IHS Inc. (IHS) Q1 2015 Results Earnings Conference Call March 24, 2015 8:00 AM ET
Executives
Eric Boyer - Vice President of Investor Relations
Scott Key - President, Chief Executive Officer, Director
Todd Hyatt - Chief Financial Officer, Executive Vice President
Analysts
Bill Warmington - Wells Fargo
Andrew Jeffrey - SunTrust
Peter Appert - Piper Jaffray
Shlomo Rosenbaum - Stifel
Brandon Dobell - William Blair
Gary Bisbee - RBC
Jeff Silber - BMO Capital Markets
Andrew Steinerman - JPMorgan
Manav Patnaik - Barclays
Andre Benjamin - Goldman Sachs
Paul Ginocchio - Deutsche Bank
Joseph Foresi - Janney
Nick Nikitas - Baird
Toni Kaplan - Morgan Stanley
Anj Singh - Credit Suisse
Operator
Good day ladies and gentlemen and welcome to the IHS first quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, today's call is being recorded.
I would now like to turn the conference over to Eric Boyer, Vice President of Investor Relations. Sir, you may begin.
Eric Boyer
Good morning and thank you for joining us for the IHS first quarter earnings conference call. We issued our first quarter earnings release earlier this morning. If you do not have a copy of this release, it is available 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 excludes stock-based compensation, amortization of acquired intangibles 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 are included in our release and 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 exclusion 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 the expectations can be found in IHS' filings with the SEC and on the IHS website.
After our prepared remarks, Scott Key, IHS President and CEO and Todd Hyatt, EVP and Chief Financial Officer, will be available to take your questions.
With that, it is my pleasure to turn the call over to Scott Key. Scott?
Scott Key
Thank you, Eric. Good morning and thank you for joining us as we share our first quarter results. I want to focus on a few things today as we discuss our Q1 results and our full-year outlook and updated guidance. We will touch on the building organic growth in our non-energy solutions as we continue to execute to our long-term strategy, as well as the resiliency and integrity of both our strategy and our business model as demonstrated by key performance trends and metrics. This will include an update on the global energy downturn and near-term impact on our energy performance. And Todd will cover the full year impact of these items, as well as the impact of currency headwinds, and the resultant revision to our guidance for the year.
For Q1, the overall result was solid subscription organic growth, which was partially offset by lower non-subscription revenue due to energy. We also delivered solid EBITDA, margin, free cash flow and earnings per share. A few highlights in the period include revenues of $546 million, up 4% from Q1 of 2014 and up 2% on an organic base of solid subscription organic growth that rose to 7%. Adjusted EBITDA margin up 31%, representing expansion of 120 basis points year-over-year and benefiting from operating model leverage and continued realization of synergies. And we continued to deliver solid free cash flow.
In terms of our core industries and horizontal workflows, resources which includes our energy and chemicals teams, experienced stable subscription growth. But overall organic growth was impacted by our non-subscription business. I will talk about our energy outlook in more depth in a few moments. For industrials, which includes our automotive, technology, maritime trade and aerospace and defense teams, we are seeing performance build as reflected in the organic growth of 7% in the quarter. Our horizontal products had positive performance in a number of areas with total organic revenue growth impacted by weaker non-subscription revenue as a result of a pause in spending by some energy customers.
Moving to acquisitions. Since our last call, we closed the acquisition of Rushmore Associates. Rushmore provides subscription-based drilling and completions benchmarking solutions to the oil and gas industry. This tuck-in to our energy solutions is an important capability for our customers in the current energy price environment and we welcome the Rushmore team to IHS.
Our two priorities, operational excellence and commercial expansion, remain core to our long-term growth and shareholder value creation. Our business model has substantial operating leverage and we are using our global scale and common global infrastructure to make measurable operating progress. Our continued relentless integration of IHS capabilities and acquired assets allowed us to deliver strong margin expansion in the quarter. We also expect to deliver solid margin expansion for the full year and beyond as we continue to gain synergies and leverage from our integrated global business model. Our commercial expansion initiatives are focused on building organic growth and we continue to invest in our workflow platforms, analytical solutions and account growth opportunities and we have made good progress in the period in each area as we execute to our long-term strategy.
Let me spend a moment on energy markets and how we now see the industry dynamics impacting our business and growth for the remainder of 2015. The industry is experiencing one of the most severe and broad downturns in several decades. Since our last call, we have seen our energy customers completely revise and rebuild their capital and operating budgets for 2015 as they fully responded to lower commodity price expectations for the future. As a result, we have gained better visibility as energy companies have announced fiscal year 2015 guidance over the last month and have communicated with us their full year spending priorities. As a point of reference, cap expense for the majors is expected to be down between 20% and 30% for 2015. The CapEx and associated OpEx reductions are now measured in the tens of billions of dollars.
The result of customer budget revisions was deferral of spending decisions, including significant slowing of exploration software and energy consulting spend. As customers work through the recasting of their full year budgets during our fiscal first quarter, we even saw a pause in spending for non-subscription work that had been assigned and was in our backlog. This resulted in lower non-subscription revenue than we had forecasted in the quarter. While we expect this pressure will drive our non-subscription revenue growth negative for the full year, we are now seeing paused work reauthorized and expect some improvement in forward trends now that customer spending plans have been more firmly established.
In terms of subscription revenues, many of our large energy renewals closed during the period with some pricing pressure. We also saw a negative impact from several customers as they rationalized operations and reduced coverage areas and from smaller U.S. independent energy companies facing more difficult economics. Importantly, the majority of our energy subscription renewals through this heavy renewal period renewed with neutral or positive uplifts from last year's levels. In total, our energy subscription base was down slightly in Q1 due to lower subscription sales growth, but we expect this sales trend to improve modestly in the second half. The net revenue impact will be reflected in lower energy subscription organic revenue growth throughout 2015. Our updated 2015 guidance reflects our energy performance through our high renewal period in Q1, combined with our revised expectation for lower energy subscription organic growth and greater pressure on our non-subscription business.
While lower oil prices are creating a challenge for the energy industry in the near term, these dynamics are creating a positive operating environment for our other end markets that now comprise approximately 60% of our revenue. This includes our industrials, chemicals and non-energy portions of our horizontal solutions. We continue to deliver to our growth expectations in these areas as evidenced by industrial subscription organic growth that expanded to 8% in Q1. We see this momentum that began in 2014 continuing through 2015. These positive dynamics in our industrials and portions of our horizontal solutions are the result of our multiyear platform, product and account initiatives and the effective deployment of capital to the right capabilities to ensure our long-term growth.
In summary, we continue to successfully scale IHS in each of our regions and core industry markets while building an integrated capability and presence in very connected markets and supply chains to ensure long-term growth. We are using the scale and operating model leverage to grow margins from a strong set of integrated global assets as we also continue to invest in our future to ensure long-term organic growth and margin expansion. We have built diversity into our business portfolio, both in terms of sectors and geographies. This has allowed us to generate more balance and resilient results where headwinds in a particular sector are balanced by strengths elsewhere and we see this with our strong performance in industrials. We see the current nature of our offerings and the resilience of our business model in energy in the face of significant short-term market headwinds. We view these headwinds as temporary and have great confidence in the long-term growth prospects of our energy business. And finally, we expect industrials to lead 2015 organic growth with continued momentum driven by new product and platform introductions and account initiatives in line with our strategy and execution.
And with that, I will turn the call over to Todd.
Todd Hyatt
Thank you, Scott. Let's start by reviewing the financial results for the first quarter. Revenue was $546 million, an increase of 4%. Adjusted EBITDA was $169 million, an increase of 8% and represented margin expansion of 120 basis points. And adjusted EPS was $1.36, an increase of 6%. Relative to revenue, our total revenue growth of 4% included 2% organic revenue growth, acquisitions of 3% and an FX drag of 2%. In the quarter, subscriptions represented 82% of revenue and grew organically 7%. Our non-subscription organic revenue declined 14% due primarily to energy headwinds.
Looking at regional performance. Americas overall revenue growth was 4%, organic growth was 2%, acquisitions added 3% and there was a 1% drag from FX. Americas organic subscription revenue growth was steady at 7% due primarily to strong industrials performance. EMEA's overall revenue growth was 0%, organic growth was 2%, acquisitions added 2% and there was a 3% drag from FX. EMEA's organic subscription revenue growth was 4%. APAC's overall revenue growth was 13%, organic growth was 7%, acquisitions added 8% and there was a 2% drag from FX. APAC's organic subscription growth was 10%. In summary, we saw stable subscription organic revenue growth across all regions with pressure on overall growth rates due to declines within our energy non-subscription revenue.
Looking at industry performance. Resources organic revenue growth was 0% with organic subscription growth of 6%. Organic non-subs growth was minus 28% and was negatively impacted by lower energy software, consulting and services revenue. Industrials organic revenue growth was 7%, organic subscription growth was 8% and non-subs was flat in the quarter. And our horizontals organic revenue growth was 0% with organic subs growth of 4% and non-subscription growth of minus 15%. non-subs performance was negatively impacted by lower OE and ORM's services revenue from the service delivery pause in several large energy accounts.
Turning now to profits and margins. Q1 adjusted EBITDA totaled $169 million, up 8% versus a year ago. Our adjusted EBITDA margin was 31% and represented 120 basis points margin growth in the quarter. This performance reflects business model efficiency and focused cost management, while balancing investment in areas such as our automotive offerings, energy asset valuation offerings and selected sales investments to drive future growth in the business. Regarding segment profitability, Americas adjusted EBITDA increased 4% to $129 million. EMEA's $35 million adjusted EBITDA was up 10% from the year ago quarter and APAC's adjusted EBITDA was $13 million versus $11 million from the year ago quarter.
Turning to adjusted EPS. Q1 increased to $1.36 per diluted share, an $0.08 or 6% improvement over the prior year. Our adjusted EPS was impacted by higher depreciation and interest expense. Our effective GAAP tax rate was 19% and benefited from several discrete items in the quarter and our adjusted tax rate was 29%. Stock-based compensation was $33 million, which was $10 million less than the prior year. We expect stock-based compensation to track to the low end of our guidance range. Q1 free cash flow was $149 million, up $20 million versus the prior year and represented a conversion rate of 88%. Our trailing 12-month free cash flow was $534 million and represented a conversion rate of 76%. This high conversion rate has been driven by solid operating performance and improvement in our cash collections. We are expecting free cash flow conversion in the mid-60s for the full year.
Turning to the balance sheet. Our quarter-end debt balance was $1.973 billion which represented a leverage ratio of approximately 2.7 times and we closed the quarter with $210 million of cash. In the quarter, we also repurchased approximately $18 million worth of shares under our existing $100 million share repurchase authorization. We expect to execute the remainder of the buyback program by year-end.
As Scott discussed, throughout Q1 and inter Q1 close, we saw increasing FX headwinds and as we updated energy forecast and outlooks we saw greater pressure in our energy business than contemplated in our original guidance. And while we do see signs of stabilization in our energy performance, it is at a lower level than originally expected. We are revising guidance to reflect these trends. Our revised guidance is on an all-in basis and assumes no further acquisitions, currency movements, pension mark-to-market adjustments or unanticipated events.
For 2015, we expect revenue in a range of $2.27 billion to $2.31 billion, which includes 5% to 6% subscription organic growth and negative non-subscription growth. The guidance includes a full-year negative FX impact of approximately $75 million versus the prior year, which is an additional $35 million drag versus our original guidance. The remainder of the change incorporates a revised full year energy outlook. We also expect adjusted EBITDA in a range of $715 million to $735 million and adjusted EPS of $5.77 to $5.97. We expect other items to track in line with prior guidance.
In summary, while energy revenue headwinds are more significant than originally anticipated, we are encouraged by the resiliency of our energy subscription business which we expect will deliver flat to slightly positive sales in an environment where energy spend is being reduced by more than 20%. We also expect to continue to increase revenue growth in our industrials product offerings, which coupled with the strength of our business model, will allow us to deliver solid margin expansion and cash flow in 2015.
With that, let me turn the call back over to Scott.
Scott Key
Thanks, Todd. In summary, we continue to execute to our long term strategy in building organic growth and expanding margins. This is a strategy that integrates must-have capabilities across very connected global markets creating long-term growth potential. We have successfully built scale and infrastructure as we have integrated operations and this common global infrastructure gives us efficiencies of scale and long-term margin expansion potential. And we are seeing this strategy in our focused execution reflected in business performance with building organic growth across industrials and with stable performance in energy despite near-term market headwinds.
We like our energy business. We view headwinds as temporary and have great confidence in the long-term growth prospects. And we will continue to use our expanding free cash flow to create value for shareholders. And finally, our opportunity remains significant and IHS leaders and colleagues are confident in our future and remain dedicated to continue to build a strong profitable growth company as we have for over a decade.
Todd and I are ready to answer your questions. So let's start the Q&A.
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question is from Bill Warmington of Wells Fargo. You may begin.
Bill Warmington
Good morning everyone.
Scott Key
Hi Bill.
Bill Warmington
So a question for you on the total organic growth. Just wanted to see if you could give us some guidance on the total organic growth. And then if I could sneak in a housekeeping one in terms of the level of non-subscription energy as a percent of revenue. I think I had it at somewhere around 8% to 10%. Just wanted to confirm if that was still okay?
Scott Key
Yes. Great. Well, thanks. I appreciate that. So we have got several things going on here as we talked about, Bill. Obviously, building industrials organic growth in the non-energy parts of the business and really excited to see subscription levels rise to 8% in that part of the business. And of course we are signaling greater headwinds in energy. So total subscription organic, we are talking about a range of 5% to 6%, which incorporates those two pieces I think pretty effectively and then pretty prudently. That takes our total with the headwinds on the non-recurring side down to 2% to 3%, that range of organic. So 5% to 6% on subs being pulled down some by the non-recurring. Our non-recurring business in the quarter, non-subscription was a little less than 20% of the total business. About 40% of that, so a little less than half is energy. So our non-recurring business is disproportionally impacted by the 40% of our energy or revenues that is energy, Bill. Thanks so much.
Operator
Our next question is from Andrew Jeffrey of SunTrust. You may begin.
Andrew Jeffrey
Hi, guys. Good morning. Thanks for taking the question. I appreciate all the color in what is obviously a pretty tough environment with a lot of moving pieces. Scott, sort of big picture question, when you look at what's happening in energy, I think you characterized some of the discretionary spending as having paused as your customers reevaluated the macro environment as maybe picking up again. Could you just qualitatively talk about how you think about your longer term growth opportunity in an environment, perhaps of depressed overall CapEx and maybe crude that stays in a range where it is currently at or could actually trade lower? What are the growth prospects for IHS in that environment versus where we have been, say for the past five or six years post financial crisis?
Scott Key
Yes. It's a really great question. So I appreciate it. So a couple of things to make clear. I have got a long history in the energy business, spent a lot of my career there and a lot of my career deploying CapEx to explore and develop oil and gas. I talked to a lot of executives in early December as we were kind of in the beginning of this commodity price recasting. And they were, I think cautious, but trying to understand what the depth was going to be and how long the correction might be. Then you fast forward to late-January when I was talking to executives across the energy spectrum and very clear then that they were preparing for a reset of the price environment, potentially for a long time to come, and that means kind of in the 50s and 60s range. So getting their cost base aligned and that's really what's happening now. Cost have crept up in the industry over a decade where we were profitable at $20 a barrel, now unprofitable at $40 to $50.
What I would say is this, pretty encouraging when you look at our business model. Over 80% of our subscriptions that renewed to the first quarter, renewed either at the same levels as a year ago or improved levels from a year ago. So a couple of things. we remain critical for companies to make decisions, whether it is to reduce their CapEx, whether it is to drill more or develop more or shift their portfolio. As this environment gets reset, we see right now we are pretty neutral performance from a growth perspective in a very down drafting market and that resets it for us. So what I am assuming and what I am seeing in the market and with energy companies is that they are realigning cost to be sustainably reasonably profitable at this lower cost environment.
We are readjusting this year so we see this as a near term headwind for IHS and then starting next year as we renew again and companies start to move CapEx back to exploration, we see our growth prospects returning. So we see a modest environment this year, maybe some slight improvement in sales in the back half of the year and then we see a resumption of our growth as we get into 2016. So it's a great question and an important one because it underlies our long-term excitement about the energy business and why we think it's a great growth market as it has been for us for a couple of decades or more. Thanks so much.
Operator
Thank you. Our next question is from Peter Appert of Piper Jaffray. You may begin.
Peter Appert
Thanks. So Todd, you highlighted pricing pressures as one of the issues in your comments. So I was hoping you just might expand a little bit more on that in terms of what you are seeing? And do you think any of that reflects competitive pressures? And just to sneak this in, any commentaries on the change in ownership in Wood Mackenzie and whether you think that has some impact on you? Thanks.
Todd Hyatt
Yes. Peter, from pricing pressure perspective and Scott referenced this, 80% of our renewals came in flat or up, but certainly in this environment, there are budget pressures that exist as energy companies have reduced cost by 20% to 30%. We have very, very long-term relationships with many of these customers. It's not an environment where you are going to push significant price uplift. From a competitive perspective, I would say that for IHS, it really hasn't been a challenge relative to competition. In fact, what we have tried to do is to drive and bundle additional IHS offerings into our existing energy customers so that we can help them manage their cost by creating more attractive value propositions for them.
Scott Key
I think that's right and Peter, just to give you a little more color, where we are seeing more headwinds and maybe more pressure, for example, is in the national oil companies, where they immediately lay broad government mandates on spend reduction directly into spending, maybe less reflective of business priorities. So more pressure in the NOCs and we are through the bulk of that and then some pressure in small and midsize independents. And we are going to see consolidation there.
With regard to, we were excited to see the great value placed on Wood Mac's energy business by Verisk and of course that underlies why we are so excited about our own business. We have talked about this in the past. Only a portion of their business overlaps with us. There is no one else that has the global information set that we have. A big part of their business is asset valuation and of course, we are excited to launch Vantage as a first-time competitor in that market here in the coming months. So that gives us some confidence in what we will do in the back half of the year, Peter. Thanks so much.
Operator
Our next question is from Shlomo Rosenbaum of Stifel. You may begin.
Shlomo Rosenbaum
Hi. Thank you very much for taking my question. I just want to flesh out a little bit of the energy subscription declines. First of all, t here is oil pricing pressure and in terms of how we should see that manifest through the years, should we see quarter-over-quarter subscription organic revenue declines through the balance of the year? As you alluded to some potential sales improvement at the end of the year, just how are you guys thinking the year is shaping up? And what gives you confidence that next year you are going to be able to grow off of the base and have a better year next year than this year?
Scott Key
Yes. Thanks, Shlomo. I appreciate the question. Our resource subscription organic in the period was above 6% and that's consistent with what we saw last quarter. As we said, slowing sales and a few headwinds in some accounts and that will start to play out in slightly lower subscription organic growth that we will see throughout 2015. If you go back to the last downturn, 2008, 2009, our subscription organic growth remained positive through that downturn. So we will see it the come back this year and then we will see opportunity, as we said, in the back half the year with new products and other things to drive growth. So our hope is, over the next three, four quarters, we will have an energy subscription organic that's neutral, might be slightly negative, might be slightly positive and that we will build off that as we get to this time next year.
Todd Hyatt
And Shlomo, that's really reflected in moving the organic subs guidance range from 6% to 7% to 5% to 6%. So that 1% reduction in the organic subs guidance range reflects the fact that we do expect the organic energy subscription revenue to trend downward through the year, as Scott said. And then we expect to see some level of net improvement in sales in the back half of the year as we move into 2015.
Scott Key
And maybe some context is helpful. Again non-energy is 60% of our business, energy is 40%. Over the last year, we have seen resources subscriptions go from about 8%, down to the current 6% and we have seen industrial subscriptions go from 1% up to the current8%. So we really have two offsetting forces here and that's why we feel good about the subscription organic growth ranges that we have given here in the revision. Thanks.
Operator
Our next question is from Brandon Dobell of William Blair. You may begin.
Brandon Dobell
Thanks. Good morning, guys.
Scott Key
Good morning.
Brandon Dobell
Wanted to see if you guys had contemplated or have even started to execute on any reallocation of resources, expense reductions or expense changes related to or I guess some reaction to how the mix has changed with the different growth drivers right now?
Scott Key
Thanks. Appreciate it, Brandon. As we have said and you hear us talk a lot about is global infrastructure, scaled infrastructure. We have integrated every asset we have ever acquired and we have done that to raise margins from 16% many years ago to 32% today. We expanded margins 120 basis points in the quarter. We had really solid 100 plus basis point margin expansion in the back half of last year. So we are mindful of Todd investing for the future, but also using our leverage to ensure our margin expansion.
Todd Hyatt
Yes. I think given our operating leverage and the infrastructure we have built, we have opportunity to drive a greater level of efficiency and manage cost even more effectively than we currently do. But as Scott said and I talked about this in my script, we are still investing in parts of the business that will drive future growth and that's very important as we look beyond 2015.
Scott Key
Another important thing just to realize is the marginal contribution of every dollar is equally high across HIS. Fixed cost, fixed infrastructure. So regardless of what part of the business is growing, it's profitable growth. And that's really important to understand and that of course allows us to ensure we continue to deliver that margin improvement. Thanks so much, Brandon.
Operator
Our next question if form Gary Bisbee of RBC. You may begin.
Gary Bisbee
Yes. Hi. Good morning. I guess maybe I will switch gears and ask about the industrial side of the business. Obviously good performance there, but you face much more difficult comps a bit next year and really in the back half. So help us understand your confidence in your ability of this to offset the energy and deliver to the 5% to 6% subscription revenue growth for the year?
Scott Key
Thanks, Gary. And interestingly, I will start by, even though you are trying to get me off energy, I will start by just a corollary back to energy. If you look at our energy growth, for many years, our most scaled business delivered consistently high single-digit organic growth, 8% or so on the subs organic for year-after-year, quarter-after-quarter. And that's because we are a small part, very underpenetrated in a very large market with a scaled set of capabilities that are applicable globally. That dynamic is exactly what we have in industrials right now and particularly in autos. As we have scaled these other businesses, we have a broad set of capabilities that is globally applicable and we are very underpenetrated in terms of the total future opportunity.
And importantly, I think we have talked about this in the past, as an example in autos, we released six new products in the first four or five quarters after we integrated IHS Autos and scaled it to its current level. And we are going to see the value of that and new analytics play out for some time to come. So our goal is consistent high single-digit organic growth in the 8%-ish range as we have talked about for the whole company. Little disappointing that the energy headwinds are occurring right now and the whole business was headed there and we certainly have industrials there today. So we feel good about the long-term prospects there and having it sitting at high single-digit range for many years to come.
Todd Hyatt
And the other thing I would add, Gary, just when you look at the numbers is that the industrials growth is being supported by a very high level of subscription growth, which continues to increase. So when we look at the forward view of industrials, we look at those at sales levels much the way we talked about energy. When we look at sales in Q1 and we indicated that tells us that we will see some downward pressure in future quarters. We look at industrials we see exactly the opposite. We see acceleration in the sales in the sub. So we know that that will continue to move the growth in the future at a very high level.
Scott Key
Thanks, Gary. Great question. Appreciate it.
Operator
Our next question is from Jeff Silber of BMO Capital Markets. You may begin.
Jeff Silber
Hi. Thanks. I just wanted to go back to the energy business. If I remember correctly, your renewals in the first quarter were roughly 60% of the total for the year. If you could just reconfirm that? And can you just tell us what it is for the rest of the year? Are there any specific quarters where you have higher renewals than others?
Scott Key
Yes. What we have said is, Q4 and Q1 are about 60% and then you had Q2 and Q3 kind of at 20% each. So we are heavily loaded really from the November through the March timeframe. So through this month and then it eases up pretty consistent. And then just some other color and I alluded to this, most of our large renewals with our largest customers happen in Q1 and have now happened. So we start to see a lower level through the back half of the year as it spurts out for the year. Thanks so much.
Operator
Our next question is from Andrew Steinerman of JPMorgan. You may begin.
Andrew Steinerman
Hi. Could you talk about industrials outside of auto? What's working and what's not working? Maybe you think about maybe the original business of IHS product design? I know we don't call it that anymore, but what businesses outside of auto are working versus not working right now?
Scott Key
Yes. Thanks, Andrew. Appreciate it. We laid out this 12 quarter path which had a number of levers. One of those lovers was new platforms that allowed us to cross sell and upsell. Another lover was new products in analytics. Another lover was our account strategies focused in on high opportunity accounts and new business and field sales. So we are continuing to execute against those. And those are the things that are working and in progress. So for example, later this year the full engineering workbench gets released. So product design, to your point, we have seen good performance. Some of that is a little bit exposed to energy, but we see those new offerings taking hold. And then the engineering workbench coming out later this year.
We have talked about maritime and trade. Great assets added in last fall as we started to scale maritime and trade and we are seeing new analytics, products, platforms and the value of those assets playing out in positive momentum in maritime and trade. Same in aerospace and defense, really recovering from several years ago, a decline in defense spend, new platform released a year ago. So we are seeing not accretive yet growth levels, but improving growth levels. So we had places like autos, where things are accretive in terms organic growth, chemicals accretive in terms of organic growth rate, very high single-digit levels and then other parts of the business elevating from last year and previous performance. So automotive certainly, chemicals certainly, maritime and trade, aerospace and defense, technology improving, product design improving with new releases coming and the same with OE and ORM. So continue with our platform initiatives, new product initiatives. Some of those play out in the second half of this year in energy, operational excellence, risk management and product design. Thanks.
Operator
Our next question is from Manav Patnaik of Barclays. You may begin.
Manav Patnaik
Thank you. Good morning guys.
Scott Key
Hi, Manav. How do you do?
Manav Patnaik
Hi. How are you doing? So I just wanted to touch on the energy other subscription guidance again. Just in terms of what are the variables that could cause another downward revisions? Because I feel like last quarter when you gave the 6% to 7%, you told us you went through a deep dive of your customers and you looked at all the different variables. I think you reaffirmed that guidance in February as well and now you are lowering that. I was wondering what other variables that could cause another revision down next quarter or two quarters down the road?
Scott Key
Well, thanks, Manav. Appreciate it. And of course, we use the best knowledge at the time. As we said in January, we were a month out ahead of everybody in terms of setting plans and guidance. Sometimes that's to our advantage. Sometimes that has us a little early in terms of understanding markets, especially when they are moving. As I said, I spent a lot of time in December one-on-one with energy executives, many people that I know well and there was a cautious view as we sat in December. We renewed a lot in November and December. So we used the best knowledge of those renewals, many of which were uplifts and kind of the continued momentum with some pressure.
Things, shifted as we got into January and particularly the majors and large independents started looking very hard at what they began to see as a more prolonged lower price environment potentially and a requirement to recast their cost base. And that was a distinct difference by the end of January and into February. And I had a lot of discussions with executives. So late January and early into February and then of course, we had another large volume of renewals. Dramatic things while people are redoing their budgets. For example cost savings projects in refineries with our operational excellence risk management tools. So they were bringing cost savings, but actually paused spending on those contracted services as they thought through what their full year budgets would be. And we saw differential impact in our non-recurring business in Q1 because of that.
So I think the industry rethought things. I think everyone's got their budgets in place. I think we see pretty stable environment going forward in the bulk of our renewals and the largest once done. So I think we have tried to also build prudence in the guidance we have given you this time to ensure that minor variations aren't going to cause us to not be able to achieve our goals.
So thanks for that and also we tried to shorten our prepared comments and are keeping things the one question, but the whole goal is to give you as much time to ask questions. So if you have got other things, please re-queue as we move forward here towards the top of the hour.
Operator
Our next question is from Andre Benjamin of Goldman Sachs. You may begin.
Andre Benjamin
Hi, good morning. I guess, on the back of Gary's question, I was wondering if you could maybe provide little more specifics around what the autos versus non-autos businesses are growing today? I apologize if you or Todd gave the answer, I missed it, but I just wanted to get color on trying to get to high single digits in the future versus where it is today? The second part of that is just how the international expansion plans in autos are going?
Scott Key
Right. So several parts of the business that are accretive at high single digits now, automotive is one of them, energy has been one of them and chemicals is one of them. We have had kind of mid-single digit pretty stable performance in maritime and trade and we have invested in some great assets to scale that business. So we see that elevating. Aerospace and defense, as we talked about for many quarters, had been in the lower single digits to neutral and so we are seeing that starting to elevate. Product design, historically very stable mid-single digit organic grower and we are seeing the benefit of things like knowledge collections and engineering workbench elevating levels there. So that's kind of a sense of both industrials and the non-energy. Technology is not a significant scale at present and we have spent a lot of time over the last year or so converting non-recurring to recurring capabilities and so we are seeing building from low single-digit levels or so building organic growth there. So a lot of things delivering upward momentum in that organic growth as we build them all out to our long-term goal of mid to high single digit organic. Thanks.
Operator
[Operator Instructions]. Our next question is from Paul Ginocchio of Deutsche Bank. You may begin.
Paul Ginocchio
Yes. First question just on your overall organic growth guidance. With the FX and acquisitions, it seems like your guidance for fiscal 2015 is calling for 3% to 5% organic growth. just want to get if that's correct? And then second, Scott, you just delivered 2% organic growth and you are talking about prudent guidance. I am just wondering if it's prudent to be looking for acceleration in this environment? Thanks.
Scott Key
Great, Paul. So 5% to 6% on the subs and 2% to 3% in total. So I think that does reflect prudence. We had some onetime impacts in the quarter in non-recurring as we talked about. We are seeing that spending reauthorized. We are seeing other things. Most of our large renewals in energy behind us. Other new releases, both in energy and non-energy in the back half of the year and momentum building in the non-energy areas. So I think the subs organic guidance is prudent and the 2% to 3% in aggregate is prudent and reflective of the non-recurring environment. So good stable subscription organic and a balance with non-organic or the non-subscription rather, headwinds.
Operator
Our next question is from Joseph Foresi of Janney. You may begin.
Joseph Foresi
Hi. I was wondering, have you put any thought into the fact that maybe energy spending may not come back in the same way post the downtick? In other words, we reset lower. And then are your plans for rolling out the new products that we talked about that's before the downtick, are those on hold at all?
Scott Key
Yes. So one, the long-term sweep of energy regardless of price and this has been true in the past, demand for energy has always grown and is going to grow substantially into the future. Even at modest global growth rates, the demand for energy is growing across the developing world. And then current supplies cannot meet that demand. And it has actually been that way for the past 20 or 30 years, regardless of price moves. What you see is HIS, the impact on us is pretty muted. Price is a pretty muted impact.
So certainly in a readjustment phase, all budgets are being looked at. Pretty modest impact on IHS where we still potentially are neutral to positive grower as the year develops and into next year. But regardless, once this one time adjustments have been made to the newest price environment, people are going to have to make decisions about flowing capital to meet rising energy demand globally for the next year, two years, three years, five years, decade. So for us, we are still underpenetrated in energy accounts. We have great solutions that help them reduce costs and make them more efficient in refineries, in chemical plants, way underpenetrated.
Why would we in this environment have price uplifts and subscription uplifts in some accounts? Because we were helping people understand how to deploy their capital, how to be efficient with their OpEx and what moves to make next. So a little pressure because of the recast, really significant downdraft in spending in the energy industry, pretty muted impact on HIS. But our growth prospects don't change and so when this reset which we are now through and we finish it out this year, we will then be building organic growth as we have been in the past and as we have in previous dislocations in the energy marketplace. So feel really good about it.
Todd Hyatt
The second part of the question, just in terms of product launches, we have talked about the Vantage asset valuation product. We are on track to release that in the second half of the year and remain encouraged with the sales pipeline that we see from that product opportunity.
Scott Key
And you said this Todd, none of these critical investments on hold are about our future growth. Great thing about our operating leverage is we can balance delivering margin, but also having sufficient investment for future growth. So nothing really on pause in terms of or on hold growth in terms of important new releases in investment in new products.
Operator
Thank you. Our next question is from Nick Nikitas of Baird. You may begin.
Nick Nikitas
Hi. Good morning. Just looking at the non-subs trends for the remainder for 2015, you guys mentioned that you really expect full-year revenue to be down year-over-year, but could you just talk more about the quarter-over-quarter trends? I am assuming that you will get a relative pickup in Q3 with the view we see? But could we see a further tick down in Q2 or should this be the low watermark for the year?
Scott Key
Well, thanks and thanks for the question. And as Todd and I were just talking about this before the call, you have to go back to 2009 really to downturn there to see a non-recurring organic numbers low as this Q1 was. And a lot of factors, as we said, kind of pause and spend readjustment around slightly less than half of our non-recurring which is in energy reauthorization. So we hope to see modest improvement in those trends and that's really the basis of the full-year guidance we have given.
Todd Hyatt
Yes. We expect to see some improvement in the non-sub performance through the year.
Scott Key
Thanks so much.
Operator
Our next question is from Toni Kaplan of Morgan Stanley. You may begin.
Toni Kaplan
Hi. Good morning. Can you give a couple of examples, specifically of what customers are pulling back on within software, consulting or services in that non-subscription business? Just trying to get a sense of, are these projects that can be delayed one or two quarters or until the market returns? And just following on that, are you seeing an improvement in the pipeline or is it just conversations with executives that are getting you more positive? Thanks.
Scott Key
Great. Thank you. So as an example, so CapEx coming down 20% to 30% this year. So what the industry is doing right now is taking a limited CapEx and reduced CapEx to the best opportunities. So for example, drilled but uncompleted wells. They are going to use CapEx to go in and complete those already drilled wells as opposed to exploration CapEx on new wells. So as a result, exploration software sales are down because very little new exploration drilling will happen in general this year. So that's a very specific example of pressure.
Now, rising demand for oil and gas and as we come out of 2015 and 2016 exploration will happen. In fact, we are seeing consolidation right now in new investment where people see opportunity. So we will start to see that in 2016. Exploration activity, new drilling start to expand and the demand for both consulting and software in that area will improve. Specifically then, we saw pauses, I was saying, in some of our operational excellence risk management implementations, in cost reduction opportunities, in refineries, other operations.
Those services contracts which are already signed and we already have it in backlog, they just said, hey, while we redo our budgets, we are going to put these things on hold and that really was for a quarter. And as I said, we have seen that spend reauthorized. So those existing contracts for services, non-recurring services and a pipeline for those we see as a solid and then revenue started to flow behind them. So that's what we are expecting in the quarters ahead. Thanks.
Operator
Our next question is from Anj Singh of Credit Suisse. You may begin.
Anj Singh
Hi. Thanks for taking my question. Hoping you can touch on the North American performance evaluator and Vantage. You have called them out previously as potential growth drivers in energy this year. Wonder if you can give us a sense of where they would be differentiated versus competitors in light of the current environment there? Would they be competing primarily on quality of data, price or some other factors?
Scott Key
Yes. Thanks. And these both, North American performance evaluator is about evaluating the performance of assets. So in an environment where people are looking at the value of assets, but potentially consolidation of assets or a review for disposable assets, things like the performance evaluator are really important tools, both for financial players and for energy companies.
Vantage is similar. It's an asset valuation analytics tool. Now the difference between both of those is IHS is unique in having all the world's well and field data. Nobody else has all the world's well and field data or anywhere near to the level of IHS. So we have built tools that are new technology, new analytics and transparent. So what that means is, it allows people, when you look at an asset not just to look at the asset in aggregate, but to drill them into individual well performance and the sum of things that make up an asset, so you can drill into its integrity and analytics across it.
Now these types of tools have not been available before. So we are bringing new capabilities to market in an area that's critical right now as people assess assets, particularly financial markets and energy customers. And what we are saying is all of the major energy companies and major financial players have great interest. Our early adopters are helping us shape these and the first time competitive offerings into these very large market.
So we are seeing good momentum in them. Now is the right time to be releasing them. And we have seen, these are the positive offsets right now that we are seeing in our sales pipelines and our close sales results. Thanks.
Operator
Our next question is a follow-up from Shlomo Rosenbaum of Stifel. You may begin.
Shlomo Rosenbaum
I couldn't pass up the opportunity to ask you guys another question here.
Scott Key
It's great Shlomo. Thanks.
Shlomo Rosenbaum
Could you go over how you get paid for subscriptions in the energy business and does it really actually even make a difference how you get paid when customer's budgets are under so much pressure? Do they just negotiate and revise it down, no matter what? And then I actually want to follow up with just your thoughts on the Wood Mac acquisition. It's not going to be owned by a private equity firm. It's going to be owned by an operational firm that invests for the long term and for the future. Could you discuss how much overlap there really is with you guys? And how you plan to address that overlap given a longer-term investor?
Scott Key
Yes. So on the subscription side, one typically our subscriptions are a single subscription for all the things that we provide, certainly on the data side is that way. So as we go through this environment, what we are doing is, we are trying to create new value via bringing new capabilities to the subscriptions and that's where we are able to both maintain last year's levels or increase those levels. The majority of them are annual. Some of them are multiyear. Some of our larger ones are multiyear. So we are not in the process of discussing them this year. But that's the way they are structured.
So in this price environment, we usually sit down and talk about value. As we saw in 2009, this is a competitive advantage for IHS. Usually we can bundle at lower cost a combination of things that maybe individual smaller scaled companies were providing. So we can actually save customers money by aggregating around IHS as the single provider. So these are the tools we are using, the things that we are seeing and of course, all of these relationships are multi-decade, 40, 50 year long relationships. So very strong ones. So we are building from that.
On the competitive side, yes, Wood Mackenzie went from a decade of private equity ownership and then you see the margins of that business as a result and probably less investment than they might have liked to less infrastructure build in the past. They are joining an organization which is a great company, Verisk, but not global. One that's not really familiar with the energy business and the only asset it has really in energy is now Wood Mackenzie, which is not at the scale of IHS. So we think it's a great home for Wood Mackenzie and certainly gets them into a longer-term strategic home, which I think will be good for every Wood Mackenzie colleague.
We feel great about our position in the industry, the new products we have coming out. Our deep and broad global capabilities and so that will continue to sustain us. And you know, we like a little competition. It keeps you sharp. It keeps you focused. And that's what it has done for us and it will continue to do for a long time to come. Thanks.
Operator
Our next question is a follow-up from Jeff Silber of BMO Capital Markets. You may begin.
Jeff Silber
Thanks so much. With CERAWeek coming up next week, I was wondering if you can give us a progress? Can you remind us, is that a profit center for your company?
Scott Key
It's a huge gathering of energy and non-energy executives. Over 2,000 will come together, as you said, next month and shaping up very well. A lot of the critical dialogues happen in the hallways around that conference and in the big halls where we present what's going on. There is more interest in the dynamics and in people getting together to communally understand. This is the one place like a economic forum where people, executives get to meet, see each other. We will have energy ministers from across the world, including the U.S. talking about energy outlooks, energy dynamics, supply, demand, export policy, a whole range of things. So we see a pretty great program shaping up and like everything we do at HIS, we ensure we bring value and we ensure we make a reasonable profit that's a good return to shareholders and HIS CERAWeek is no different.
Operator
Thank you. Our next question is a follow-up from Gary Bisbee of RBC. You may begin.
Gary Bisbee
Hi. So you commented, for the full-year, you expect free cash conversion to be mid-60. You have been running quite a bit above that in recent periods including the quarter. And I guess I just wondered, I realize working capital looks like it helped this quarter, but why do you expect the deceleration? And is it possible that that outlook is conservative? And I will add a quick second one, which was just the M&A you did in the quarter, was that what you mentioned in the last quarter you had done early in the quarter or was there incremental on top of that? Thank you.
Todd Hyatt
So from a cash flow perspective Q1, Q2 always our strongest cash flow quarters and a lot of that has to do with billing cycles. So we really weren't surprised with the high conversion in Q1. We expect high conversion in Q2. Lot of billings occur in Q4 and Q1, given the timing of renewals. So that tends to drive a higher level of conversion. Continue to do a very good job from a receivable collection perspective and that continues to drive very high conversion as well. We have also talked about long-term free cash flow conversion moderating in the mid-60s. Higher interest expense and higher cash tax will ultimately drive a moderation in the longer-term conversion. So that's where the mid-60s is coming from this year. As far as the PacWest acquisition that Scott talked about in his script, that was not included in the year-end Q or in the year-end K, but it will be called out in this quarter's Q. So that is an incremental acquisition.
Scott Key
Yes and great tuck-in asset, Rushmore, that we just completed and integrate their capability and energy force.
Operator
Thank you. Our last question is a follow-up from Joseph Foresi of Janney. You may begin.
Joseph Foresi
Hi. I was wondering how we should think about the price of oil and budgets. If oil comes back and spending increase, or are budgets basically set for the year? And then maybe you could just talk about, I think you said there was a 2% to 3% impact to resources last quarter? How should we think about that guidance as well?
Scott Key
Yes. The industry has a long view and most capital, for example, being deployed is being deployed at new production that won't come out of the ground in many cases for three, four, five years to come. So once they structurally realign the whole goal and as I said I talked to many executives in January and we are also helping the industry simplify its engineering approach to reduce costs. So they are now at a pretty stable view with the idea of 40s to 50s oil and making that profitable going forward. So any uplift in price as we come out of this year and next will be the benefit of the industry and their ability to invest new exploration to new production and new opportunity. So I think that's how we see it, but we see some pressure here in the near term. In terms of resources, we set a 6% subs organic growth in the current quarter. We see the impact of these renewals starting to bring that resources subscription organic growth down through 2015 and then we will start to build from there and then a negative non-recurring for the full year. And so that's kind of where we see our resources which will take us to all-in slightly negative and we would hope to see us then building as we come out of 2015. Thanks so much. Appreciate it.
Operator
Thank you. This concludes the Q&A session. I would like to turn the conference back over to Eric Boyer for closing remarks.
Eric Boyer
We thank you for your interest in IHS. This call can be accessed via replay at 855-859-2056 or international dial in 404-537-3406, conference ID 1699544, beginning in about two hours and running through March 31, 2015. In addition, the webcast will be archived for one year on our website at ihs.com. Thank you. We appreciate your interest and time.
Operator
Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.
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