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Executives

Andy Schulz - Vice President, Investor Relations

Jerre Stead - Chairman and Chief Executive Officer

Richard Walker - EVP and Chief Financial Officer

Scott Key - President and COO

Analysts

Peter Appert - Piper Jaffray

Manav Patnaik - Barclays Capital

Suzanne Stein - Morgan Stanley

Eric Boyer - Wells Fargo

Michael Meltz - JPMorgan

William Warmington - Raymond James

Kelly Flynn - Credit Suisse

William Packer - Exane BNP Paribas

Mig Dobre - Robert W. Baird & Company

Robert Riggs - William Blair

IHS, Inc. (IHS) F3Q 2011 Earnings Call September 21, 2011 8:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 IHS Earnings Conference Call. My name is Katy and I will be your coordinator for today. At this time all participants will be in a listen-only mode. We will be conducting a question-and-answer session towards the end of the conference. (Operator Instructions)

I would like to now hand the call over to your host for today, Mr. Andy Schulz, Vice President, Investor Relations. Mr. Schulz, over to you please.

Andy Schulz

Thank you, Katy. Good morning and thank you for joining us for the IHS third quarter 2011 earnings conference call. We issued our earnings release earlier this morning. If you do not have the release we issued today, you will find a copy on our website at ihs.com. Some of our comments and discussions on the quarter are based on non-GAAP measures. Our non-GAAP or adjusted numbers exclude stock-based compensation and other non-cash charges, net pension expense and other items.

Our earnings release includes both our GAAP-based income statement and statement of cash flows, and reconciliations to the non-GAAP measures discussed during this call. These reconciliation schedules can also be found on our website. The non-GAAP results are a supplement to the GAAP financial statements. IHS believes this non-GAAP presentation and the elimination of these items is useful in order to focus on what we deem to be a more reliable indicator of ongoing operating performance.

As a reminder, this conference call is being recorded and webcast, and is the copyrighted property of IHS. Any rebroadcast of this information in whole or in part without the prior written consent of IHS is prohibited.

Please keep in mind that this conference call, especially the discussion of our outlook, may contain statements about expected future events that are forward-looking and subject to risks and uncertainties. Factors that could cause actual results to differ and vary materially from expectations can be found in IHS's filings with the SEC and on the IHS website.

With that, it is my pleasure to turn the call over to Jerre Stead, IHS Chairman and CEO. Jerre?

Jerre Stead

Thank you, Andy. Good morning and welcome to all of our investors and to my IHS colleagues. This morning I will provide an overview of our quarterly performance, highlight a major milestone for our Vanguard initiative and discuss another new partnership. Regarding the quarterly financial highlights, revenue was up 25% for the third quarter, adjusted EBITDA increased 22%, and we delivered $0.88 of adjusted EPS for the quarter.

Q3 was another quarter of solid, profitable growth in this time of ever greater economic uncertainty. Our performance is a testament to both the must have nature of our portfolio and the ongoing great work by my IHS colleagues worldwide. I thank them all for their continued efforts and focus on delighting our customers. Scott Key, our President and COO, and Rich Walker, our EVP and CFO will provide more details.

As we reflect in the third quarter, we accomplished many notable things. Including continued strong financial and operating performance as well as the purchase and close of SMT, our largest acquisition ever. We had a very important accomplishment with the successful first release of Vanguard in July, concurrent with the opening of our first customer care center. This has been an effort for four years in the making and it is important to recognize this milestone.

Vanguard is our business transformation initiative to consolidate and standardize our sales force automation, lead-to-cash and financial supporting systems. We moved the first series of legacy accounts payable, general ledger and order management processes to our new system on July 5. This initial phase of implementation included a representative set of our transactions. Our first go-live was truly a team effort. Colleagues from throughout IHS have invested many hours of their time to provide input on how Vanguard should be created. This was to ensure it was built to meet the current needs of IHS as well as creating scalable finance and customer care processes.

As we continue to grow and become a multi-billion dollar company. Congratulations to the Vanguard team and all of our colleagues and our partners who have participated in the planning and implementation for their exceptional efforts in making the first release of Vanguard a realty, and for meeting our schedule. Thank you for your commitment and your efforts.

As we have discussed previously, we have used a phased implementation approach. This was the first of multiple releases with our next release planned for early fiscal 2012. Our current plan calls for substantially all of our finance and lead to cash systems to be migrated over to Vanguard by the end of 2012. Our sales colleagues continued to leverage sales force automation or SFA, an important part of our Vanguard initiative. We have more than doubled the number of single sales opportunities identified within it. Currently within SFA, we have identified 54,000 SSOs representing close to $1.5 billion of business. By early next year we will have 100% of our business going through SFA, which will give us increased visibility to our sales pipeline.

In addition, our base Vanguard project now includes modules for both pricing and commissions that will bring additional efficiencies and value realization in 2012. Concurrent with the launch of release one, we opened the first of three global centers of excellence here in Colorado. We have already opened a second center of excellence in one of our existing locations in EMEA and will move additional functionality into that center as we go live with release two of Vanguard. Additionally, we are building out a new facility in Penang, Malaysia, which will house our state of the art customer care, center of excellence in APAC.

Many resources have been devoted to the build out and upgrade of our customer care efforts as these centers form a critical part of the scalable foundation we are building across our company. Another high priority initiative to support our multi-year growth strategy is Project Newton. Similar to the position we are in with our legacy financial systems, we also have multiple data centers and content management and delivery systems. Newton is a multi-year initiative to streamline systems and platforms and to reduce the number of our data centers from 60 to a maximum of three global centers.

We are making great progress. We have our first center up and running which positions us to eliminate certain redundant activities and begins shutting down legacy data centers. The benefits will be reduced cost and greater efficiency. From source to syndication, we expect to reduce our applications and delivery system complexity by about 50%. Most importantly, Newton provides the platform for us to scale our business in the coming years without adding significant cost. Thus, creating further margin potential.

Today, we are announcing that IHS has signed a strategic alliance agreement with Deloitte Consulting. This agreement will allow us to leverage our combined strengths by providing the content, software and expertise that clients need to address a variety of critical business priorities. We will begin by focusing on delivery of solutions that help clients meet complex enterprise sustainability management or ESM, and operational risk management challenges.

IHS enables organizations around the world to make faster and more confident decisions. We see this alliance as another major step forward in our ability to advance decisions that drive innovation. By offering IHS content and systems in combination with Deloitte’s expertise and technology implementation and integration, we will make it easier for our clients to turn traditional information management burdens into competitive advantages.

Organizations throughout the IHS and Deloitte customer base will have the opportunity to benefit from this new alliance. At the outset, the two companies will concentrate on offering their combined solutions to clients and prospects in the oil and gas, utilities, metals and mining, aerospace and defense, chemicals, manufacturing and government military sectors. We are pleased that Deloitte has recognized the importance of the ESM market and our technology leadership in that space.

With that, it’s my pleasure to turn the call over to Scott.

Scott Key

Thanks, Jerre. I will start by providing some insight from our experts regarding what they are seeing in the general marketplace. I will also give an overview of our growth and progress during Q3, especially as it pertains to our efforts to build long term sustainable growth as outlined at investor day this year. And I will update you on our SMT integration efforts.

At IHS we continue to build a company that provides sustainable, profitable growth to the good times and the less certain times. As Jerre mentioned, today we are announcing IHS results that reflect very solid growth. Both overall and organically. This growth comes despite weakness in some markets and a measured amount of caution across all sectors, highlighting the critical nature of our offerings. As many of our clients do, IHS also relies upon the insight provided by our own teams. The growth we are discussing today is even more remarkable on the context of the overall economic environment as summarized in our latest economic outlook.

Let me share some of that with you. Our global network of economists and forecasters are currently projecting a global GDP slowdown in growth from 4.2% last year to 3% this year. We are seeing additional turbulence ahead as markets continue to be roiled by bad economic news in the world’s two largest economies, U.S. and Europe. The good news is that the strong post-earthquake rebound in Japan and continued robust though softening growth in China and the rest of Asia, will modestly boost 2012 global growth to 3.4%. However, this growth is still at risk. A sovereign debt induced crisis in the Euro zone remains the single biggest threat to the global recovery.

Companies are finding that doing business has become harder in the past few months and we believe there is not a lot of relief in sight. Nevertheless, given that the U.S. and European companies are now generating a significant amount of their profits in emerging markets, the challenge for companies is to deploy resources to meet the demands for information in the markets and industries that continue to offer these growth opportunities.

Emerging markets are core to our strategy and we have doubled our presence in Latin America and Asia Pacific through investment and acquisition this year. We have hired key management and sales positions and have concentrated our M&A lens on acquisitions that provide instant access to these regions. So let me detail further what we are seeing in terms of growth and prospects for the future.

We have talked about uncertainty being a driver for IHS products and services. And this is definitely a pattern we are seeing as evidenced by the positive growth results announced today. We continue to be focused on sustainable long term growth. More and more we are concentrating on the high opportunity markets and high growth products and services that have sustainable double-digit organic growth potential.

Many of our strategic accounts, emerging markets and core offerings are already performing in this range despite the economy and as evidenced by the strong growth in our subscription business during the third quarter. Although some markets have seen lower levels of spend that is impacting our overall growth, like financials, defense and government. We do see some bright spots in these categories as a result of our market penetration and the criticality of our information and insight to the core workflows of these customers.

Importantly, subscriptions represent roughly 80% of total revenue in Q3 and grew organically above 8%, up from Q2. Reflective of market weakness in discretionary spend, the organic performance of the remaining 20% or so of total revenue represented by our non-subscription businesses was a negative 1%. Absent the Boiler Pressure Vessel Code, recall last year in Q3 we had a triennial release of the BPVC, an engineering standard. Organic figures mentioned hereafter have been normalized to exclude BPVC as applicable.

Having said that and considering our non-subscription businesses have more macro-economic exposure than our subscription based businesses, our results are more resilient and less volatile then they were two, three years ago. This is largely the result of steps we have taken since 2008 to better manage our portfolio by focusing on five key workflows across six high-value capital intensive industry sectors. Overall, our organic growth was 6%.

So we continue to grow at a solid pace organically despite uncertainly in the markets, and yet we know we can do better. As we noted on the SMT close call about a month ago, we are currently undertaking a formal and structural review of our product portfolio with a focus on assessing the growth profile and strategic fit of all of our offerings ensuring they enable sustainable double digit organic growth and scale. The management of our portfolio is really about growth and getting out of business which are not core, cannot grow at sustainable high rates and are not scalable.

We are focusing on under-performing assets and have begun to take action on exiting those that cannot deliver long-term performance. This will enhance those assets which do have long term potential by creating additional room for investment in these assets. We have elected to discontinue to product lines so far. One was a government services business. One was a print and advertising based business focused on a declining narrow market. Given our strategy, neither was core and neither could sustain a high rate of organic growth. These assets are not material to overall revenue or profit but there elimination is important to overall growth and long term momentum.

When we exclude these two businesses from our Q3 performance, our overall organic growth rate increases by more than a full point to 7%. And our non-subscription organic growth increases to a positive 4%. Both of these business will be shown as discontinued operations by the end of the year in our P&L. Over the next couple of quarters, we will examine every aspect of our portfolio. You will see us focus investment on those offerings which connect our high value capabilities to our customer’s core workflows.

You will see us accelerate investment in those assets that are scalable and have potential to support our growth aspirations. Likewise, you will see us eliminate those products and services that are not scalable and not consistent with our growth potential. The total group of assets we are reviewing, including the two I just covered, represents about 5% of our total annual revenue for 2011.

We have said that we are focused on five critical workflows across six capital intensive industry sectors. Let me briefly drill down on a few key verticals which were most impactful on this quarter to give you a better sense of our performance. We continue to see ongoing strength in energy. Our most important end market. With continued strong investment globally from exploration and production to power in support of rising global energy demand with particular demand growth in APAC. The transportation sector is mixed with continued strength and an expanding automotive industry, positive demand for our shipping products and a slowly recovering aerospace market with a supply chain that provides growth for IHS products and services.

Chemicals continues to be a robust market with exceptional growth in APAC in support of manufacturing strength there with solid growth in the Americas and EMEA, as well with potential slowing if European manufacturing weakens. Government, including defense and security markets continued to struggle as governments and defense budgets further contract. We have seen our highest historical cancellation rates in the past two quarters. Although our limited market penetration provides growth potential just at lower levels. Technology, media and telecom markets continue to be strong globally driven by resilient corporate and consumer spending and our growth remains robust at double-digit levels.

Turing to our key emerging markets in APAC and Latin America, where we have made significant investment over the past year, growth continues to be consistently in the double digits. Let me touch briefly on our progress on integrating the SMT acquisition where we are off to a terrific start. Our integration efforts got underway as soon as the deal was finalized and we are moving along quickly and according to plan. The combination of IHS and SMT creates a more complete and connected workflow and will create more choices in the marketplace for customers by increasing connectivity of IHS and others information to the SMT platform.

SMT is an open non-restrictive platform and it will remain so to ensure we meet all our customers’ needs and expectations. And open platform creates more alternatives, more effective work processes, more value and more opportunities for customers. The early response from across our customer base to this approach has been very positive. I look forward to updating you on additional integration progress and SMTs financial performance after our first full quarter of ownership, on our next earnings call in January.

So before I hand the call over to Rich, let me wrap up by saying we are creating a company that is built to last. One which can provide sustainable, profitable growth through both strong and turbulent economic times. We are creating such a company through our investments in scalable platforms and businesses and via judicial management of our portfolio of offerings. We are taking all the steps to connect the dots for our customers by integrating high value capabilities into our customers core workflows. Critical capabilities which are broad and deep, supporting large scale capital decisions, supporting vital daily operating decisions and more importantly embedding us deeply in the workflows of our customers.

Now let me hand the call over to Rich.

Richard Walker

Thank you, Scott. I will provide an overview of our third quarter results and an update to our 2011 guidance. First, let me begin with revenue. Third quarter 2011 revenue increased 29% to $340 million. The growth in revenue includes 6% organic growth, 20% from acquisitions and 3% from currency. The organic growth on subscriptions was 8% in the third quarter and subscriptions accounted for 78% of revenue during the quarter. This rate of organic growth is inline with the prior quarter and within our expected range for the full year.

Looking at regional and domain performance, revenue growth was again broad-based in Americas, growing at 7% organically with EMEA and APAC growing 2% and 16% respectively. Relative to performance by domain, energy was once again a notable performer. Energy was 43% of total revenue and was up 21% all in for the quarter. Energy remains strong across almost every offering and in all three geographies. Product lifecycle was 34% or revenue and increased 39% for the quarter due largely to the fourth quarter 2010 acquisition of iSuppli.

Security was 9% or revenue, up 13% all in for the quarter. In particular our maritime offerings remain strong. Environment was 7% of overall revenue, up 90% all in for the quarter due mainly to acquisitions. The remaining 7% of revenue is in our macroeconomic capability which were up 13% all in for the quarter, including above average organic growth.

Turning now to profit and margins. Q3 adjusted EBITDA totaled $100.3 million, up 22% versus a year ago. This is the first time in our company’s history we’ve generated more than $100 million of adjusted EBITDA in a single quarter. A notable milestone, indeed. Our adjusted EBITDA margins were in line with our expectations at 29.5% comparable to Q2 margins, but down compared to last year’s 30.3% margin. This performance comes as we continue to invest substantially in both the core business and in key transformation initiatives, while we also continue to make solid progress driving improvement in the ten acquisitions we’ve made over the last 12 months.

Although acquisitions held down margins by about 90 basis points during the third quarter, this is a 70 basis point improvement over the second quarter when acquisitions suppressed margins by a full 160 basis points. FX held margins down by another 20 basis points. After considering these impacts, our operational margin expansion was about 40 basis points over the prior third quarter. We’re starting to see the related margin expansion from the acquisitions accelerate, particularly for the acquisitions from the fourth quarter of last year. Typically, we tend to see the margin expansion accelerate after the first three or four quarters of ownership.

In the case of our fourth quarter 2010 acquisitions, their collective margin was in the mid-teens during the first half of 2011. During the third quarter, it was in the mid-20s. We expect improvement in the fourth quarter and into 2012. Moving down the P&L, adjusted EPS increased 16% to a record $0.88 per diluted share in the third quarter. Consistent with prior quarters, the growth rate of adjusted EPS was impacted by high levels of non-cash amortization from increased acquisition activity and by increased interest expense.

Regarding segment profitability, Americas’ adjusted EBITDA increased 28% to $82.9 million, while EMEA's adjusted EBITDA was up 15% to $23.6 million. And APAC's adjusted EBITDA grew 23% to $11 million. The reported GAAP tax rate for the third quarter of 2011 was 16% versus 23% last year, primarily due to discrete period tax adjustments, including the impact of a tax rate reduction in the U.K. This discrete period adjustment represented about $0.04 per diluted share in the third quarter.

Looking at the balance sheet, we ended the quarter with $203 million of cash, a sequential increase of $56 million and $811 million of debt. Deferred revenue at the end of the third quarter was $474 million which represents a year-over-year increase of $122 million or 35% growth. Turning to cash flow, we generated $52 million of cash flow from operations and $39 million of free cash flow in the third quarter. On a trailing-12 month basis, we've generated $244 million of free cash flow and our ratio of free cash flow to adjusted EBITDA was 66%, or 70% after adjusting for the effects of restructuring charges, acquisition related costs and increased interest costs.

As these measures suggest, we continue to generate strong cash flow despite higher levels of investment in the business. These investments are being reported as both operating expenses and capital expenditures as applicable. We expect CapEx to approximate $55 million to $60 million for 2011, behind the funding of critical projects we discussed today, our products development efforts such as Project Castle, and the total capital needs from the acquisitions over the last 12 months.

Now, let's go to 2011 guidance. Our guidance is in on all in basis and assumes no further acquisitions, currency movements or unanticipated events. For 2011, we expect all in revenue in a range of $1.307 billion to $1.337 billion, representing approximately 8% organic growth for the full year. All in adjusted EBITDA in a range of $399 million to $407 million. Depreciation and amortization expense to approximate $89 million, net interest expense of roughly $11 million, adjusted EPS between $3.33 and $3.43 per diluted share. Stock-based compensation expense to be approximately $86 million, net pension expense to be roughly $11 million and adjusted tax rate of approximately 25% to 26%, and fully diluted shares to be roughly 66 million.

Consistent with prior years, we expect to provide 2012 guidance sometime in early November. To wrap up, we saw continued top line organic growth, margin expansion in the legacy business and improving margins within our recent acquisitions. With that, let me turn the call back to Jerre.

Jerre Stead

Thank you, Rich. That completes our comments on the third quarter. We're looking forward to a strong finish to 2011 and building momentum as we head into 2012. Scott, Rich and I are now ready to answer your questions. Let's start the Q&A.

Andy Schulz

Hey, Katy, we have quite a few people queued up to ask questions so we ask the people, please ask just one question so we can get to everyone before the hour is up. If they want to get back in queue for a second question they can do so and if we have time we will definitely take it.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Peter Appert from Piper Jaffray. Please proceed.

Peter Appert - Piper Jaffray

Thanks. Good morning. So, the guidance suggests obviously some pretty good margin -- the midpoint of the guidance suggests some pretty good margin improvement in the fourth quarter. So Jerre or Rich, I was hoping you just give us the bridge that get's you to the higher margin in the fourth quarter. What gives you confidence that we're going to see it in the context of the slight declines we've seen for the last couple of quarters?

Jerre Stead

Yeah, it’s a great question, Peter, and good morning to you. If you think through what Rich was just covering, we saw increase in the margins of the acquisitions that we've made from 16% to 24% in Q3 versus Q2. As we've been saying actually for the balance of this year, we expect to see that continue to accelerate. So that's point one.

Point two, probably the easiest way to think about that is over the last five, six years since we’ve been public, about 30% of our total EBITDA for the year has hit Q4. If you think about that, so there is a slight uptick normally in our EBITDA in Q4 versus the rest of the year with the acquisitions that we’ve made, some of which by the way will now fall in into Q4 as part of organic growth.

I think we feel quite comfortable with what we expect to exit the year, because you are right. If you look at the guidance that Rich just covered, that would say that we see a couple of 100 basis points improvement, a little better than that for Q4 versus Q3. I feel very good about that, Peter. Good question.

Peter Appert - Piper Jaffray

Do you need to see faster organic revenue growth in the fourth quarter to get there?

Jerre Stead

Well, that’s also a very good question. Although we’re not supposed to take it, I will. You’ve got me Peter.

Peter Appert - Piper Jaffray

(inaudible)

Jerre Stead

Yeah, well done. Are you on the West Coast?

Peter Appert - Piper Jaffray

I am.

Jerre Stead

Okay. You are up early and you are sharper then I am. So what you can also expect is, in fact, to see a pickup from an organic growth standpoint as we exit the year. That’s what Rich -- if you think about as Rich just said is that, all in for 2011 we expect to exit at 8% organic growth. Year-to-date, we’re at 7%. A bunch of good news falls into Q4 from the acquisitions we’ve made.

If you -- let me just give you a little color on that. If you look at the internal organic growth of the acquisitions we’ve made in the last year, in other words, their organic growth that's still being reported as acquisitive for us, it's in the very high teens. We feel very good about that and expect that to continue. So we feel real good, particularly considering, as I said and Scott said, amazing uncertainty that goes on in the world's economics, we feel pretty good about both for the Q4. Thanks, Peter.

Peter Appert - Piper Jaffray

Thanks, Jerre.

Operator

Your next question comes from the line of Manav Patnaik from Barclays Capital.

Manav Patnaik - Barclays Capital

Hi, good morning, gentlemen. If I can just ask a big picture question and that is, did you see any, I guess material changes or reactions from your customers in the last part of August when all the fears around the economy began? And if there is some way to compare the lead up into the last recession based on what you saw and what sort of impact you saw compared to what you're seeing today?

Jerre Stead

Yeah, that's a great question. I'll start and have Scott pick that up. Because we actually look at that, as you'd expect, we've got some of the world's best economists that work for us and we're taking a very current look at that. Just two things I'd start with, very thoughtful question and have Scott pick up on it. One is, as Scott said in his talk this morning, we're much better positioned with the non-subscription based business. One, it’s a smaller percentage going in. Two, we've got great efforts well underway in each of those areas and a much better visibility than we've ever had. So feel good from our own standpoint.

Second point, and then Scott pick up on his question of what are we seeing going on in the world. If you look at our organic growth, you saw that in Q3 it was 2% for EMEA. That really we think we've hit the bottom living through the last six quarters of that economic downturn continuing. So, Scott?

Scott Key

Yeah. It’s the right question. So one, you heard me say in our comments that in the last few quarters you've seen the highest cancellations historically in a few sectors that are currently certainly responding to economic weakness. With that said though, an interesting and this is the uncertainty issue, it does drive demand. We just had a really first time an important sale into, significant one into the finance sector around Country Risk to a bank. And that’s clearly in response to their wanting to understand the world we are living in a bit better.

We saw in this quarter, the pure consultancy business expand sequentially and grow very positively and accretively year-on-year, with people wanting to engage us to understand what is going on in markets that they are facing and to drive their decisions. So it’s a balance. As we said on subscriptions, we see people coming to us so to get more information to understand markets. We see weakness in a few sectors as we have discussed, particularly around the non-subscription areas, but uncertainty is driving growth and opportunity in other places.

Jerre Stead

Thanks, Scott. And I'd just add one little piece of color and then we'll go to the next question. We have seen and I think it should not be a surprise that some of the large manufacturing companies around the world have asked for our help and are looking very critically at their capital expenditures of where they are going to go in 2012. Again, that’s a help for us, but certainly a caution for the world.

Manav Patnaik - Barclays Capital

Okay, thank you.

Jerre Stead

You bet.

Operator

Your next question comes from the line of Suzanne Stein from Morgan Stanley.

Suzanne Stein - Morgan Stanley

Hi, it’s Suzy Stein. Now, that it’s a little closer to reality, can you just give us a better sense of timing around sort of when you expect you'll see some of the real cost savings above what you're spending in operating expense and also any revenue boost from Vanguard?

Jerre Stead

Yeah, great question Suzy. I’ll have Scott pick up in a minute on the revenue side of that. As I said, we feel really good about where we are at. Todd Hyatt and his entire team and everybody else that’s been involved is to be congratulated, because we learn more everyday with visibility. So, as I said this morning, we'll exit 2012 pretty well wrapped up entirely. However, we will start seeing cost savings in Q1 and Q2 of 2012 as we do the consolidation of the customer care centers, the three centers of excellence on a worldwide basis. So, you'll see some pick up as 2012 goes on. You'll see significant pick up in our sales organization’s productivity in 2012 as SFA kicks in 100%. And most importantly we're being able to automate commissions etcetera to help our teams in a big way. That will exit going into 2013 with some very attractive margin improvements that we'll see as we go out of 2012.

As we were preparing for this call yesterday, Scott and Rich and I were talking about the fact that if you looked at where we were at today, if we weren't making all the expense investments that we are in infrastructure, all the expense investments that we're for more new products. By the way, we're going to release more new products in Q4, Q1 and Q2 of next year than we've done in the last four years. So, if you just set those aside, we’d be up around the 34% EBITDA margin today. So, that will give you a little flavor on what we’re spending as we go forward.

Scott Key

Yeah, so I’ll pick up on a couple of things Jerre mentioned, but it’s really about sales force efficiency and focus. That’s what we’re delivering. So I’ll just quickly give you a few to think about. Commissions, quotas and pricing, so new systems rolling out. Right now, we will have actually -- because of the new systems we’re putting in place, we will have quotas across the globe, territory plans and account plans quotas in place in the next four weeks. We would have typically last year, all the way through December into January, we were still juggling thousands of spreadsheets to get that done. So, we’ll have a sales force more effectively and efficiently focused.

Visibility to customers and opportunity. Jerre gave you some really large numbers around the number of SSOs, so sales opportunities in this system. So, if you think about the efficiency of renewal management and then new opportunity management and visibility into our accounts that we don’t have today, again, make the sales force much more effective. And then the quote to cash side, so fulfillment and delivery, we have sales actually spending a lot of time chasing down fulfillment and effective delivery to customer and then of course chasing their commissions after that with inefficient systems. All of those we think are going to bring productivity gains anywhere from 10% to 30% next year which allows sales teams to focus on selling.

Jerre Stead

Thanks, Suzy.

Suzanne Stein - Morgan Stanley

Thank you.

Operator

Your next question comes from the line of Eric Boyer from Wells Fargo.

Eric Boyer - Wells Fargo

Just real quick; did Rich give the organic deferred revenue growth number?

Jerre Stead

He will, Eric. Good question.

Richard Walker

Organic deferred revenue, it’s trending in the same area, Eric. About 12%, 13%.

Eric Boyer - Wells Fargo

Okay, great. And then just as far as -- you talked about EMEA possibly being at the bottom as far as your organic growth, and I know you talked more macro about APAC in your comments, thinking that the earthquake, GDP should start to rebound there. What about your own business within APAC?

Jerre Stead

Yeah, we're really pleased. As you can see, year-to-date, we're up significantly. In fact, this quarter is the first time that APAC has exceeded 10% of our total revenue despite, as Rich said, growing 29% total revenue worldwide. So, correct me if I am wrong, Scott, but I think in the last 18 months we've more than doubled the headcount in Asia Pacific and how many people do we now have doing research in Asia?

Scott Key

Yeah, great question. Actually, Jerre, we've more than doubled our presence in terms people on the ground in APAC in the last eight months. And we now have over 300 researchers and analysts in countries across APAC connected to customers and their issues, and this is the exciting part. So, it's what's driving our growth. It's becoming a larger scale percentage of our overall operations and of course it is the leader of organic growth for us. But more importantly we're connecting all of our capabilities. We have teams in China that connect energy to chemicals to electronics to manufacturing to economics, and that's a powerful mix in helping customers solve problems. So we are really seeing a critical mass for IHS in APAC as a driver of continued double-digit growth and an accelerator of it.

Jerre Stead

And one last piece of color, as I mentioned, we're outfitting as we said, a new center of excellence that will go live early next fiscal year in Penang, Malaysia. Rich and I will be over there to see it next week. That's critical because that too will give us infrastructure support as we enjoy the growth of our potential in Asia. Thanks Eric.

Operator

Your next question comes from the line of Michael Meltz from JPMorgan.

Michael Meltz - JPMorgan

Thank you. Hi there. I just want to say I love the 8 a.m. conference call, so please keep it up.

Jerre Stead

We will do that Michael.

Michael Meltz - JPMorgan

Sorry, Peter, but you should be up earlier anyway. I have a question for you on the revenue outlook. With the Q3 performance, the 3% or I guess the 6%, and you are pointing to the lower end now of the prior 8% to 10% organic growth. The tone on the call around Scott's comments on the macro was great or just the commentary. And I just want to understand, at this point how are you thinking about the trajectory into next year. Is the 9% to 15% organic goal attainable next year? Or are you implying that the macro is just a bit tougher and we'll see how it goes?

Jerre Stead

A great question, Michael. Let me just start, as Rich mentioned in his talk this morning, in early November we'll give our 2012 guidance. We'll have better visibility on that question then, including the success we've made with the acquisition integration. Also, with FX, which has gone against us a bit, if you would right now in Q4, which is something we’ll wait and see how that plays out. So, we'll give that guidance in early November. Scott, pick up on his question.

Scott Key

Yeah. So you heard us talk about the environment and certainly Jerre talked about FX's impacts and we have talked about the sectors where we see spending slow and uncertainty rise and we have talked about the impact on non-subscription and more discretionary spend areas. So we have those things going on in the market and we are all going to wait and see what happens with Greece and the debt crisis in Europe. But with that said, yesterday, we held our monthly operating review. If you look at how we went about that review and I have actually the deck up in front of me right now, it’s prep for the call. We have a company that’s focused on growth, and in fact the first topic as we reviewed performance quickly in the last period, was to look at growth of our portfolio, quarter-to-date, month-to-date and year-to-date.

And what you see -- heard in the call today, we have a large portion of our portfolio performing very, very well, and in fact significantly accretive to our overall numbers. We talked about our focus on those underperforming assets and discontinuation of two, which had a one point impact on our organic growth. So we have large sectors of our portfolio both in subscriptions, in consulting, in transactions and other portions of our business that are growing substantially accretively to our overall rate, 8%, 9%, 10%, 12%, 15%, 18%, 20% organic growth rates. So you'll see us focus next year on getting a portfolio that’s sustainable long-term growth and adjusting to market conditions. So I think we feel good about it.

Jerre Stead

One other thing, just to add, great question again, Michael. As we mentioned, Rich did, our total deferred revenue is $474 million, up 35% or $122 million. And of course that's based on last quarter’s 78% of total revenue, all of which during 2012 will become organic at some point. So, pretty darn good headlight of what's coming. And to wrap up, we'll give more on this question. We'll give more and more color in the quarters ahead of those four buckets as Scott's laid them out on the 9% to 15% organic.

Michael Meltz - JPMorgan

Okay. Thank you for your time.

Jerre Stead

Thank you.

Operator

Your next question comes from the line of Bill Warmington from Raymond James.

William Warmington - Raymond James

Good morning everyone.

Jerre Stead

Good morning, Bill.

William Warmington - Raymond James

A question for you on acquisitions, since you’ve done quite a few. You are integrating them now. But a question I have been receiving a lot has been your attitude towards acquisitions in terms of, even though you have the financial capacity to do additional ones now, are you more likely to do those or you think over the next six to 12 months those are going to be on hold while you integrate what you have?

Jerre Stead

So let’s get everybody clear on that. That's a great question. We’ve done ten acquisitions since Q4 of last year. Four of those happen to fall into organic and are totally integrated at the end of Q3, early Q4. So that’s behind us. So of the five we announced in Q2, two were assets. That one is done. The other three are well along the way for integration, in fact, ahead of schedule in almost every case. And as Scott said with SMT, which is the tenth one and the best response, by the way, of all the acquisitions I have ever done as CEO from a customer base is SMT. That one is well ahead of schedule. So, we feel very good about integration. What you need to be thinking about on that is, that we’re going to have that all pretty well wrapped up going into Q1 to Q2 of 2012. So, Rich you want to comment on the pipeline?

Richard Walker

For sure, Bill. We have, as we always do, we have a very robust pipeline distributed across the business. While we’ve executed on the acquisitions we’ve completed, it’s important to note that we evaluate a number of acquisitions all the time. So, there are a number of acquisitions that we have not pursued and it’s been because of a variety of reasons, including ultimate value and the ability to realize price. So we'll continue to be very vigilant and disciplined in looking at acquisitions and certainly making sure we have the right balance to ensure that those integrations are perfectly successful.

Jerre Stead

Thanks, Bill.

William Warmington - Raymond James

Okay. Excellent, thank you.

Operator

Your next question comes from the line of Kelly Flynn from Credit Suisse. Please proceed.

Kelly Flynn - Credit Suisse

Thank you. Just wanted to clarify a comment, I think, Jerre, you made about Q4 organic revenue growth expectations. Did you say 8% for the year, which would imply kind of 10% to 12% for the fourth quarter? I think you said acceleration for the fourth quarter, but I just want to make sure.

Jerre Stead

No, that’s a great question Kelly. What Rich said was we expect, with the growth in the guidance we've given, to be 8% organic for the year. We're actually at 7% for the year now. So, yes, you could extrapolate. Again, remember, pretty big chunks falling in Q4 of acquisitions we made last year that are a significant high-teens growth of their own organic falling in.

Kelly Flynn - Credit Suisse

Okay, great. I guess I will just leave it at that one. Thank you.

Jerre Stead

Okay. Thanks, Kelly.

Operator

Your next question comes from the line of William Packer from Exane BNP Paribas.

William Packer - Exane BNP Paribas

Hi. Thanks for taking my question. Could you please comment on the course of the organic decline of the non-subscription revenues? Is it widespread across all verticals or on a particular vertical? Also is it driven by transaction revenues or more about the reduction in scope in consulting services or by both? Thanks.

Jerre Stead

Very good question. I'll just start out by a quick update as Scott said when we take out the two discontinued activities that we are in the process of doing that Rich covered. Actually the growth was 4% for the non-subscription base. But a great question. Pick up from a vertical market standpoint on the three pieces, Scott?

Scott Key

Yeah, and it’s a good point to think about. So two small assets in that category, very dilutive to our growth, as we said, narrow declining markets. So, if you look at the growth of our non-subscription, non-recurring areas, it was actually up sequentially by a point from Q3. On the consulting side, of course, that’s a portion of the business, about 5% to 6% of the business overall, consulting. And actually that’s doing well, growing accretive to IHS overall, and expanded in Q3.

So, what you are seeing, and I think you have it right is, we talked about a number of markets where discretionary spend is under pressure. Government will be one, defense is another. We see that in financial markets as well. And so, demand for one-off, one-time in non-recurring information reports or analysis has come under some pressure in those markets. We also have in that category platform and software sales and we talk about those being a little lumpier. So sales cycles extended a little bit in some of those areas as companies think about the environment around them but some of that is timing as well. So, that gives you a sense for what's driving it.

Jerre Stead

And I would just add one thing to that, a specific regional business, our construction business, that is 90% in the U.K., as you would expect is soft on transaction basis. And by the way, on subscription basis too. So, that would be the other flavor I would give.

Scott Key

In fact, Jerre, if you look at that one note, which is local to the United Kingdom alone, that business is many, many points dilutive to the overall transactions portfolio, which actually is neutral to accretive to our overall growth rate if you take that business aside.

Jerre Stead

Yeah. Good question, Will, thank you.

William Packer - Exane BNP Paribas

And just one very minor follow-up. Would you say across Q3, it was consistent in each month, the organic revenue decline, or has the acceleration decline increased in August relative to during July?

Jerre Stead

Actually, it's the reverse.

William Packer - Exane BNP Paribas

Okay.

Jerre Stead

Just to put it in perspective. All in organic in August was the strongest of the three months. Great question. Thank you.

William Packer - Exane BNP Paribas

That’s very helpful. Thank you.

Operator

Your next question comes from the line of Dan Leben from Robert W. Baird & Company. Please proceed.

Mig Dobre - Robert W. Baird & Company

Good morning, gentlemen. This is Mig Dobre sitting in for Dan Leben. One quick question for me on incremental margins. So at segment level, looking at progression in the Americas, for instance, it was quite a good quarter, a little bit softer than what we expected in EMEA. Did that have something to do with the new centre of excellence? How should we think about incremental margins for that geography? And if so, does that -- should that effect the way we're sort of thinking about incremental margins for Asia, given the new Malaysian center of excellence there?

Jerre Stead

A very thoughtful question. Let me work backwards. The new center in Asia is well underway, and those expenses are already being included this quarter and will be in Q4 going forward. As I mentioned, as we move forward into the second half of 2012, as we do the bringing together and consolidation of those three centers replacing, I think, 28 different locations today with customer care. We’ll see some very positive savings in 2012. The comment -- Scott you should pick up on for color of the margin in EMEA. It was not impacted in Q3 with the center of excellence there.

Scott Key

Yeah. We see a couple of things in those markets as we talked about it. In the EMEA region, and particularly Europe, was probably a little bit ahead of the rest of the world and contracting government and public spending a little more rapidly, even starting a year ago. And we’ve seen that impact important part of our business both in supply chains as well as information going into defense and security. So we’ve seen that actually, as we said, start to bottom out. That lack of growth and the cost base there which is a significant amount of our researchers, analysts, and experts sitting in those markets, leads to a little bit of margin pressure absent growth. But we see that as a fixed cost base and attractive margins as we continue to see growth expand.

Jerre Stead

And I will just wrap up on that. As you remember, Rich said that FX cost us about 20 basis points of total margin in Q3. 100% of that would be in EMEA.

Mig Dobre - Robert W. Baird & Company

Thank you.

Operator

Your next question comes from the line of Robert Riggs from William Blair. Please proceed.

Robert Riggs - William Blair

Good morning. Thanks for taking my question. I just wanted to get an update on the strategic account management program, your progress towards, I believe, getting into the 250 top accounts by the end of this year and then rolling it out to the top 1,000 accounts by the end of 2012. And what kind of revenue opportunity you see once that’s more fully implemented?

Jerre Stead

Great question, Rob, and I’d love to answer that one, but Scott it's yours.

Scott Key

Yeah. Really making a continued strong progress. So, we have the team focused both for the rollout of SFA and the quality of the data underneath that. So, we have visibility in our largest accounts, i.e., is the driver and resources focus and process there. Just as a reminder, our 1,000 largest accounts are roughly 75% of overall revenues. They are differential to our growth rate. We're sitting with about 35% of revenue in that program today. So, we've done a great job of rolling out accounts and making progress towards that 1,000.

Right today, we're right around the 200, moving to the 250 mark in terms of training deployed accounts globally. So these are large regionals as well as the globals. We've created those teams and accelerated that over the last quarter. And the other things I would tell you is three to four points higher customer delight within those accounts than IHS overall. And several points higher organic growth in those accounts overall. So we continue to see that good progress.

Jerre Stead

Thanks Rob.

Operator

At this time, I am showing we have no further questions. I'd like to hand the call back over to Andy Schulz for closing remarks.

Jerre Stead

This is Jerre and I'll make a quick -- couple of wrap-up comments and turn it to Andy. Thank you all very much. As we've said consistently, we've made and continue to make major investments to make sure that we have the infrastructure going forward to provide productivity and increase margins. Most importantly, scale, as we continue our pursuit of rapid, profitable growth. So, our job are balanced. I am proud of everybody involved of giving significant improvement quarter-over-quarter for the last few years while we see very good long-term sustainable, profitable growth opportunities and still make large investments in capital and expense for infrastructure. Makes me feel the best I have felt as we move forward into this uncertain economic condition. We look forward to wrapping up and reporting to you in early January on Q4 and giving you our best shot at guidance for 2012 in early November.

Andy Schulz

Thanks, Jerre. This call can be accessed via replay at 888-286-8010, or international dial-in 617-801-6888, passcode 38349192, beginning in about two hours and running through December 28. In addition, the webcast will be archived for one year on our website at ihs.com. And as always, you can contact IHS Investor Relations with any follow-up questions. We can be reached at 303-397-2969. Thank you. Have a great day.

Operator

Ladies and gentlemen, thank you very much for your participation in today's conference call. You may now disconnect. Have a wonderful day.

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