Message #6 From:
NewsBot Date: September 21, 2006 01:20:00 PM
IHS News IHS Inc. Reports Third Quarter 2006 Results; Strong Performance Led by 19 Percent Revenue Growth
ENGLEWOOD, Colo.--(BUSINESS WIRE)--Sept. 21, 2006--IHS Inc. (NYSE: IHS), one of the leading global providers of critical technical information, decision-support tools and related services, today reported results for the third quarter ended August 31, 2006. Revenue for the third quarter of 2006 totaled $139.9 million, representing a 19 percent increase over third quarter 2005 revenue of $118.0 million. Net income for the third quarter of 2006 increased $12.4 million to $16.1 million, or $0.28 per diluted share, compared to third quarter 2005 net income of $3.7 million, or $0.07 per diluted share.
Adjusted EBITDA totaled $29.1 million for the third quarter of 2006, up 37 percent from $21.2 million in the third quarter of 2005. IHS generated $29.0 million of cash flow from operations for the third quarter of 2006, an increase of $16.5 million over the prior-year period. Adjusted EBITDA, a non-GAAP financial measure, is used by management to measure operating performance. See the end of this release for more information about this non-GAAP measure.
"We are very pleased with the quarter's results. We executed on our business plan, benefited from favorable market conditions, and enjoyed another solid quarter," said Charles Picasso, retiring President and CEO. "In addition, as announced at the beginning of the quarter, we closed on two important acquisitions. The company looks forward to continuing to deliver excellent value to our customers worldwide during the fourth quarter and beyond."
Third Quarter 2006 Details
Organic revenue growth in the third quarter of 2006 was 13 percent over the prior year; acquisitions added four percent and foreign exchange accounted for the remainder of the revenue increase. The company continued to grow its business in both operating segments, domestically and internationally, and across its three product categories - critical information, decision support tools, and operational and advisory services. The Energy segment grew its revenue for the third quarter by 23 percent, to $75.8 million, compared to $61.8 million in the prior year's third quarter. Energy's organic revenue growth contributed 18 percent; acquisitions added four percent with the balance relating to movements in foreign exchange. The Engineering segment grew its third quarter revenue by 14 percent, to $64.1 million, compared to $56.2 million in the prior year. The Engineering segment's organic revenue growth rate was eight percent for the third quarter 2006, with acquisitions adding four percent to the revenue growth rate, and the remainder from movements in foreign exchange.
Adjusted EBITDA for the third quarter of 2006 grew 37 percent over the third quarter of last year and was driven primarily by top-line growth accompanied by margin expansion. Operating income increased $15.9 million year-over-year to $21.8 million, up from $5.9 million for the third quarter of 2005. Last year's third quarter results included $12.4 million of restructuring and offering charges; no similar items occurred in the third quarter of 2006. Energy operating income was $16.9 million, up 15 percent over the prior-year quarter, and Engineering operating income was $8.1 million, up from the third quarter 2005 operating loss of $0.7 million.
Year-to-Date 2006
Revenue for the nine months of 2006 totaled $402.6 million, representing a 15 percent increase over the prior-period revenue of $350.1 million. Organic growth contributed the majority of the total increase. The Energy segment grew its revenue during the nine months ended August 31, 2006 by 20 percent, to $214.5 million, compared to $178.9 million in the prior-year period. The Engineering segment grew its year-to-date 2006 revenue by ten percent, to $188.2 million, compared to $171.2 million in the prior year.
Adjusted EBITDA for the first nine months of 2006 totaled $81.8 million, up 41 percent from $58.1 million in the first nine months of 2005. Operating income increased 64 percent year-over-year to $61.8 million, up from $37.7 million for the nine months ended August 31, 2005. Energy operating income was $49.4 million, up 27 percent over the prior-year period, and Engineering operating income was $21.6 million, up $15.2 million from the same period in 2005.
Net income for the first nine months of 2006 increased 67 percent to $42.5 million, or $0.75 per diluted share, compared to the first nine months 2005 net income of $25.4 million, or $0.46 per diluted share.
IHS generated $94.2 million of cash flow from operations for the first nine months of 2006, an increase of $57.3 million over the prior-year period. However, first nine month 2005 operating cash flow did include a $9.9 million payment related to the settlement of a stock option plan, and there were no similar cash payments associated with stock compensation awards in the first nine months of 2006.
Balance Sheet
IHS ended the third quarter of 2006 with $168.1 million of cash and cash equivalents and short-term investments, and virtually no debt.
"Our cash flow from operating activities remains strong. Despite investing over $84 million in acquisitions year to date, our cash and short-term investments remain almost unchanged since the end of fiscal year 2005," stated Michael J. Sullivan, IHS Executive Vice President and CFO.
Share Retention Program
The company is initiating a program to reduce the dilutive effects of employee equity grants, which have consisted primarily of restricted stock. Going forward, IHS will withhold shares to fund employee statutory withholding tax requirements. As shares vest and tax withholdings come due, the company will withhold enough shares in treasury to cover the tax liability and will make a payment to the tax authority out of corporate cash. Since IHS will simply be withholding shares, rather than buying them in the open market, this is technically not a share buyback program. Nevertheless, the company anticipates that this program will help reduce the dilutive impact of employee equity awards.
Outlook (forward-looking statement)
Based upon year-to-date performance, IHS is revising its annual guidance upward, and currently anticipates organic revenue growth in the range of 11.5 to 12.5 percent for the full year ending November 30, 2006. The company further expects adjusted EBITDA to grow 28 to 31 percent for fiscal 2006. See discussion of adjusted EBITDA and non-GAAP financial measures at the end of this release.
As previously announced, IHS will hold a conference call to discuss third quarter results on September 21, 2006, at 3:00 p.m. MST (5:00 p.m. EST). The conference call will be simultaneously webcast on the company's website: www.ihs.com.
USE OF NON-GAAP FINANCIAL MEASURES
EBITDA is defined as net income plus net interest, taxes, depreciation and amortization. Adjusted EBITDA excludes non-cash items, gains and losses on sales of assets and investments and other items that management does not utilize in assessing operating performance (as further described in the attached financial schedules). Management believes that it is useful to eliminate these items in order to focus on what it deems to be a more reliable indicator of ongoing operating performance. Management believes that investors may find adjusted EBITDA useful for the same reasons, although investors are cautioned that non-GAAP financial measures, such as adjusted EBITDA, are not a substitute for GAAP disclosures.
Non-GAAP results are presented only as a supplement to the financial statements based on U.S. generally accepted accounting principles (GAAP). Reconciliations of comparable GAAP measurements to non-GAAP measurements, such as EBITDA and adjusted EBITDA, are provided within the schedules attached to this release.
IHS FORWARD-LOOKING STATEMENTS
This release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. Such statements may include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products, and services, and statements regarding future performance. In some cases, you can identify these statements by forward-looking words such as "intend," "may," "might," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," or "continue," the negative of these terms, and other comparable terminology; however, be advised that not all forward-looking statements contain these identifying words. These forward-looking statements, which are subject to risks, uncertainties, and assumptions, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance, or achievements to differ materially from the results, level of activity, performance, or achievements expressed or implied by the forward-looking statements. Those factors include, but are not limited to, our ability to obtain content on commercially reasonable terms from third parties (including Standards Development Organizations), changes in demand for our products and services, changes in the energy industry, our ability to develop new products and services, pricing and other competitive pressures, risks associated with the integration of acquisitions, changes in laws and regulations governing our business and certain other risk factors, including those discussed or identified by us from time to time in its public filings (which may be viewed at www.sec.gov or www.ihs.com). Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Other than as required by applicable law, IHS does not undertake any obligation to update any of these forward-looking statements after the date of this release to conform our prior statements to actual results or revised expectations.
IHS (NYSE: IHS) is one of the leading global providers of critical technical information, decision-support tools and related services to customers in a number of industries including energy, defense, aerospace, construction, electronics, and automotive through two operating segments, Engineering and Energy. Our Engineering and Energy segments each represent approximately one-half of our total revenues. We serve customers ranging from governments and large multinational corporations to smaller companies and technical professionals in more than 100 countries. Our customers rely on our offerings to facilitate decision making, support key processes and improve productivity. We have been in business for more than 45 years and employ more than 2,300 people around the world.
IHS is a registered trademark of IHS Inc. All other company and product names may be trademarks of their respective owners. Copyright (C) 2006 IHS Inc. All rights reserved.
IHS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share amounts)
August 31, November 30,
2006 2005
------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $161,631 $132,365
Short-term investments 6,516 27,223
Accounts receivable, net 97,486 136,950
Deferred subscription costs 29,239 27,918
Deferred income taxes 8,956 11,351
Other 7,859 10,638
------------------------------
Total current assets 311,687 346,445
Non-current assets:
Property and equipment, net 51,698 46,580
Intangible assets, net 60,751 27,456
Goodwill, net 355,120 296,394
Prepaid pension asset 93,659 88,516
Other 3,828 1,765
------------------------------
Total non-current assets 565,056 460,711
------------------------------
Total assets $876,743 $807,156
==============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $20,610 $41,625
Accrued compensation 22,956 20,135
Accrued royalties 16,285 26,139
Other accrued expenses 33,908 34,975
Income tax payable 7,347 7,726
Deferred subscription revenue 177,503 149,552
Risk management liabilities -- 2,705
------------------------------
Total current liabilities 278,609 282,857
Long-term debt 573 262
Accrued pension liability 8,060 6,824
Accrued post-retirement benefits 18,895 20,278
Deferred income taxes 13,300 15,044
Other liabilities 6,568 4,402
Minority interests 385 309
Commitments and contingencies
Stockholders' equity:
Class A common stock, $0.01 par value
per share, 80,000,000 shares
authorized, 45,547,210 and 44,078,231
issued and outstanding at August 31,
2006 and November 30, 2005,
respectively 455 441
Class B common stock, $0.01 par value
per share, 13,750,000 shares
authorized, issued and outstanding at
August 31, 2006 and November 30, 2005 138 138
Additional paid-in capital 163,143 168,196
Retained earnings 386,156 343,684
Accumulated other comprehensive income
(loss) 461 (10,486)
Unearned compensation -- (24,793)
------------------------------
Total stockholders' equity 550,353 477,180
------------------------------
Total liabilities and stockholders'
equity $876,743 $807,156
==============================
IHS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
Three Months Ended Nine Months Ended
August 31, August 31,
----------------------------------------
2006 2005 2006 2005
----------------------------------------
(Unaudited)
Revenue:
Products $117,200 $97,419 $334,265 $291,343
Services 22,723 20,538 68,379 58,742
----------------------------------------
Total revenue 139,923 117,957 402,644 350,085
Operating expenses:
Cost of revenue:
Products 47,871 44,465 141,395 132,274
Services 16,435 12,828 46,956 37,724
----------------------------------------
Total cost of revenue
(includes stock-based
compensation expense of
$392, $72, $2,558 and
$227 for the three and
nine months ended August
31, 2006 and 2005,
respectively) 64,306 57,293 188,351 169,998
Selling, general and
administrative (includes
stock-based compensation
expense of $4,048; $969;
$9,907 and $3,318 for the
three and nine months ended
August 31, 2006 and 2005,
respectively) 50,681 40,657 143,924 126,079
Depreciation and
amortization 4,218 2,773 10,930 8,539
Restructuring and other
charges -- 12,397 2 12,397
Loss (gain) on sales of
assets, net 53 -- 53 (1,331)
Net periodic pension and
post-retirement benefits (1,268) (911) (3,212) (2,781)
Earnings in unconsolidated
subsidiaries (50) (29) (180) (78)
Other expense (income), net 204 (169) 1,024 (481)
----------------------------------------
Total operating expenses 118,144 112,011 340,892 312,342
----------------------------------------
Operating income 21,779 5,946 61,752 37,743
Interest income 1,789 901 4,161 2,553
Interest expense (120) (110) (272) (693)
----------------------------------------
Non-operating income, net 1,669 791 3,889 1,860
----------------------------------------
Income from continuing
operations before income
taxes and minority interests 23,448 6,737 65,641 39,603
Provision for income taxes (6,987) (2,518) (21,079) (12,498)
----------------------------------------
Income from continuing
operations before minority
interests 16,461 4,219 44,562 27,105
Minority interests (89) (32) (170) (14)
----------------------------------------
Income from continuing
operations 16,372 4,187 44,392 27,091
Discontinued operations:
Loss from discontinued
operations, net (298) (527) (1,920) (1,652)
----------------------------------------
Net income $16,074 $3,660 $42,472 $25,439
========================================
Income from continuing
operations per share:
Basic (Class A and Class B
common stock) $0.29 $0.08 $0.79 $0.49
========================================
Diluted (Class A and Class B
common stock) $0.29 $0.08 $0.79 $0.49
========================================
Loss from discontinued
operations per share:
Basic (Class A and Class B
common stock) $(0.01) $(0.01) $(0.04) $(0.03)
========================================
Diluted (Class A and Class B
common stock) $(0.01) $(0.01) $(0.04) $(0.03)
========================================
Net income per share:
Basic (Class A and Class B
common stock) $0.28 $0.07 $0.75 $0.46
========================================
Diluted (Class A and Class B
common stock) $0.28 $0.07 $0.75 $0.46
========================================
Weighted average shares:
Basic (Class A common stock) 43,299 41,349 42,568 41,316
========================================
Basic (Class B common stock) 13,750 13,750 13,750 13,750
========================================
Diluted (Class A common
stock) 57,090 55,887 56,433 55,838
========================================
Diluted (Class B common
stock) 13,750 13,750 13,750 13,750
========================================
IHS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
August 31,
----------------------
2006 2005
----------------------
(Unaudited)
Operating activities
Net income $42,472 $25,439
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 10,930 8,716
Stock-based compensation expense (non-cash
portion) 12,720 3,545
Loss (gain) on sales of assets, net 53 (1,331)
Impairment of assets of discontinued operations 1,012 --
Net periodic pension and post-retirement
benefits (3,212) (2,781)
Minority interests 49 14
Deferred income taxes 569 59
Change in assets and liabilities:
Accounts receivable, net 51,148 33,614
Other current assets 3,273 (794)
Accounts payable (26,679) (20,530)
Accrued expenses (10,772) (20,076)
Income taxes (971) 2,055
Deferred subscription revenue 13,560 8,275
Other liabilities -- 614
----------------------
Net cash provided by operating activities 94,152 36,819
Investing activities
Capital expenditures on property and equipment (8,047) (3,965)
Intangible assets acquired (3,300) --
Change in other assets 289 1,524
Purchase of investments (5,353) (18,871)
Sales and maturities of investments 26,671 1,100
Acquisitions of businesses, net of cash acquired (84,454) (2,967)
Proceeds from sales of assets and investment in
affiliate 400 1,334
----------------------
Net cash used in investing activities (73,794) (21,845)
Financing activities
Net payments on debt (210) (390)
Tax benefit from equity compensation plans 7,383 --
----------------------
Net cash provided by (used in) financing
activities 7,173 (390)
----------------------
Foreign exchange impact on cash balance 1,735 (1,269)
----------------------
Net increase in cash and cash equivalents 29,266 13,315
Cash and cash equivalents at the beginning of
the period 132,365 124,452
----------------------
Cash and cash equivalents at the end of the
period $161,631 $137,767
======================
IHS INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASUREMENTS TO
MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASUREMENTS
(In thousands)
Three Months Ended
August 31,
----------------------
2006 2005
----------------------
(Unaudited)
Energy operating income $16,889 $14,725
Engineering operating income (loss) 8,062 (658)
----------------------
Total segment operating income 24,951 14,067
Adjustments:
Corporate-level restructuring and other charges -- (7,991)
Stock-based compensation expense (4,440) (1,041)
Net periodic pension and post-retirement
benefits 1,268 911
----------------------
Operating income $21,779 $5,946
======================
Three Months Ended August 31, 2006
------------------------------------------------
Energy Engineering Adjustments Consolidated
------------------------------------------------
(Unaudited)
Operating income $16,889 $8,062 $(3,172) $21,779
Adjustments:
Allocation of
corporate costs 3,924 3,925 (7,849) --
Depreciation and
amortization 2,584 1,301 333 4,218
Restructuring and
other charges -- -- -- --
Stock-based
compensation expense -- -- 4,440 4,440
Loss on sales of
assets, net -- 53 -- 53
Net periodic pension
and post-retirement
benefits -- -- (1,268) (1,268)
Minority interest -- (89) -- (89)
------------------------------------------------
Adjusted EBITDA $23,397 $13,252 $(7,516) $29,133
================================================
Three Months Ended August 31, 2005
------------------------------------------------
Energy Engineering Adjustments Consolidated
------------------------------------------------
(Unaudited)
Operating income
(loss) $14,725 $(658) $(8,121) $5,946
Adjustments:
Allocation of
corporate costs 2,389 2,389 (4,778) --
Depreciation and
amortization 1,598 979 196 2,773
Restructuring and
other charges -- 4,406 7,991 12,397
Stock-based
compensation expense -- -- 1,041 1,041
Net periodic pension
and post-retirement
benefits -- -- (911) (911)
Minority interest -- (32) -- (32)
------------------------------------------------
Adjusted EBITDA $18,712 $7,084 $(4,582) $21,214
================================================
IHS INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASUREMENT TO MOST
DIRECTLY COMPARABLE GAAP FINANCIAL MEASUREMENT
(In thousands)
Nine Months Ended
August 31,
----------------------
2006 2005
----------------------
(Unaudited)
Energy operating income $49,449 $38,788
Engineering operating income 21,576 6,376
----------------------
Total segment operating income 71,025 45,164
Adjustments:
Corporate-level restructuring and other charges (20) (7,991)
Stock-based compensation expense (12,465) (3,545)
Gain on sales of corporate assets, net -- 1,334
Net periodic pension and post-retirement
benefits 3,212 2,781
----------------------
Operating income $61,752 $37,743
======================
Nine Months Ended August 31, 2006
------------------------------------------------
Energy Engineering Adjustments Consolidated
------------------------------------------------
(Unaudited)
Operating income $49,449 $21,576 $(9,273) $61,752
Adjustments:
Allocation of
corporate costs 10,494 10,494 (20,988) --
Depreciation and
amortization 6,090 4,027 813 10,930
Restructuring and
other charges -- (18) 20 2
Stock-based
compensation expense -- -- 12,465 12,465
Loss on sales of
assets, net -- 53 -- 53
Net periodic pension
and post-retirement
benefits -- -- (3,212) (3,212)
Minority interest -- (170) -- (170)
------------------------------------------------
Adjusted EBITDA $66,033 $35,962 $(20,175) $81,820
================================================
Nine Months Ended August 31, 2005
------------------------------------------------
Energy Engineering Adjustments Consolidated
------------------------------------------------
(Unaudited)
Operating income $38,788 $6,376 $(7,421) $37,743
Adjustments:
Allocation of
corporate costs 7,059 7,059 (14,118) --
Depreciation and
amortization 4,908 3,043 588 8,539
Restructuring and
offering charges -- 4,406 7,991 12,397
Stock-based
compensation expense -- -- 3,545 3,545
Loss (gain) on sale
of assets, net -- 3 (1,334) (1,331)
Net periodic pension
and post-retirement
benefits -- -- (2,781) (2,781)
Minority interest -- (14) -- (14)
------------------------------------------------
Adjusted EBITDA $50,755 $20,873 $(13,530) $58,098
================================================
IHS INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASUREMENT TO MOST
DIRECTLY COMPARABLE GAAP FINANCIAL MEASUREMENT
(In thousands)
Three Months Ended Nine Months Ended
August 31, August 31,
----------------------------------------
2006 2005 2006 2005
----------------------------------------
(Unaudited)
Net income $16,074 $3,660 $42,472 $25,439
Interest income (1,789) (901) (4,161) (2,553)
Interest expense 120 110 272 693
Provision for income taxes 6,987 2,518 21,079 12,498
Depreciation and amortization 4,218 2,773 10,930 8,539
----------------------------------------
EBITDA 25,610 8,160 70,592 44,616
Stock-based compensation
expense 4,440 1,041 12,465 3,545
Restructuring and other
charges -- 12,397 2 12,397
Loss on sales of assets, net 53 -- 53 (1,331)
Net periodic pension and
post-retirement benefits (1,268) (911) (3,212) (2,781)
Loss from discontinued
operations, net 298 527 1,920 1,652
----------------------------------------
Adjusted EBITDA $29,133 $21,214 $81,820 $58,098
========================================
Three Months Ended Nine Months Ended
August 31, August 31,
----------------------------------------
2006 2005 2006 2005
----------------------------------------
(Unaudited)
Net cash provided by operating
activities $28,990 $12,490 $94,152 $36,819
Capital expenditures on
property and equipment (2,284) (1,164) (8,047) (3,965)
----------------------------------------
Free cash flow $26,706 $11,326 $86,105 $32,854
========================================
IHS INC.
SUPPLEMENTAL INFORMATION
(In thousands, except per-share amounts)
Three Months Ended August 31,
---------------------------------------
2006 2005
---------------------------------------
After tax Per share After tax Per share
--------- --------- --------- ---------
(Unaudited)
Stock-based compensation
expense $(2,796) $(0.04) $(700) $(0.01)
Restructuring and offering
charges -- -- (9,685) (0.17)
Gain (loss) on sales of
assets, net (33) -- -- --
Net periodic pension and post-
retirement benefits 753 0.01 612 0.01
Loss from discontinued
operations, net (298) (0.01) (527) (0.01)
Nine Months Ended August 31,
---------------------------------------
2006 2005
---------------------------------------
After tax Per share After tax Per share
--------- --------- --------- ---------
(Unaudited)
Stock-based compensation
expense $(7,853) $(0.13) $(2,277) $(0.04)
Restructuring and offering
charges 11 -- (9,685) (0.16)
Gain (loss) on sales of
assets, net (33) -- 825 0.01
Net periodic pension and post-
retirement benefits 1,899 0.03 1,702 0.03
Loss from discontinued
operations, net (1,920) (0.04) (1,652) (0.03)
