, accelerating the integration of acquired content because it's a single platform. And more importantly, we've got a lot of high-value content in our old platforms that was not exposed, that will create new value for us. And as we've said, reduce development cost going forward.

So what are the milestones? Some of these already completed in 2013 as we bring these 2 key platforms to market. 2014, we'll expand with greater content integration, we'll start to bring in upstream plus midstream, so pipes and transportation, information and content, e-commerce integration, critical to our non-subscription revenue growth. And then finally, full analytics around IHS advantage in 2015. So a very clear road map already underway, development teams in place, milestones set. In fact, we presented this to our Board of Directors just a month or so ago and we'll spend more time with them on these roadmaps in July. And this is the contribution. So this is incremental organic growth contribution that builds on the existing growth base of IHS. So when we execute this one workflow, we have the potential over the next 3 years, 12 quarters, to increase organic growth by 2% due to these activities. So a substantial impact on the company.

Now let's look at the engineering workbench and our product design workflow.


Scott C. Key

So this is probably one of the most exciting developments at IHS right now. And if you think about Jerre's walk through the past, we came out last summer with 2 important acquisitions and we talked about our engineering standards business and transforming it. So if you think about product design today, about $270 million in annual revenues, the base of that business was a standards business that IHS has had for 50 years growing at a consistent 5% to 6% organically, even through the worst of the last 3 to 4 years, but a royalty-based business that was dilutive to our margins.

When -- and it is what the IHS strategic framework, commercial framework, is all about. So find high-value workflows across industries and our capital-intensive industries are full of engineers. So you can build once and sell many times. So we're transforming the experience for the engineer as we lay out this road map for the next 3 years but we're also transforming our financial performance. Less reliance on lower margin royalty based businesses and building a substantial business that has double-digit growth potential for the next 10 years to come.

So this is what the workbench is all about, the acquisitions we've made and now you see the organic investment we're making to leverage them. So seamless integration of technology and information with engineering analytics. Integration, most importantly, engineers have their own company information that's critical to bring into the process. And when we do that, we'll drive organic growth rates, we'll lower our legacy platform development cost and of course, drive this entire offering to accretive margins for IHS.

Much of this already underway. So you've seen recent releases we've made great progress since last summer, already in late 2012 and 2013 with integrated releases on existing platforms and then you'll see us in 2014, as this year ends and next year begins, start to bring new platforms and interfaces to market and then complete that process in 2015. We've got a fantastic team here that is connected with our customers on a daily basis. There's a huge amount of excitement about the value we're going to unlock and the partners we bring into that process. And of course, it unlocks a lot of value for IHS shareholders. So this is the incremental growth profile, organic growth that's additional to IHS's overall organic growth as we go forward. So what you see here is roughly 1.5% of incremental organic growth for the total of IHS as we successfully bring these products to market and deliver against the milestones that we've committed to.

So we've already shown you Connect, and that, again, supports about $0.5 billion in annual revenue, 34% of IHS tied to the C-Suite. And again, Stephanie is going to spend some time talking about how we developed those interactions that put us at the center of strategic decision-making. As I said, multiple releases were done in energy across each sector. And most important, with -- as Jerre showed you, IHS modern art, all the assets that have joined us through this strategic framework that we've built, there is an unbelievable amount of information understanding in these connected capital-intensive markets that we have not surfaced to customers because we didn't have a platform to do it with. So we trapped a lot of value, a lot of trapped value in assets that came in and were integrated to IHS because their products could not be integrated. So this is really the story with Connect.

So already made progress, most of this all done in energy and out in the market. As you see, we'll move across chemicals, economics and country risks. At the end of today, you'll be able to work with these tools, particularly, our new economic scenario tool that's part of Connect, as well as the energy tools and we'll have teams that'll spend time on the tables with you for those that would like to stay and put your hands on these tools. But a very clear and well-developed roadmap over the next 3 years, next 12 quarters. And of course, as we execute that roadmap, an incremental, roughly 1 point of organic growth for all of IHS when we succeed here.

So 2 other workflows, I'm not going to spend some time showing. One that we've made great progress on. We talked about IHS Sphera, that's our integrated EHS&S platform. And I'll tell you where companies are today in our core industries relative to their operating and compliance risk, it is one of the driving factors, in not only their operating and strategic decisions but the regulatory environment and compliance environment we are in drives them to expand what they're doing on a global basis and connect it in ways they never have. And that's really what Sphera's all about. So we're in the second year of releases on Sphera and great progress. And what you've seen in our performance the last few quarters is we're starting to get great traction. So good organic growth performance from this platform and our environmental teams and let's take a look at Sphera and see why.


Scott C. Key

Now why I'm excited about this for our future growth potential is what we're seeing right now with not only what we've built and what we've integrated, but how it's being used by customers. So if you look at the last few quarters, our performance and growth in this area and success is because our core customers are taking a single deployment and replicating it across their operations. So when you think about operational excellence, what they're trying to do is bring a common set of standards and operating performance metrics to each facility.

So let's talk about energy and refiners. So a lot of success the last 3 quarters of an expansion across every refining asset for a number of major energy companies. They're beginning then to benchmark their own performance between refineries, not only to reduce their performance risk in health and safety, but also sustainability in terms of energy management. And what's exciting about that movement is they are now asking the question, "How do I benchmark against others in the industry?" And what we've successfully done over the last 2 quarters in energy is brought each of the players together, allowing us, IHS, to create the benchmark and own that benchmark and share that with them through an operational excellence forum. So it's very exciting what's happening and of course, this is going to drive to greater and greater growth in these solutions as companies are compelled to become more sustainable, more effective, more efficient and reduce their operating risk. So great progress there and we'll continue to see that.

I'm going to shift gears now from workflows to talk about customers and industries. So I'm going to start with our top 1,000. So these are the 1,000 largest customers at IHS, they represent these long-term relationships. They are the sum of, as you'll see in a second, 71% of our current revenues. So these are the long-standing relationships that we have built. And what's exciting about all of the things that we've connected at IHS, our largest customers take nearly everything we do. Now, they don't take it in the full volume and breadth from depth, as I just described with Sphera, and that's why we're still 30% penetrated even in our top 1,000.

So this is our opportunity for -- with common platforms that you've just seen, upsell and cross sell all of our capabilities as we look further embed ourselves in our top 1,000. So our 1,000 largest customers distribute across each of our core industry sectors. So strong relationships across each and of course, we've built scale in each. What we see here is average revenues of about $1.2 million across these 1,000 customers, tens of millions where we've been hugely successful with strategic account development on average, $1.2 million and that leads to the only 30% penetration we have across this great set of customers that we've had for decades.

Here's the distribution. So you see the number of IHS existing top 1,000 customers in each region. And it's a story of long standing, well-developed relationships in developed markets. So obviously, North America and Europe. But good initial scale build in Asia and in Latin America where, of course, as we've said, we've grown our presence -- physical presence on the ground. We have a very clear roadmap to get full value from each of these accounts with everything we do today by effectively managing them strategically and increasing our penetration. So it starts with the strategic account focus, which is in place now. Roughly 200, 250 of our top 1,000 have been in a strategic account management program for the last 3 years and of course, that's been a differential grower for IHS, growing 2 to 3, 4 points above our average growth rate and higher customer delight.

We'll accelerate that. As you think about the infrastructure efficiencies, it allows us to shift resources to these accounts, so 30% inefficiencies in sales where we have 800 salespeople globally. So you can do the math and think about the resources we can bring to upsell and cross sell as we get into 2014. And then accelerate our large account revenue base as we get full coverage and penetration across each. If you look at the value that'll create, these 3 phases of growth and development which are already underway, what you see is 1.5% in incremental organic growth for all of IHS when we successfully execute against these milestones.

Now let's spend a minute on our target 1,000 and this is what's so much fun about the potential we have in front of us. So although we've spent decades developing these 1,000 relationships, they tend to be historical relationships, they tend to be the customers we've had. We've done a great job of renewing them and upselling them and it's been a source of our organic growth. But we now have scale in these 4 industry sectors that are global and capital intensive. The target 1,000 is all about new business opportunity. It's all about expansion into high-growth geomarkets.

So let's walk through it. So what you see here is a view of the target 1,000. What are they? They are the 1,000 largest companies in our 4 target sectors and have each revenues globally of greater than $5 billion. So these are major players in our core industries. And what you see here is how many of the target 1,000 are in our top 1,000 today. So as an example, energy and natural resources, 212 of our existing top 1,000 accounts by revenue are part of the target 1,000. But there is a stunning 284 that aren't. In fact, if you add up the number of target 1,000 companies, $5 billion global revenue companies that aren't in our top 1,000 today, there are 600 of them, roughly 600. Now, they are customers of ours today. Most of them do $100,000 to $200,000 a year. To be in our top 1,000, they'd have to be $1.2 million.

So do the math on that, think about that. 600 accounts where we've proven with existing products and services we don't have to build anything new, that we can do an average $1.2 million a year. So we've got 600 target accounts that are less than $100,000 that should be at $1.2 million or greater. So that's $600 million in new opportunity just by taking them where current customers are today with existing products and services. And if you do the math on $600 million and our current organic growth, that's 40 points of organic growth. That'd be 4 years at 10% organic growth incremental if we were to be able to capture all of it. So I'm hoping we get a question, when we get to the end, when you see the opportunity here, to Brian as to why he's delivering so slowly on this opportunity. But seriously, now that we have scale and infrastructure, we have a sales force deployed and efficiencies, we've got people on the ground in the right markets, we can truly go at this in a way that consistently delivers value. And what would that value look like?

So what you see here is the revenues in our current top 1,000 and the opportunity in the industry as a whole. And what that means is about $600 million in current revenues across these accounts, but almost $6 billion in potential. So when I talk about this $600 million we should be able to go capture or $700 million we should be able to go capture, that's only a piece of the total opportunity. So this truly build once, sell so many times. It's about high contribution margin, new growth with existing products and services.

And when you look at the geographic distribution of these target accounts, what you'll see, it's our opportunity to scale into high-growth emerging markets. And this is why it's been so important, and you've seen us focus on building out scale in APAC and Latin America, why we have COEs, why we've expanded our sales force. And of course, you saw it last quarter with the 15% organic growth in APAC, leading the company. So we have the infrastructure in place and this is an emerging market play, but we have some great work to do in developed markets as well. Stephanie is going to spend a little minute -- a few minutes telling you how we're going to use our marketing tools and our web presence and localization to ensure we've got the tools to be successful in each of these geomarkets that we're targeting.

So we have a track record of building strategic accounts from high opportunity accounts. So we've spent the last 3 years actually putting $100,000, $200,000 revenue customers that are $5 billion-plus global companies into our strategic account programs. So we've been doing that for the last 3 or 4 years, and what we have seen is when we do that, it's a 2% boost overall to IHS's organic growth rate as we deploy the right teams and people into each account. And once we capture that boost, we retain it. So what you see here is a visual of the underlying IHS growth rate and what happens when we develop strategic accounts.

So I'll give you an example. So here's a global automotive manufacturer, this is an account that was sub-$200,000 by a large global company. So when we got the right teams assigned and an owner, we negotiated a master agreement and we grew 40% in our annual revenue in 2011 over 2010. We then launched a common platform that we could use and we saw 96% growth in usage in this account that had been a small customer. And now in 2013, we're growing subscriptions 20% over 2012. So a significant success, and I can give you -- I'm going to give you actually one more example, I could give you about 30 of these. Global electronics and a global industrial manufacturer. 18.5% annual revenue growth due to focus in 2011 over 2010. Master purchase agreement. So again, as we simplified our contracts and streamlined the selling motion, a single master agreement to build from and of course, as I talked about EHS&S and their success, great progress here in the building across this company from a very small base.

So the target 1,000 is about clearly understanding customers and where they are in each geomarket. So we've -- it's -- when we say target, it's an identified account with an identified location, a country where we're building and deploying resources, so a very clear plan to recruit or assign the right resources in each. It's all about new business sales. So it's about enabling those teams with existing products and services to rapidly sell and upsell. And of course, as I said, it's a country expansion strategy that builds on the foundation of the last 3 years that we put in place in high-growth emerging markets. So a very clear set of milestones, we're bringing people on board and/or building the teams from existing colleagues in the right geomarkets. That's what's happening right now.

And as you could imagine, it's very distributed. So these are the right resources in the right countries and sometimes, hard to find. So we've involved a global recruiting network to make sure we're successful. As we build we'll drive incremental sales in each of those targeted accounts in the final phase, will be completely deployed into the target 1,000 by 2015. Now this is why, you'll see I made a comment about Brian. So I know he'll do better and more than this and then you'll probably ask him that question and he'll outline how, but the 3 phases of growth here at a minimum give us 2% organic growth as we successfully deploy over the next 3 years on top of our current organic growth rate.

So what we've done is we've outlined a path. We've talked about infrastructure in place and allowing us to scale; completion of 2 years of implementation and 5 years of planning that has allowed us to do this; the acceleration of commercial activity in workflow platforms, top 1,000, target 1,000, that's going to build on our organic growth potential; clear platform milestones that will allow us to simplify the selling motion driving upsell and cross sell; and then of course, cost efficiencies on the back side as we take legacy system costs out; growing existing high opportunity accounts in our top 1,000; and of course, the target 1,000 in emerging markets. So a very clear plan with very clear milestones.

When we're successful, we'll take the current base of IHS. So if you look at our current subscription base, 7% to 9% organic growth is what we've delivered over the last 3 years despite very turbulent and difficult market conditions. A 5% to 7% overall growth as we've seen discretionary spend challenged and reduced by corporations across the world. So we've delivered well above the market average over the last 3 years, of course, without the benefit of systems and platforms that we're now focusing on and putting in place. So what we'll see is an opportunity, the combined opportunity of all these things I've just walked through is a potential to take the current base of 7% to 9% organic subscription growth and drive it an additional 4% to 5% higher.

Now what we need to recognize and it's a question we ask ourselves and you've spent a lot of time both supporting us and engaging with us. What is the state of the global economy? Where will it head? We've seen 3 years of pretty tough markets. Will we have another 3 years? I think the question is still in our minds. But what we're trying to indicate here, that even if 5% to 7% or 7% to 9% is the new normal for IHS's base because of a continued challenged market, we will deliver substantial growth well above that with everything we have in place right now. So that means a minimum of 9% organic growth building to 12%. And as I think we all hope, we'll see markets recover and corporations focus and deliver more revenue growth than earnings expansion, we'll see nothing but upward momentum in each of these opportunities.

So, an exciting future, an exciting roadmap and we've got a great team aligned. We'll talk about that in a moment. We'll next talk about how we create the market presence to get there but we'll take 10 minutes now and please stretch your legs and we'll see you back in a few moments.



Scott C. Key

Market presence. So as we finish a phase of infrastructure building and preparing to scale and move to a new phase of 12 quarters of commercial development, as you can see from those initiatives, it's all about market presence for IHS. Market presence is also core to the strategy. So convergence of information, research analytics and insight. It means that we are the experts. We know what it means and why it means that for customers who have to answer critical questions. So it's a core part of our strategy and what makes us unique in markets.

And you'll probably then understand, from what you've seen this morning why it made such great sense this last fall to have the first-ever Chief Marketing Officer at IHS. As we begin to plan for the next 12 quarters and beyond of increased commercial activity and growth and building our presence across the globe, it became critical that we had the best resources managing that presence. So exciting to have Stephanie Buscemi here at IHS, and about 6, 7 months now, Stephanie. Big part of this road map building is Stephanie and the global team she's creating. She comes to us with a fantastic experience and the understanding on how to scale and so she knows where we need to go and she's going to lay some of that out today. So thanks, Stephanie.

Stephanie Buscemi

Let me grab this. Thank you, Scott. I'm thrilled to be here today. It's just 6 months here at IHS and it's gone really fast but been a great journey so far being here. And what appealed to me in coming here to this organization is really seeing where the company is at, at this point in time. I look at it and I see with marketing such a massive opportunity to really use marketing as one of the key levers for growth within the organization, internally and externally. And there's a huge appetite within the organization right now to drive the marketing engine and that's what I'm here to talk to you about today. A lot of great work from the team around the globe and more to come. We'll go through what some of those key initiatives are. As the picture shows it, you got a spark plug there and marketing will become the spark plug and the engine of IHS growth this year and the years coming.

Let me talk to you about some of our key priorities that drive us in marketing today. The first is being very focused on well-defined targeted opportunities. And how do we get to that? We're applying, right now, a global marketing framework across the entire organization. And I'm going to get into more detail of the discipline around that and why that's so important to us because it helps us prioritize, rationalize solutions and make sure that we put our marketing investments in the right places to drive the greatest amount of awareness and demand out in market.

We're building a demand generation engine. We're systematically -- and I'm going to show you, have put a tool in place that we can understand at every step of the pipeline journey. So how do we bring in net new prospects? How do we move customers through the customer life cycle? We look at it really as a 3-legged stool, around value, volume and velocity. You take any one of them out and it's going to fall down. You're going to have risks to your pipeline and I'm going to talk to you about how we're managing that.

We're accelerating our growth through new channels. So we're enhancing existing go-to-market channels, but I'm going to talk to you about new channels that we're leveraging around social media and communities, how we're enhancing our inside sales channels and how we're transforming our e-commerce channel. And then last, but certainly not least, is the brand. What are we doing to elevate the IHS brand in the hearts and minds of our customers around the globe? We are moving to a master brand strategy. I would argue that IHS maybe historically has been more of a house of brands, and we are shifting it to a branded house, and I'm going to talk to about how we're doing that.

So let's start with the framework. IHS, we serve complex industries and markets. We have many target buyers that we serve, and we have many solutions. And so it's really important across the marketing organization that we put into place a framework for assessing really the viability of those opportunities for us, really understanding in terms of which markets can drive the most -- where we can drive the most demand and the most revenue. And so we've systematically gone through that over the last 6 months, and it's a very complex task. One could easily argue that IHS serves 75 different target audiences, target buyers across those industry sectors that Scott talked to you about. And then you talk about what are the themes and the business priorities of all those target audiences, and it becomes exponentially that much bigger in terms of the key positioning and messaging that you may drive and arrive in the conversation with those customers.

So we put this framework in place, and what we've done with the framework is we've rationalized those target audiences, we've looked against the viability of the opportunity in the market, and we've also overlaid against the feasibility, understanding our strategic fit, our ability to succeed. Do we have the sales channels in place to drive the demand and revenue against those? We've aggregated those into what are the key themes in the market on those priorities that we're serving. So we look at it and say, what are the industry themes, what are the technology themes, what are the overarching macroeconomic themes, and how do we intricately tie IHS directly to those things? So we've come up with one of our market themes that all of our campaigns around the globe you'll see driving to that we believe information is central to those topics, information is our DNA, and we can own the information agenda and conversation credibly on those topics.

And then we transfer that into an integrated set of programs, really shifting the organization from doing a one-off campaign set of activities to creating an integrated experience. The world of marketing has changed and the traditional methods are gone, and if you aren't really thinking about how to holistically use online and offline channels to create a journey by a customer map and a prospect map, with an integrated mix. So shifting from saying, maybe we just looked at events. Now it's a mix of things that we're using to reach and touch our customers on a 24/7 basis and talking to them in a personalized way on how they want us to engage with them.

This framework is a fundamental shift for the company, and it goes beyond marketing. It's very exciting. It's been the opportunity over the last 6 months to bring all leaders at all levels in the organization together because we're really defining a common commercialization process across SAP. I just said my old company. That's very -- I've been here 6 months, I will never say that again. So we really, today, are focused on that, and you'll see the mix that we're going through.

So let's talk about the demand engine: Building volume, value and velocity, 3 key levers that we have to put in place here. It means doing effective demand planning in the organization. So the first thing we've done is we've built a tool. We have a calculator that we're reverse-engineering our funnel and our revenue targets by industry, by target audience, by solutionary. And notice I say solutionary because part of this shift is moving from single product to solution. And so we've now reverse-engineered that and put a waterfall in place that we can understand what do we need to do, put in the funnel to serve Brian so that Scott then won't ask him about the revenue numbers again as you did earlier. How do we give enough leads to Brian and his sales team at every single stage along the sales cycle? And how do we ensure that they're at the right value?

So we built this tool leveraging best practices out there, taking baseline variables and putting those into the equation so that we can really understand what are the values, what is the volume from top of the funnel, and what's the velocity, in which those leads go through the funnel. It's moving much -- it's not an art, it is a science, and we are applying that science to the marketing organization and really building in a culture with the marketing team that if I give you $1, what are you going to give me in return, and be able to take me through that step. Mapping it to every single sales opportunity. Right now at IHS, marketing contribution to revenue is under 15% on new prospects. And my goal is to be here with all of you next year and talk about it, easily 10% above that. And that's just simply by changing the way we go to market. That's through simple efficiency and productivity gains. That's rethinking our positioning in messaging. That's not even involving significant dollar investment and requirement. So that we can help drive organic growth and making sure that we delineate between what's going after a net new prospect experience versus how do we enable cross sell and up-sell on our existing base.

The next thing I want to talk to you about is channels. I mentioned that we are enhancing existing channels, and we're growing new channels for driving revenue. The first is about getting to the C-level, getting greater C-level access. It's amazing at IHS, a huge amount of C-level engagement across our industry sectors. I'm going to talk to you about one of our conferences that I was at, at CERAWeek in Houston recently and just sat back-to-back 12 leading energy CEOs and back-to-back one-on-one meetings with them, with them repeatedly telling me, them telling us about the interconnectedness of our solutions, telling me about how 10 years ago, they used us for one thing and now they use us for 20 things because they realized we have the information that cuts across their entire supply chain. Very impactful. So we're going to build on that and build a formal C-level network through our IHS forums.

We're taking those existing relationships, and we're bringing those customers in through a formal customer advisory board. That means bringing those C-level leaders in under the tent, early and often and showing to them our strategies and our roadmaps and getting their inputs to help shape and fuel our future thinking on our business. We also are capturing with them those interconnected stories. So you'll see a formal customer reference program go in place which IHS has not had before. Nothing more powerful than taking those stories and standing from the mountaintop and getting those out in market to people so they can hear firsthand about how other industry leaders are leveraging our solutions.

We already have a lot of C-level activity events today, and we can build on that now with IHS Connect. Scott talked to you about $0.5 billion in revenue on the topic of strategy planning and analysis via IHS Connect. That puts us straight into the strategy office in these companies and gives us a seat with them. And then we take those topics and aggregate them and bring them to these C-level forums that we hold today.

CERAWeek, for those who have not experienced it, is over 2,500 executives, truly CEOs. I mean, I'm a career marketer and I've had many people say, "Yes, we get C-level people at our events," and you might be hard-pressed to count on one hand. These events that they bring, over 2,500 with CERAWeek. CERAWeek also commands all of the media industry. We had over 254 journalists there the entire time over the entire week covering the event because they saw the people that we were able to attract. They saw that we had the world's energy leaders in the room for multiple days having an active dialogue.

The same is the case with some of our strategic alliances when you look at the World Economic Forum. We participate in their events year-round, we leverage Davos, where we are the exclusive energy partner to the World Economic Forum, and again, that gives us that opportunity to grow that C-level access and continue the conversations forward with them and grow our attendance at our C-level forums.

Lastly is as we stratify the sales force, so we have a direct selling sales force, and as we grow that global account model and focus on the top 1,000 and Brian brings in these senior sales executives, it's a different selling motion than just having a sales specialist do a departmental level sell. And as such we're working very hard as a marketing organization to create a whole new family of content and assets, because we know it's a different type of discussion, that the sales teams will need different-looking assets, different sets of messages to have those types of conversations. So we're creating the campaign activity around it, the touches around it and the right set of messages at the right level in the organization.

Another key channel for us is communities, and we actually have a killer platform for launching communities. When we acquired GlobalSpec, that is the premier platform for running a community. And so we're going to take that and extend communities across all of our industry sectors and our end markets and build that out. That gives us the opportunity to do 2 things with it. One, it's great for building demand. It's a demand generation engine in itself. It gives us something to connect to through our social media investments and what we do in paid search and getting people to come into the communities. It creates a 24/7 virtual environment that we can get those people to and helps us reach them in an order of magnitude that we're able to do today. The traditional marketing methods again 1, 2, 3, 4, here we're able to go to 7 million users in just one of our communities today and speak to them about our offerings. And we continue to enrich those communities so that people can either self-identify or not, and if they do, then we start to personalize that community experience for them, so we can be much more targeted. We commit very targeted workflows in terms of our campaign workflows about creating an experience for them on what they do. It becomes a very sticky site, and you will start to see that, that's a huge part of our marketing mix moving forward.

There's also other revenue opportunities within here. We now will start to sell out sponsorships. We do on one of our communities today. So our partners will sponsor these sites and we can get revenue from that. We can do ad sales within that as well. It becomes a great way to monetize via those methods as well as our nonrecurring revenue because we'll create direct integration with our e-commerce solution so that we can get people in to those lower ASP one-touch, one-buy type solutions.

That brings me on to the topic of e-commerce. E-commerce, we are tightly integrating with our marketing and inside sales efforts. Again, think of it as a 3-legged stool. We are no longer having independent marketing campaigns from inside sales activities from e-commerce. We're creating a direct line of integration between them in that we're designing the campaigns for where will the interaction occur via an e-commerce channel or with an inside sales rep. This is allowing the direct sales organization to focus and go higher in the organization and work on higher value opportunities, and it's allowing the inside sales rep, now we've increased the ASP in which they can sell to, we've reduced the number of accounts that they have. So they're highly focused. And then with e-commerce, we create the direct integration there with things like functionality of having live chat so that when somebody's having a buying experience, and they -- it can't be done in a essentially no-touch model, they need some level of interaction and question, directly there they can interact with someone from the call center on inside sales.

E-commerce, of all the channels, is probably the one, I have to say, I'm the most excited about because if you look at the volume we do in transactions, it's very, very high. And it gives us the opportunity to put something in place that creates stable growth for our nonrecurring revenue. That's what it does, the power of it. And today the most important thing to get that started is to go from 50 platforms to 1. That's what we're focused on right now. We've purchased what we need to do that. We're going to implement that e-commerce platform and by moving from 50 to 1 single e-commerce platform, you can imagine the number of cross-sell/up-sell opportunities that exist for us. You can imagine the personalization and the usability enhancements that we can do by creating this new site.

This here just gives you a brief look at the journey over the next 2 years of what we'll do. It starts with moving to that single platform experience, the integration that I spoke of with inside sales. We will then, as we go into 2014, we'll expand that out to all of our geomarkets. So we will focus on making sure we have international coverage in our top 20 countries. We will make sure that mobile usage is built one time for mobile usage. We see from our customers an increase in mobile adoption and we'll make sure that we're building for that now and we'll actually start to build in-product e-commerce capabilities in the platforms that Scott showed to you earlier so that we get to the people at the right time when they want to make that purchase.

Brand. I feel like a lot of people think about the brand in terms of, "Oh, that's the logo," or that's the color, and it's so much more than that. And again, really thinking a more innovative ways from a marketing perspective to drive brand, there's so much more to be done out there than just traditional advertising. While that can be effective, and many of you may have seen some of our recent billboards in the airports, we are looking at many ways to drive the brand, and I want to share a few of those with you.

The first is what is our brand promise and what is our brand about? And the best thing we have is our people and our assets. As a long-time marketer, I have been in situations where I had to market something that I knew was not a good product. And this is probably the #1 reason I came to IHS was it's a treasure trove of great assets, the experts that we have and the tools that we have. And for me, it's about thought leadership to drive the brand. So making sure people out in market understand that all of these experts are tied to the IHS family and elevating them as thought leaders in their space. We already have hundreds of them. You see here Dan Yergin, that's just one of many. But my job here is to elevate those folks, understand what are the topics out in market for each of their industries and make sure that those individuals and IHS are owning the agenda on those topics, doing that through online forums and in-person forums and growing our bench across all of our end markets.

When I came onstage, we had the video about IHS and the media. It's absolutely astounding for the size company that we have here the number of media mentions that we get over a 1-month period. It's not uncommon to be in 1,000 different articles in a 1-month period and I've been at much larger companies that would love to have that. How are we repackaging that? How are we taking that and bringing that forward into the sales cycle, into our marketing messages and getting that out front and center out in the market? That's what we'll do with the thought leadership effort, and you'll see here the media mentions just continue to grow.

So being out in market and stimulating that demand, putting the engine, putting the campaigns, getting the thought leaders and the experts out the door and getting them front and center, if you do that right, what happens? People start coming to you. And when they come to you, you -- typically means your website. So your website is often the greatest representation of your brand. And that's why it's so important that you don't miss that final mile there.

We are completely renovating the ihs.com website. There's a lot of content on the site right now. But the usability is not where it needs to be, and we need to get it to a place also that it pays off on our brand promise and our vision around this interconnectedness and the insights that we're giving end-to-end to companies. So you will see that coming over this calendar year. We are creating direct integration with our social media and our communities. We are in the process right now of localizing and translating for our top 20 countries so that in every country, the marketing manager can actually have the campaigns driving to that and then local market people have it for their local preferences.

And we're also managing our contacts down into CRM, so we are saying, what is the experience from there? What are the behaviors that are happening on the website? And are we taking that knowledge and feeding it into our CRM data to help our salespeople have better, more relevant conversations and push the right offers and things to our customers and prospects? It will become another 24/7 channel for us. We will make it much more dynamic. When those news feeds come from CNN or wherever that be, they will hit that website first thing, so we'll make it incredibly sticky, integrating it with the e-commerce.

So with that, there's 4 things I want to make sure that you've taken away from here. One is that this is the year for marketing at IHS, that we are highly focused on getting to what are the right opportunities to drive demand and revenue. We're doing through -- that through a global marketing framework. We've brought together all of the marketing resources in the company together, and have put a common strategy and execution plan in place. We've put a demand engine tool in place to allow us to do effective demand planning and put a discipline in place and rigor across the marketing organization that everyone's accountable for a dollar spent at IHS and to make a return on that. We've expanded our channels, and we're just getting started there. E-commerce will certainly be a huge opportunity for us with our nonrecurring revenue. We look at the website in terms of stimulating demand. We look at our strategic events in terms of growing our access to C-level, and we'll continue to enhance the IHS brand. We'll do that through traditional methods, but we'll also leverage thought leadership, our website and our virtual communities.

And with that I thank you, all, and very glad to be here.

I think I might get the honors of introducing -- for many of you who have been here before, I believe you know, but it's my privilege to welcome Rich Walker, Rich is our Executive Vice President of Finance, and off you go.

Richard G. Walker

Thanks, Stephanie.

Stephanie Buscemi


Richard G. Walker

I get the clicker. So it's a pleasure to be here with you again this year. I'm going to talk about our financial strategies and the capital base that gives us the ability and positions us well for continued long-term profitable growth and success.

Specifically, I'm going to talk about the subscription-based business model, which creates the platform for this investment in growth to support everything we're doing. I'm going to talk quickly about the acquisition discipline that we've created, talk about how we prioritize and how we execute, talk about the core competency that we've created in acquisition integration. We realized early on not only did we need to be expert in acquiring companies, we had to have a similar competency in integrating companies. I'll talk about the balance sheet, highlight the key points, couple key points there and conclude with a description of the conservative capital structure that enables a lot of this growth.

All of our operating strategies drive us towards investment, identifying investment where we can create and deliver additional value for our customers. And we can invest in 3 different ways. The first way is organically, where we develop internally on our own product development, our own capabilities. Many of the platforms that Scott talked to you about are all internally developed capabilities. We can certainly acquire companies through acquisitions. We've certainly been a consistent acquirer of companies and capabilities. And thirdly, we can do it through strategic alliances where we combine with third parties to, together, deliver more value to customers.

The subscription-based business model we have generates significant recurring cash flow. That cash flow creates the base for further investment. When we take that capital and invest either organically in the platforms we're creating or acquire companies, with similar business model characteristics, the recurring subscription business model, what we end up with is this virtuous cycle that Scott alluded to, where we have highly cash-generative businesses, creating capacity for investment, deploying them into further and similar business models and the virtuous circle continues.

We've created a lot of value for our shareholders since going public in 2005. In fact, on a cumulative basis, we've generated over $1.7 billion in cash flow from operations. When you combine that with prudent access to the bank markets, we've created a capital base that's allowed us to deploy $2.3 billion to acquire strategic businesses, strategic assets that have enabled and created further value for our customers. We've deployed over $220 million internally, creating infrastructure systems, process and platforms that create scalability to support a $4 billion to $5 billion business, and we've returned almost $150 million to shareholders in the form of share buyback. It's important to note the relatively modest level of capital required to support a business of the scale that we've created. $220 million over that period of time, building the capabilities and the scale of the business that we enjoy.

Acquisitions have been a core part of our strategy. Everything we do at IHS begins with a very outside-in focus. So we start in target companies that are delivering value to customers that are in high-value, high-growth customer workflows, industry sectors in growing regions around the world. And importantly, every company we think of acquiring is identified and recognized as a market leader. From a business model perspective, every target company either has 75% or more of their revenues in a recurring subscription-based business model or the potential to become that as we integrate them into our offerings. And importantly, something Jerre spoke to that we're very protective of, the businesses we acquire have to have aligned cultural fit with what we've built at IHS and what we hope to build in the future.

From a financial criterion perspective, every target company we look at needs to be accretive from a revenue growth, an EBITDA margin and an EPS basis within a reasonable period of time, we define that generally between 4 and 8 quarters. And importantly we're a synergistic buyer of businesses. Now, we identify targets where we think we can accelerate the underlying organic growth of that target company by integrating them with our sales force globally, and importantly, from an expense basis where we can combine and create efficiencies to drive on a combined basis better economics of the combined business.

We're a very patient and diligent acquirer of businesses. Importantly, we know where to walk away. Since we were with you a year ago, we've evaluated 150 acquisition opportunities. Through our diligence, our negotiations, we reduced that down to delivering 11 indications of interest, and we ultimately closed 8 transactions over the last 12 months and deployed about $350 million of capital.

You've seen this, and it'll build as I talk, but this mosaic arrays a customer workflows against the industry sectors. And importantly, what it shows you and the relative sizes of the bubbles are proportionate revenue that we've created at those intersections, and it speaks to the significant scale positions that Scott talked about that we've created over the 8 years we've been a public company. Every acquisition we consider is evaluated against this framework, every acquisition where it touches multiple workflows, multiple industries, multiple points of intersections, serving customers in high-growing regions, obviously, is going to be a very attractive opportunity for us.

Here are some of the annual statistics. We've averaged about $300 million a year since being a public company in capital deployed. Average transaction size, if you exclude SMT, which in 2011 was a $500 million acquisition, our largest acquisition. Excluding SMT, the average transaction size is $40 million. We typically acquire between 7 to 9 businesses per year. And our recent focus area, our sweet spot, if you will, has been companies that have revenue between $35 million and $50 million.

I mentioned this earlier. Not only have we created a core competency in acquisition execution, but we've created a similar competency and discipline in acquisition integration. And that's critical to getting at the identified revenue and cost synergies that we see in our diligence process. So we literally have dedicated teams around the company. Their singular purpose is to focus on people, process, products and platforms of our acquired companies and make sure that we effectively plan to integrate those into IHS. Critical to this is the integration planning begins far before the acquisition is closed. Early stages of due diligence, we're already developing integration plans and planning for that so that literally, when a transaction closes, we deploy and engage with our acquired companies and colleagues and begin that integration process into IHS.

Disciplined acquisitions, financial -- conservative financial policies are going to continue to drive high levels of value creation and growth. And to illustrate the power of our business model, I started -- we started in 2013 with the midpoint of our new guidance, $1,695,000,000. Assuming accelerating organic growth rates driven by the capabilities that Scott talked about, a continuation of our acquisition program at levels we've experienced historically, you drive to a business that has greater than $3 billion of revenue and actually has a negative net debt position. The significant cash generative nature of our business model, the significant cash that we build in the business actually results in a negative debt position.

The balance sheet that sits underneath all of this is really what gives us the requisite strategic and financial flexibility to drive and invest in the business. We finished the first quarter, Q1, with about $320 million of cash. We have a growing asset base, we have a growing deferred subscription revenue base. On a gross basis, we had debt of just over $1 billion. In terms of a debt-to-adjusted EBITDA, that's 2.1x. Importantly, on a net debt basis, that drops to 1.5x. We have total liquidity of greater than $1 billion. Liquidity is defined as cash on hand and available borrowings under our revolving credit facility.

So I'd like to invite Todd Hyatt to the stage. Todd is our Chief Financial and IT Officer. Todd and I have actually worked together for nearly 20 years. For the entire 6.5 years that I've been at IHS, we worked together. Todd was formerly the Chief Financial Officer of our Engineering division, and the partnership that Todd and I have in supporting the operations and the operating leaders in the business is an important one. So, Todd?

Todd S. Hyatt

Thanks, Rich. Definitely appreciate the partnership that I have had with Rich over the year. Very -- it's a real honor to have the opportunity to present at our Investor Conference. I want to talk about the financial performance of the company. And basically, Scott talked about our investment strategy, our growth strategy. Stephanie went through how we could use marketing as an enabler to drive growth. Rich talked about the financial policies, about our capital structure. I'm going to talk about how the financial performance really enables the investment in the business and the continued sustainability of our growth.

So when we look at our business model and we look at the underlying financial characteristics of the business model, it really is about cash. And the cash is supported by a very sustainable top line growth, which is really the underpinning of that is the subscription business model. We have significant operating leverage in the business. And that operating leverage, coupled with the revenue growth, has driven sustainable margin expansion and we certainly expect that to continue into the future. And that all drives to high cash conversion and a cash flow-generative model, which really provides the capital to continue to support our investment strategy.

The business model, as I said, delivers consistent sustainable revenue growth. From the time we went public through today or through year end, we have an 18% compounded revenue growth rate. Looking at the revenue growth rate, really a mix of organic and acquisition. And so that organic acquisition model that we have, and that Scott really talked about, the things that we're doing to continue to support that organic model and actually accelerate the organic model, and Rich went through what we're doing in terms of the acquisitive process, we expect that this formula will continue into the future.

Looking at our revenue growth. Our revenue is broad based. And Scott spent time talking about the industry sectors, these very capital-intensive industry sectors with customers that have high decision requirements and I would say a high propensity to spend. So from an industry sector perspective, we feel very good about the 4 sectors that we're focused on. From a regional reporting perspective, we have broad geographic coverage of the business. Americas at 59%. It's the biggest part of the company, 13% growth over the past year. EMEA, 29%; 13% growth, but 7% organic growth in very challenging markets so really terrific performance from our EMEA segment. And then Asia continues to be the high-growth component of the regional geography. We have invested in Asia. We will continue to invest in Asia. 11% organic growth rate over the past year.

Talked about this -- Scott talked about it, Rich talked about it. There's a reason why we talk about it a lot. The subscription business is the stabilizing factor and the engine that supports the cash that we need to grow the business. When we went public, our subscription revenue base was 75%. We have done, since that time, 56 acquisitions, $2.4 billion of capital invested. Last year, subscription revenue represented 76%. So to Rich's earlier point, we invest in companies that have similar business models and similar financial characteristics so that we can continue to sustain the engine that will drive the cash to support our growth. We will also continue to evaluate, as Scott said, opportunities to drive a higher proportion of our revenue to subscription in the next several years.

Why do we love the subscription business? Because it's stable, it's predictable and it has delivered over the last 3 years. So even in difficult economic times, we've maintained a 7% to 9% subscription revenue growth rate. We're able to do that because we have long-standing customer relationships. We have top 1,000 customers represent 70-plus percent of the revenue, big customers that have been decades-long customers of IHS; high 90% renewal rates; very sticky product embedded in workflows, embedded in critical decision-making processes of those customers. So really is an engine that allows us to continue to grow and support and maintain stable revenue.

The non-sub business -- looking at the components of the non-sub business, the other 24%. These are really products that are solutions tied to our largest customers. So just like IHS, when we acquire a company, it's not unusual for that company to have a piece of transaction business, a piece of consulting that is tied in to the core products that, that company owns. The components of the non-subs, about 1/3 of the 24% or 8% is software. Software is comprised primarily of energy, geoscience and environmental. Important to note on software that those businesses have a very heavy subscription component that's renewable in the form of maintenance. So those -- even the non-sub component of software carries a heavy subscription component.

The consulting business, which represents another 1/3 of the non-subs or 8% of total revenue very much tied to some of the core subscription products that we offer our customers. So in the case of consulting, this is a customer that's looking for a deeper analysis. So a particular issue or a particular opportunity and the data set, the core data set, that's provided in the subscription product needs some level of refinement or some level of additional information that will make it more valuable to the customer.

About 5% of the business is transaction. Stephanie talked about the e-commerce program and the engine. Transaction does have a recurring element to it, but these are the reports, the one-off data cells. And in the case of transaction, as Stephanie mentioned, we believe there's an opportunity to improve the trajectory of that business. We are focused very much on an e-commerce platform that will have a marketing element, a search element, a shopping cart, a customer-facing tool that will make it easier for customers to buy from us and make it easier for us to embed the transaction products into a single engine.

And then the final 3%, events and other. The events are tied to our industry sectors. We've talked earlier about the largest event, IHS CERAWeek, certainly the preeminent energy conference in the world. IHS Chemicals Week wrapped up last week, but once again a strategic part of the business. We certainly recognize that non-subscription, that it is more subject to delay in customer decision-making processes in economic -- in challenging economic times and it's an area that we're very much focused on ensuring that we have a stable, sustainable business in terms of non-subscription.

So when we turn to our product -- I'm sorry, our profit generation, we really see the operating leverage of our business model. Over the last 7 years, we've driven 18% revenue growth. We have driven, in the case of EBITDA, a growth rate that is much higher than the 18%. And -- hang on, I need to back up. It's not on the slide, but I believe it's 27 -- 28% adjusted EBITDA growth over that period of time. So 28% EBITDA growth, 18% revenue growth. We really see the inherent operating leverage in our business model. It's resulted in an industry-leading 1,350 basis points of margin expansion over that period of time. This is really the "build once, sell many times" model that Scott talked about. And when we have incremental revenue growth, what we see is a high level of contribution margin delivery given that fixed cost nature of the information service business. Once again, we expect that given the types of businesses that we will acquire or continue to acquire through our acquisition model and given the revenue growth that we're driving through our initiatives, we will have opportunity to continue to drive EBITDA expansion.

At the end of the day, it's all about cash flow. And in the case of IHS, we have a cash flow-generative model. We have delivered consistently 70-plus percent cash flow conversion from the EBITDA line and certainly expect that, that's something that we will continue to do. We not only focus on the EBITDA delivery, but we also focus on items -- I'll call them below-the-line items. Rich talked about capital spending. We manage capital spending at a very rational level. We are investing in product platforms for the company and we will continue to do so. But we have guided to a 5% capital spend level, and we expect that we will continue to be able to very prudently manage capital. We have a very tax-efficient structure and manage tax very well. We have a prudent capital structure. And so we manage our borrowing costs. And then we also have an opportunity in terms of working capital. So with working capital, we -- relative to our SAP implementation, we now have a common platform where we can see all of our receivables, all of our payables. We can start to manage collections better, we can start to ensure that we're maximizing cash opportunity in terms of vendor management. So certainly expect that we will be able to continue to drive a high cash flow conversion and something that we will be very focused on expanding in the future.

So an overview of the financial characteristics, financial model of the company, why we feel so good about the future, why we feel so good about the growth strategy and our ability to continue to convert that into very attractive financial characteristics. From a guidance perspective, and this was in our press release earlier today, we did acquire, announced earlier this week, the acquisition of a high-growth energy asset. We are also planning to dispose of a non-strategic asset. The net effect of that is a $20 million increase in the high end and the low end of the revenue range. So the new range is $1.66 billion to $1.73 billion. In the case of the acquired asset, it is dilutive today. The margins we expect to get it to IHS margins over the next 4 to 6 quarters. The asset that we're disposing of is high margin, but is non-strategic and noncore. We've talked in the past about rationalizing the portfolio. This is part of that rationalization. The net effect is we are not changing our EPS or our EBITDA guidance. Although I would say in terms of EPS, we should think about amortization at the high end of our current range given the purchase price amortization on the asset.

And a final word in terms of FX. We have not updated guidance to reflect current FX rates. We talked on the Q1 call about degradation in the pound and the yen at that time, and we are seeing negative impact from that exchange. Current impact is around $15 million negative. We will continue to evaluate that and any changes that we make to guidance from an FX perspective would be part of a quarterly update. So at the end of Q2, we will provide an update relative to FX.

And with that...

Scott C. Key

Thanks, Todd. Greatly appreciate it and excited about the assets. I'm going to spend a moment here wrapping up, talking about how we manage the business and where we manage it to in terms of the financial base, the performance of assets within it.

And I'd like to start though by talking about the team that we've built at IHS. So a lot of great skill sets, fantastic individuals. And what we have done over the last few years is ensured that as we scaled and as we grew and as we laid out plans that we have now for the next 3 years that we've got the team in place with the skill sets in place that not only understands how to manage the business as we are today, but has the experience and understanding of what our business will be in terms of 3 years from now and where we're headed. We want to ensure we've got a team that not only has seen the scales that we sit at today, but has effectively manage at scales much larger than that. So we know exactly where we're going and how we're going to get there.

So to that end, a few additions to the management team and I'd like to introduce them now. Happy to have Anurag [ph] Gupta join IHS and we'll be announcing that tomorrow. Anurag [ph], if you wouldn't mind standing. Brings great international technology, commercial and operations skill sets to IHS and will be leading our workflow business lines. In addition, I'd like to welcome Sean Menke [ph] to IHS. Again, a great operational leader, a strategic leader, understanding markets and a great builder of teams. And Sean will be managing some of our industry business lines. So welcome to IHS. We also spend a lot of time developing individuals. Jerre talked about a bench that's three-deep. So I'm happy to see Jonathan Gear, who's been with us just past 8 years in the last month, take on a greater responsibility to manage a number of our industry business. And Jonathan, if you'd please stand?

Those 3 individuals join a great team. A team that's been together for the most part since our IPO, who've helped built the infrastructure we have today and are prepared to take us to the next 12 quarters of growth at IHS. Jane Okun, who manages IR, sustainability and communications, Jane, if you wouldn't mind standing, so you can see who everyone is. Brian Sweeney joined us 1.5 years ago as we started scaling sales and runs global sales. Stephanie Buscemi, you saw here a moment ago. Love to have Steve Green stand up who brings it all together as our Chief Legal Counsel and ensuring that we do acquisition and everything else we do at IHS quite well. Todd Hyatt, who you've seen, Chief Financial Officer, and great skill set, huge experience and depth in financial management at IHS. Rich Walker, of course, EVP of Finance, again managing our capital structure, acquisition process ever since we went public. Who you're not seeing here is Jeff Sisson who's actually, Jerre, holding down the fort while we're here with you today back in Denver, but runs our global HR teams.

So we have the team in place to take us where we want to go. And I want to summarize what that path is. So where are we headed, we'll talk about how we'll get there. We are focused on building value. So a clear commercial path as we complete infrastructure build. Rich talked about the capital deployment. We are not a capital-intensive company. Modest capital needs to drive high cash flows. So we're focused on building value across every element. So we've completed infrastructure to enhance our growth and drive further margin expansion, made huge progress over the last 5 years concluding now this year.

Second, launching workflow platforms. So now transforming our focus to workflow platforms that bring together all the capabilities across IHS on the common platform so we can build once and sell many times across each capital-intensive industry as a huge driver of forward growth and opportunity.

Sales efficiencies. So the systems now enable us, both in sales and marketing, to do things we could not do, which is focus on growing our largest customer relationships in very clear ways and then finding those large opportunity accounts that should be significant customers. We know exactly who they are, where they are and have a clear plan to capture value from them. So that will allow us to expand our market presence, to continue to expand in high-growth emerging markets that has been a source of large incremental organic growth for us.

And then finally, I think what's more fundamental, I want to spend a minute on it, on vertical scale and depth. So we've chosen capital-intensive markets where we can add a lot of value that are very interdependent. We've proven that we can build scale and be the scale player. So we've done that quite effectively. Energy for sure, so we're sitting at about $0.75 billion in energy today and that's been a decade-long build where we are, by far, the scaled player and deeply embedded in strategic decision making, operating decision making, all the way down to every operations refinery and plant across the world.

We've done the same in chemicals, electronics and transportation. So through acquisition and through focus and integration, we've become the scaled player in each of these adjacent capital-intensive industries. As we've said, we've, in a disciplined way, built our presence in emerging markets. And those are the high-growth markets and capital deployment markets of the future with over $300 million in revenue, and importantly, 2,000 colleagues deployed on the ground around the world.

So when we think about where we can go and this is a clear view of what the scale has allowed us, this foundation of scaling has allowed us to do, we are now in a position, much like energy, where we see a $0.75 billion business, to grow every single core capital-intensive market industry sector at IHS to the $0.5 billion to $1 billion range from where we are today. The reason we'll do that is, as Todd said, a high propensity to spend. So these are attractive markets where we can play a very big part in our today. They're also high growth. And we've, in a very measured way, built the foundation to this scale. So if you look at each of these, I'll give an example of the path over the last few years we've taken at IHS. So between 2008 and 2012, we ensured we had market-leading assets and we aggressively integrated them fully. We deployed $200 million in capital and we brought that together. We integrated expertise, information tools and then systematically launched the branded IHS verticals: IHS Chemicals, IHS Automotive. We have then taken that integrated whole and used this idea of convergence and integrated value add to drive accelerated organic growth through each. Automotive is the most mature and the greatest example where we drove subscription organic growth last year at nearly 40%.

So this allows us to think about where we take IHS in terms of our overall performance. So we started here earlier and this is, as Todd said, about maximizing cash flow and maximizing shareholder returns. So we're sitting at 76% subscription base today. And by the way, to catch a great example, it is a software asset but joins IHS with over 70% of its revenue already subscription-based as it comes into IHS. So through careful management and planning over the next few years, we will grow that 76% to 80%. And it's important to understand what that means because the value of every 100 basis points move in our subscription base from 76% towards 80% is worth 50 points of margin expansion. And that's because our subscription-based offerings tend to be very high-margin, high-value assets and offerings.

Todd spoke in detail about the composition of our nonrecurring and non-subscription revenue base, and it's critical that we all understand. First, they are tied to our high-value customers and accounts. But as we also announced today, and you saw us do in Q1, we will divest of those assets that don't have double-digit organic growth potential over the next 10 years and that are nonstrategic and noncore. And the assets we're talking about today are also non-subscription. So what you'll see us continue to do is take this $50 million, $60 million in noncore, underperforming and nonrecurring, non-subscription assets and slowly divest of them as it makes sense. This, along with investment in things like e-commerce, will stabilize and improve the performance of our nonrecurring base.

And lastly, as I think Rich laid out quite well and Todd also indicated, we will continue to acquire high-growth subscription-based assets through a very disciplined process. And every time we bring them into IHS we've shown a track record, over 60-some acquisitions since going public, of demonstrating a delivery of value return as we migrate them to an accretive margin at IHS within 4 to 6 quarters.

So we have a very clear path for where we want to go. We have marked out each milestone over the next 12 quarters in terms of commercial activity, leverage of our cost structure and how that will deliver consistent and improved performance.

And I want to outline what that can look like. So as we've said, we built scale, a solid foundation and strength in capabilities, organization and infrastructure. We have the opportunity to use this foundation to drive our momentum and build each of these high-value sectors to $500 million in revenue per year and beyond over the next 3 years. And when we do that effectively and do it well, it builds an IHS that's a $3 billion to $4 billion revenue company; one that, because of all of the combined factors, high drop-through, high incremental contribution margin to every new dollar of revenue; to leverage of the cost structure, it allows us and will allow us to consistently, on an annual basis, expand our margins. And when we do that, we'll deliver EBITDA of greater than $1.2 billion on that revenue base. And as we migrate and increase our efficiency and free cash flow conversion up into the mid-70s over this period of time, you'll see free cash flow, Jerre, at IHS greater than $1 billion.

And what that allows us to be is a company unlike any other: scale and presence and high-value markets across the globe that you'll find nowhere else; a financial policy and a virtuous cycle of cash flow generation and reinvestment that creates growth and value for shareholders every year. And I think, Jerre, clearly is a company unlike any other.

Jerre L. Stead

And I think that's a great way to wrap up for our presentation standpoint. We're now happy to open up for questions. We need to get the lights up if we could, so we can pick out the folks. Before we start, Peter, you did have your hand up first as always. But before we start, I think Scott actually wanted to ask Brian a question.

Question-and-Answer Session

Scott C. Key

Yes, I had a question I couldn't help asking it. So because Brian, I know everybody else in the room will want to ask. And so with $40 million in opportunity, Brian, or 40 points of organic growth opportunity rather and $600 million in revenue opportunity, we talked about 1.5% to 2% of organic growth, which is kind of like, it's a small percentage of that. So what's holding us back? I know we're going to get that question. With such huge opportunity with those 600 accounts across the globe, what's holding us back?

Brian Sweeney

Marketing? Okay, so that was #1, no. So I think that the way to think about the target 1,000 and particularly the customers and prospects that are not great customers and prospects of ours today, it's about 600 of the target 1,000. They're in places where we don't have critical mass. So as we go sell into a new account, we sell as a group. We go in with research and analytics people by industry, by product. So it's not just one salesperson going out ahead of it. So we're making investments and putting people specifically on I have every single territory mapped out for every one of the target 1,000. Know all of the sales resources, all of the product resources, all the research and analytic resources we're going to put on those accounts over the course of 3 phases over the next 3 years. So I've looked at it every way possible. And with the idea that we're going after long-term sustainable, profitable growth, read subscription revenue, it tends to compound 18 months or so after you start. But not until then. That's how the model will work. That's how we expect it to work for us. And additionally, we're also reaching to places that we haven't been critically amassed before. So those are the reasons. Not marketing.

Jerre L. Stead

It's a great answer. No, facts is our friends because if you looked at the roadmap that Scott used on the 1,000 largest and the 1,000 -- the largest, we actually showed very specific goals that Brian just talked about 13th, 14th and 15th. Well done. Peter?

Peter P. Appert - Piper Jaffray Companies, Research Division

Yes, thanks. So I have 3 questions. One was just actually a follow-up for...

Jerre L. Stead

I forgot to mention at the beginning, one question per person. I'm kidding. Go ahead, Peter.

Peter P. Appert - Piper Jaffray Companies, Research Division

It's too late, I already said 3. So the question was, just so I fully understand what you said. The constraint is you don't have enough salespeople, you need to scale the sales organization?

Scott C. Key

Yes, and since I have a mic, Brian, you said marketing. No, the issue is this, and as Brian said, we need resources on the ground if you remember the map that I showed. So a high number of these accounts and opportunities are in emerging markets where we're building scale. It's integrated presence on the ground. So it's not only what Stephanie has to do in terms of localization and clear communication of solution sets, but it's this convergence of capabilities. So it's salespeople, it's researchers and analysts, it's product specialists. So when we go into these large accounts and when we're very effective and we have been as we showed you, it's because we're bringing a team of understanding of the customer in the vertical. So that's a slower build. It's long-term value creation, but it's a slower build. But it's more than just a sales resource.

Jerre L. Stead

And before Peter answers the second question, just to finish that up, doesn't it mean more headcount, Peter. If you think about what Scott talked about earlier today with 30% to 40% historical inefficiencies because of lack of infrastructure today, we've got 800-plus salespeople. We got a massive shift to get done. That's what Brian and Scott were just trying to describe: one, geographically, and then two, talent-wise. So don't think about it being a shift of headcount up as compared to a shift of location and talents. Great question. Number two?

Scott C. Key

Maybe, Jerre, just to, for a second, to build on that because realize also that this is high contribution margin revenue. We're not having to build a new product. These are things that are already built. This is sunk cost. The build costs are already done, so this is really about upsell, cross-sell and embedding existing solutions, and it builds on 3 years of work. We've quadrupled the number of analysts and researchers in Latin America over the last 3 years. We've got 5x as many, as you saw in the numbers, 5x as many research analysts and product specialists in Asia. So we have a lot of that infrastructure in place, but it's connecting it in individual geo markets to make it all work.

Jerre L. Stead

Number two?

Peter P. Appert - Piper Jaffray Companies, Research Division

Scott, you talked about the leverage from the Vanguard initiative in terms of how it helps the processes and helps the business potentially from revenue standpoints. Can you give us any specific quantification in terms of costs maybe that roll off or margin impact that we could look for in the next, I don't know, 2 to 4 quarters from finally being done with this project because you've been talking about it, obviously, for a long time. And then I'll just throw the third one out. So Jerre, as I understand, has a banner in his office with the 2015 objective, the $2.5 billion in revs and the 40% margin. I want to know if that mark -- if that banner now moves to your office and if you share those aspirational goals or should we be thinking more in terms of these other not time-specified...

Jerre L. Stead

Actually, it was very time specified. He said in the next 3 to 4 years, $3 billion to $4 billion, $1.2 billion of EBITDA and $1 billion of free cash flow, Peter. So pretty specific.

Peter P. Appert - Piper Jaffray Companies, Research Division

So '15 to '17 timeframe.

Jerre L. Stead

Yes, exactly. So he actually gave you his banner. The only difference, I would say, between my banners and the one Scott just laid out, if you remember back when I laid out the $1.5 billion, we were at $850 million. And when I laid out the 40% margins, we were at 28%. The likelihood of us making that happen is higher every day. The first one I laid out was $1 billion, which we blew by. And the likelihood today because of the plans that Scott has shared, where we've got this now nailed literally by a quarter going forward. I think of his numbers as a very, very high probability. Big difference between $3 billion and $4 billion is pretty straightforward. There are a couple large potential acquisitions as there has always been out there. If we get 1 or 2 of those, the $4 billion will be the number, not the $3 billion, and then you can scale up from there. So you pick up question number two, Scott.

Scott C. Key

Yes. And I think it ties to the overall picture. So we talked about how we expand margins, and as you said, we're completing some of the infrastructure changes. So there's a number of specifics across the company, back office and all the support functions. We're building capability in 3 locations across the world and migrating them from dozens. And as we get the last release or so of Vanguard, you'll see those put into place. Also, the last steps in Vanguard now are to take the recent acquisitions and rapidly improve their margins by bringing them onto a common platform. Think about in the past, we never had that opportunity. So we were increasing margins to an accretive level without any of the back office synergies. Most acquisitions, the first thing you click off -- check off the chart on synergies is back office consolidation. We've never been able to do that, but we've still grown margins. So those are some concrete examples. What I would say, Peter, is we laid out a real clear path today relative to where we are and relative to the world around us for consistent delivery of improved performance. And if you want to think about the path ahead for IHS and one that this great team is going to deliver, it's one where we can consistently grow margins, where we consistently grow organically above the markets around us and those peers around us. So it's about consistent expansion of cash flows, consistent use of this leverageable base we spent 5 years building. So if you want to think about what the banner feels like, it feels like consistent delivery quarter-on-quarter for many years to come where we build incredible shareholder value.

Jerre L. Stead

Scott and I have had this discussion going on for a long time. Scott calculated 43.2%, right, is the hypothetical ultimate margin with the businesses we're in today. The big difference today though is that for the first time, we can now use both levers. Up to now, think about what we've done. We've spent a lot of money. We've built incredible infrastructure. And during that period of time, we've given you 1,400 points of margin improvement and a compound free cash flow of 32% a year. Going forward for the first time, we now have the ability to scale and make a decision between do we pull the revenue lever quicker because of the investments we can make, or do we keep doing what we've done with the EBITDA margins or a combination of both? So we're in a very different game as we exit 2013. That's what makes it so fun because we've now worked through the investments we had to make to make that difference. It feels so good.

Scott C. Key

Great place to be. Great place to be.

Jerre L. Stead

Great question. Please, Andrew?

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

It's Andrew Steinerman of JPMorgan. I only have one topic, but it has a few parts to it. It's about services versus software. So love the subscription-based businesses. Obviously, we have both in there subscription software and subscription services, and surely it's bigger than the 8% that we saw in the non-subs piece. So my question is, do you see subscription services as the same or different business than subscription software and subscription workflow tools, and does it matter?

Jerre L. Stead

Let's go with that.

Scott C. Key

Yes, that's a great question. So you're exactly right. 20% of IHS, as we laid out in the business composition, roughly 20% is technology and tools, so $350 million or so of tools and technologies, and that's much bigger than the small percentage of software-based non-subscription. So most of our software and technologies today are sold on a subscription basis, and they have been for years. So we'll continue to migrate in that direction. And as Todd said, even without that migration, the bulk of those offerings, the bulk of the revenue, more than 50%, is already on maintenance, which is essentially subscription. So we're in great shape there, and we'll take the right moves. In terms of services, there are some models where we can tie retainers, and we've done that, and we'll continue to do that with our best customers, where it makes sense for them. Realize this is a very small sliver on top of a very large relationship. So we may have a $30 million relationship with a customer, and we may do $1 million in services with them. So when, as Todd laid out, it's...

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Scott, do you mind if I clarify something?

Scott C. Key

Yes, please.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

When I said services, I meant data services, so research and information. And so I'm just asking, do you see them...

Scott C. Key

Yes, the majority of that's already subscription. It's not service.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

I know. I love that model, and I'm asking should I love the subscription software business as much as I love...

Scott C. Key

Got it. Okay, that's helpful. So let's step back then, talk about convergence. It's seamless and there's no difference. So most of our software, actually, our technology is sold on a subscription bundled with the information and the research and analysis, so it's seamless actually for the customer. It's one subscription, and what they get for that subscription is something like Connect or Pangaea, which is great workflow tools with information flowing through them and analytics on top and it's one discussion. So we would -- when we get to where we will be with these platforms, it will be one seamless conversation, which is about a subscription to IHS services, and then have it propagated across your entire organization effectively.

Unknown Analyst

Jeff Moeller [ph] from Robert W. Baird. I wanted to ask a question on the roadmap for the organic revenue growth accelerators. Obviously conceptually, that looks really good and will be a tremendous achievement. But can you talk about some of the specifics in terms of what you've seen to date that gives you confidence that it's going to play out? And I mean things like you talked a bit about the success in these strategic account program, but anything else like clients that have moved on to IHS Connect? Have you seen acceleration in terms of uptake on upsell and cross-sell?

Jerre L. Stead

Great question.

Scott C. Key

Yes. Great question. So 50,000 or so targeted users for Connect in energy, so just first industry sector. We've got 12,000 to 15,000 or 1/4 of them roughly on today. As we've done that -- as we've gone through that process, we've exposed substantially larger sets of subscriptions to them. And where they're heavily used, we have definitely seen upsell and cross-sell momentum because they're getting exposed to things they never had before and are critical. We had -- we've got one customer that in early part of Connect as it got out, one company had 1,000 people on because they were using it as a tool to understand their end markets and where they would sell and move equipment and deploy. And they were suddenly accessing things, of course, that they'd never had access to before. So I think Connect is being the early one. What I would say is Pangaea sits on top of our core product called Enerdeq, and alongside of that and connected to it are KINGDOM and Petra. And we've seen 3 to 5 points of organic growth acceleration as we connected information to those platforms. And of course, that's what Pangaea is all about going forward. We talked about Vantage, and of course, that is leveraging underlying IHS information to new value and a new set of analytics. And we've seen huge excitement for customers, and that's a multi-hundred million dollar market. So I think we've seen all the signs that we need to see. And the other one you pointed out is strategic accounts. So we've been at this for 3 years testing. We've tested in each market. Let's take one of those $5 billion, $100,000 companies, let's take one here, let's take 2 there. Let's bring this structure. Let's put the structure in place, and we've seen huge success. And I can give you, as I said 15, 20 examples of accounts that we've grown that way. So everything we've seen thus far tested and we brought a pretty prudent view to you today and one that we believe is pretty deliverable.

Jerre L. Stead

Great question. Thanks. Okay.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Eric Boyer from Wells Fargo. I just wanted to make sure I had the numbers correct for the 3-year timeline for 2015 for organic growth. So the organic growth target by the end of 2015, you're aiming for 10% to 14% with 11% to 14% subscription growth?

Scott C. Key

Yes. So what we believe, and I was careful to lay out that this is a build, is right, subscription-based business, and so we have to first launch, then we have to go through renewal cycle and get it on contract and then the revenue starts to flow and then you see full year effect. So that's why we've laid out a very clear 3-year roadmap of how that build happens. So what we're saying is as we exit 2015, 4% to 5% incremental to the 7% to 9% subscription growth we're driving now, and we should see that build through those 12 quarters, realizing that a lot of the release, a lot of the momentum will be in next year's sales contract cycles as we deploy the sales resources next December 1 around these opportunities. So you saw a pretty muted effect in 2013 and then a build for 2014 and through the 4 quarters of 2015.

Jerre L. Stead

And all of the pieces that Scott showed you up there actually total 7.5% of opportunities. His assumption and ours is that 4%, 4% to 5% of that, and the word Scott used is important, prudent. Our assumption is all that's not going to happen. The opportunity is 7% to 7.5%. Feel really good if we get the 4% to 5%. What you also didn't quite hear, but if you looked at what Scott talked about, Todd talked about and Stephanie talked about, we should exit 2015 with something less than 80% on something less than 20% of our total revenue will be in non-sub base. We should exit 2015 with about half of what's left, which would be transactions where Stephanie laid out that roadmap quite specifically and the ongoing events that are very good events for us. About 8% to 9% of those 2 put together should be growing in double digits organically. So that really puts us in the spot to try to wrap that up that says -- and what Scott said is so important. That assumes we're, what did we call it, a new standard? That assumes the global economy continues to be whatever it is today. It assumes it continues that the next 3 to 4 years. What Scott was saying is if that's a fact, here's what we'll do no matter what that new level is. If we get a tailwind of the economics, that'll be an entirely different question and we look forward to. Okay?

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Yes, I haven't done that math, the quick math, but what would that imply then for the non-sub growth exiting '15?

Jerre L. Stead

So when you exit '15, think about it being about 18%, part of it because the sub base grows quicker, so it becomes a smaller percent of the total, the non-sub base. Think about Stephanie -- what Todd showed you today was not quite 6%. It'll be about 6% this year is the transaction business. What Stephanie's laid out would get us to double-digit consistent growth over time with that, and then about 3%. Growing slightly faster than low double digits is the events like IHS Energy, CERAWeek, et cetera. And all that's left then is an ever smaller percent of the total of the software upfront sales because they become a smaller percent as the ongoing maintenance increases. And then what's left of services, to Andrew's question earlier, which is consulting, of which we'll move us much as we can above. So I hope that helps because of we've actually -- I feel so good about what we've now laid out and the probability of that happening. Next question?

Scott C. Key

Yes, Jerre, one other thing to add on events and you may see us do that as well which again helps us in this conversion is move those to a subscription model. And some of our better ones, there's no reason we can't do that. So that 3% can be part of this shift. And as Jerre said, then what that leaves is consulting really as a discretionary driver depending on how customers are spending. And of course, that's moved us around as it has the other major consulting firms. In fact, in Q1, we saw one of the largest continue to talk about negative growth rates in their consulting business. So that's always going to drive with the wins of customer discretionary spend and economies, but ever smaller piece for us.

Jerre L. Stead

And last piece just pickup to refresh everybody, Scott, is as you said today and Todd covered it, we had said about 2 years ago, as we went through the total portfolio, there's about $50 million to $60 million of regional bound, nonstrategic negative growth business, some of them higher margins, so we've now gotten about half of that...

Scott C. Key

Well, half of that. And many of those, Jerre, are non-subscription.

Jerre L. Stead


Scott C. Key

So it's kind of a triple whammy. They're geographically constrained and they're not a global model, so there's no way for us to take them global, which means fundamentally, they don't have the growth characteristics we need them to have. They're non-subscription. And then, in many cases, they're -- they actually don't tie to our core value propositions, any of our workflows, so they're just legacy things that should not be in IHS. And with this current move, I think, as you said, we're about halfway there, which is important because they're dilutive to our organic growth rate overall to the tune of 50 basis points or so on an annual basis.

Jerre L. Stead

Great. Next question?

Gary E. Bisbee - Barclays Capital, Research Division

Yes, Gary Bisbee of Barclays. As -- over the next couple of years, as you take the legacy products and move them into these integrated workflows, I guess 2 questions: How quickly can you migrate customers up to the new offerings, number one; and number two, as you do so, will there be the ability to have legacy investments and costs that fall off or and we going to see real margin potential, or is it more that you'll be refocusing those investments on continuing to grow and expand the new platforms?

Jerre L. Stead

That's a great question. Is Amy Minnick in here?

Scott C. Key

She's probably out prepping.

Jerre L. Stead

She's probably out prepping. But make sure and ask her because she's running Connect for us today, and those are the critical questions we have working, but we'll tell you what our belief is.

Scott C. Key

Yes, I'll give you a flavor for it. So I said in energy, we launched a year ago in February with a partial capability. By summer, we had all of it out and then another important release in December. So as we started 2013, we essentially had the Energy Connect product available to everyone. We were able to move, of the 50,000 potential, 12,000 on -- moved themselves onto the platform. But what Amy's doing this year is this year 2013, the second year, we will start to migrate customers forcibly, shutting down, and I said I think, 15 to 18 legacy systems through the course of this year as we migrate everyone. So you could think about the first year of release, the second year of adoption and migration, and then at the end of that second year, you start cutting out legacy assets. And then that is a big margin driver. So I gave you 2 pieces of information: one, 800 software developers roughly at IHS, 80% of them on legacy system, maintenance and enhancement. So you can think of, by the end of 2015, probably 80% of that goes away. Now we will ship some of that to new capacity, to new capability, new commercial offerings. But a substantial opportunity for reduction. And the second element is in the case of Connect, 15 -- at least 15, maybe 20 legacy websites and delivery platforms. Now those are costs that come out of our IT infrastructure right away, servers that get shut down, so those become real hard costs that go away as soon as you migrate.

Jerre L. Stead

Great question because that's a critical tactic as we move forward. Next, please?

Gary E. Bisbee - Barclays Capital, Research Division

Actually, one follow-up if I could, which is just I understand your commentary in the last 6 months about the global economy impacting the business. But how should we think about the strength of some of the big end markets, like the energy industry's doing great, the auto industry's doing better than it has in years, as factors that would seem could be big drivers of the growth? How do we weigh that versus the macro when we think about your performance?

Jerre L. Stead

Great question. Pick up on facts are our friends. What we did with energy technical last year and automotive.

Scott C. Key

So and we gave some color on our Q2 call. It's double-digit growth for IHS, so automotive is double-digit growth for IHS. Just I gave you a subscription number of 40%, so those high-growth markets, we saw organic, overall organic growth in APAC at 15% in the last quarter. I mean, we're growing differentially where the markets should dictate we should. And I think that's what you should expect to see. If the model we've discussed here is actually working, you should see those differential growth rates. Now what's pulling us down? Certainly negative growth rates in our non-subscription business and in our consulting business, in transactions. So that's the only thing pulling us down. And then what's pulling us down is some of those markets that have been more challenged, so I would say defense, government, which are end markets for us that are important, are certainly struggling to restructure themselves, and those are dilutive to our growth rates. So we've got -- we reported this, Jerre, I think, on the Q4 call but maybe not Q1. We still have 75% of our revenue base growing at double digits at IHS, and that 75% is exactly where you'd expect it to be in those well-performing, high-growth markets.

Jerre L. Stead

Next question back there, I think?

Jeffrey M. Silber - BMO Capital Markets U.S.

It's Jeff Silber with BMO Capital Markets. At the beginning of the day, I think it was Jerre, you had mentioned a statistic where I believe it was about 61% of your customers said that there were really no competitors to IHS. I'm assuming that, that skew is probably higher in the energy business. So I was curious as you expand in the other verticals and chemicals and electronics and transportation, who are the competitors out there, and what are your company's competitive advantages against them?

Jerre L. Stead

Yes, it's a great question. Facts as our friends, the highest named competitor is in the energy business, happens to be Wood Mac. And about 40% of the -- on open question was Wood Mac identified as our largest competitor in energy. By the way, they're about 1/5 of our size in energy and 10% of our size in total. So after that, they'll pick it up. After that, the tail is unbelievable of one-off names, including a lot of what we call ankle biters, small companies at the low end and pick up some examples, Scott.

Scott C. Key

Yes, it's -- that's why the one slide I showed you on scale that we've built in other sectors are so important. So we are the market leader and the next is 1/10 our size even at $100 million in annual revenues. We brought together the market-leading assets over a period of years, moving swiftly and effectively to become -- ensure we're the market leader. It's interesting and that's why this idea of convergence is so important. It's easy to start a research shop. You can get 8 smart automotive guys or 8 smart chemical guys that spent their career at Dow, and they can start writing narratives on the forecast. What you can't quickly build is a network of experts all across the planet in every single market who are databasing, pricing and volumes and capacities. That's a slow, slow build. In fact, if you take chemicals, the assets, the 4 assets there, those were 30-year-old companies, each of them, 30-year-old companies. So we brought the 4 leading 30-year-old companies that were information, research, analytics and tools and technology, and we've integrated them into IHS Chemicals. Now of course, that connects hugely to the energy business. So we're seeing on the strength of that, what we've built, we're seeing companies who invest in something that looks like IHS Chemicals, and they brought 8 to 15 smart folks, and they will have a small research offering. But it will take them 10 to 15 years of capital planning to catch up with our lead. So we see each of those markets as not having competitors. There's some great assets in automotive. But what we do, our portion of the workflow, there's no one else. So again, we have an opportunity as we see in energy to capture more of the workflow, and of course, we'll do that relentlessly. But we definitely are the scaled market leader in each of those spaces, and I think Jerre, you're right, the rest of them are pretty small.

Jerre L. Stead

Great question. Next one?

James Warby Crichton - Scout Capital Management, L.L.C.

James Crichton, Scout Capital. One of the slides that you adverted to a lot was the product industry matrix. And just visually, it looked like you've done a lot more deals in the energy space, and it seemed like there's a lot more white space in transportation, chemical and technology. Can you elaborate on why that is and whether it's a different opportunity set for you versus...

Jerre L. Stead

Yes. No, no, great question.

Scott C. Key

Well, it all starts with capital intensity. So of the $32 trillion in capital spend that we talked about or the $41 trillion in revenues, half of it is in energy. So energy is the most capital-intensive sector by far. So it's no wonder then that we have a higher proportion of our capital and expertise has gone there because it is the largest opportunity in terms of spend. Now it also -- as Jerre said, we started in 1998, bringing together exactly as we've done in chemicals. If you look at IHS's history, it's a history of great strategic moves. And so in 1998, 1999, in 5 quarters' time, IHS aggregated the 5 leading energy information assets across the planet and brought them all into IHS. So suddenly, in the beginning of 2000, the world's energy information was inside IHS. And so we've had the longest run there to build, we got great leaders as Slavo Pastor, who joined us a couple years ago, who runs that energy technical business. So that's why we laid out today the last slide I showed you. We have an opportunity to replicate that with the build across every other industry to similar scales.

Jerre L. Stead

Very good question. And we'll do that as we move forward. Just as a reminder, chemicals, we were not in the business 3.5 years ago. Automotive, we were not in the business...

Scott C. Key

4 years.

Jerre L. Stead

4 years ago. So your point's right on, and there's a -- that's one of the things that we're so positive about with the pipeline that Rich talked about of good, strategic fits in those businesses going forward.

Scott C. Key

But, Jerre, just to -- because I think examples are helpful. So what's happened then in automotive? So we're the most mature there since 2008. And what's happening is all the automotive customers are buying all our energy subscriptions. They're buying all of our plastics subscriptions, they're buying all of our electronics subscriptions. Because those are critical to their supply chains. There's not a car in the world right now that's not mostly plastics, mostly electronics, and light weighting is the key issue. So it's where we get this acceleration, so it's a perfect example of that interdependency on what's driving in our growth in automotive right now.

Jerre L. Stead

Other questions? With that, thank you all so very much. I just -- I want to go backwards and just wrap up. Back to your question, Peter, and for everybody's benefit. As we laid this out, what we said was in the next 3 to 4 years, we expected revenue to be $3 billion to $4 billion. As Scott laid out very clearly, annual margin expansion of significance, adjusted EBITDA of $1.2 billion or better and free cash flow of $1 billion. I never forecast share price value. I will say if we had a multiple on free cash flow of $18 billion, you can do your math and that's an $18 billion market cap versus our roughly $7 billion today. So we'll see how that plays out.

With that, I would say today, is past the banners that I originally put in the office back when folks needed to think how great we could become. Today, that's a pretty high probability of how great we will be. So I thank you all very much for being here. I'm delighted with our progress. I can't wait to come back next year for our Annual Investor Day and under Scott's leadership with this single best organization team of executives I've ever seen, to see how we're progressing on those goals that we've laid out. Thank you all very much.

Scott C. Key

As you -- as we said earlier, now we're going to have some of our product teams come into the room. They'll just sit down in a few of these rounds and some may be out there already. I think it might take us 3, 4, 5 minutes to set up or are they outside? Okay, so they're out as you leave. And please feel free. This is supposed to be informal to let you jump into our products, understand them, talk to the people who are running, as Jerre said, the workflows themselves, so happy to invite you to spend as much time as you'd like. Thank you.

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