Markit reports fourth quarter and full year 2015 financial results

Markit Ltd. (Nasdaq:MRKT), a leading global provider of financial information services, today announced financial results under International Financial Reporting Standards (IFRS) for the fourth quarter and full year ended December 31st 2015.

Financial highlights for fourth quarter and full year 2015

• Fourth quarter revenue increased 7.4% to $291.5 million, on a constant currency basis up 9.4% comprising organic revenue growth of 1.1% and acquired revenue growth of 8.3%
• Full year revenue increased 4.5% to $1.113 billion, on a constant currency basis up 7.4% comprising organic revenue growth of 3.6% and acquired revenue growth of 3.8%
• Fourth quarter Adjusted EBITDA margin was 45.6% while Adjusted diluted earnings per share was $0.37
• Full year Adjusted EBITDA margin was 45.0% while Adjusted diluted earnings per share was $1.44
• Share repurchase programme of up to $500 million over two years was authorised by the board of directors

"Our first full year as a public company resulted in revenue growth, solid margins and value creation for shareholders through disciplined capital allocation. I am especially pleased with the solid organic growth this year in our Information and Solutions divisions and with the immediate contributions from the acquisitions we made in 2015,” said Lance Uggla, chairman and chief executive officer of Markit.

“We will continue to address the needs of our customers and invest in key growth opportunities as evidenced by the index deals with HSBC and UBS that we recently announced. As we move further into 2016, we are confident in our ability to deliver growth and long term returns for our shareholders.”

Fourth quarter 2015 results

Revenue

Revenue increased by $20.1 million, or 7.4%, to $291.5 million for the three months ended December 31, 2015, from $271.4 million for the three months ended December 31, 2014. On a constant currency basis, our revenue growth was 9.4%.

Organic revenue growth was $2.9 million, or 1.1%. This was driven by new business wins and increased customer assets under management across our Solutions and Information segments, partially offset by a decrease in revenue in our Processing segment, mainly as a result of previously announced price reductions in our derivatives processing product and lower primary loan issuance volumes in our loans processing product.

Acquisitions contributed $22.6 million, or 8.3%, to revenue growth. In our Solutions segment, thinkFolio, Tax Solutions and Information Mosaic were acquired in January 2014, July 2014 and July 2015, respectively. In our Processing segment, DealHub was acquired in September 2015, and in our Information and Solutions segments, CoreOne was acquired in October 2015.

We experienced an adverse movement in exchange rates period-over-period, which decreased our revenue growth by $5.4 million, or 2.0%. Our revenue currency exposure for the three months ended December 31, 2015 was 71.5% in US dollars, 22.2% in British pounds and 6.3% in other currencies.

Recurring fixed revenue as a percentage of total revenue increased to 58.2% for the three months ended December 31, 2015, from 53.8% for the three months ended December 31, 2014.

Operating expenses

Operating expenses increased by $16.1 million, or 11.6%, to $155.4 million for the three months ended December 31, 2015, from $139.3 million for the three months ended December 31, 2014. This increase was primarily due to acquisitions and continued investment in new initiatives.

Income tax expense

Income tax expense was $19.9 million for the three months ended December 31, 2015, compared to $19.7 million for the three months ended December 31, 2014, an increase of $0.2 million, or 1.0%. Our effective tax rate was 29.9% for the three months ended December 31, 2015, compared to 55.6% for the three months ended December 31, 2014. The decrease in the effective tax rate principally reflects the difference in the exceptional impairment charges in the three months ended December 31, 2014 compared to the three months ended December 31, 2015 which are not deductible for tax purposes.

Share based compensation and related items

Share based compensation and related items increased by $5.4 million to $14.6 million for the three months ended December 31, 2015, from $9.2 million for the three months ended December 31, 2014.

Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA of $131.8 million for the three months ended December 31, 2015 increased by $7.1 million, or 5.7%, from $124.7 million for the three months ended December 31, 2014. This increase was driven by the Solutions segment, partially offset by a decrease in the Processing segment, and reflects the operating performance as described above. Adjusted EBITDA also includes a $3.9 million loss in the three months ended December 31, 2015 associated with our share of the KYC joint venture which is included in our Solutions segment.

Adjusted EBITDA margin decreased to 45.6% for the three months ended December 31, 2015, compared to 46.3% for the three months ended December 31, 2014, largely as a result of reduced revenue in the Processing segment.

Adjusted earnings and Adjusted earnings per share, diluted

Adjusted earnings for the three months ended December 31, 2015, reduced $0.3 million, to $68.8 million from $69.1 million for the three months ended December 31, 2014. Adjusted earnings per share, diluted for the three months ended December 31, 2015 was $0.37, unchanged compared to the three months ended December 31, 2014.

Full year 2015 results

Revenue

Revenue increased by $48.3 million, or 4.5%, to $1,113.4 million for the year ended December 31, 2015, from $1,065.1 million for the year ended December 31, 2014. On a constant currency basis, our revenue growth was 7.4%.

Organic revenue growth was $38.3 million, or 3.6%. This was driven by new business wins and increased customer assets under management across our Solutions and Information segments, offset by a decrease in our Processing segment mainly as a result of previously announced price reductions in our derivatives processing product and lower primary loan issuance volumes in our loans processing product.

Acquisitions contributed $41.1 million, or 3.8%, to revenue growth. In our Solutions segment, thinkFolio, Tax Solutions and Information Mosaic were acquired in January 2014, July 2014 and July 2015, respectively. In our Processing segment, DealHub was acquired in September 2015, and in our Information and Solutions segments, CoreOne was acquired in October 2015.

We experienced an adverse movement in exchange rates period-over-period, which decreased our revenue growth by $31.1 million, or 2.9%. Our revenue currency exposure for the year ended December 31, 2015 was 71.7% in US dollars, 23.7% in British pounds and 4.6% in other currencies.

Recurring fixed revenue as a percentage of total revenue increased to 56.1% for the year ended December 31, 2015, from 52.5% for the year ended December 31, 2014.

Operating expenses

Operating expenses increased by $31.2 million, or 5.5%, to $600.4 million for the year ended December 31, 2015, from $569.2 million for the year ended December 31, 2014. This increase was driven primarily due to acquisitions and continued investment in new initiatives.

Exceptional items

Exceptional items for the year ended December 31, 2015 were $48.7 million. These pertain to the agreement to settle the consolidated U.S. antitrust class action lawsuit regarding credit derivatives and related markets for $45.0 million and legal advisory fees of $3.7 million associated with the antitrust class action lawsuit as well as the related ongoing antitrust investigations by the U.S. Department of Justice and the European Commission.

Income tax expense

Income tax expense was $70.0 million for the year ended December 31, 2015 compared to $56.5 million for the year ended December 31, 2014, an increase of $13.5 million, or 23.9%. Our effective tax rate was 31.5% for the year ended December 31, 2015 compared to 25.6% for the year ended December 31, 2014. The increase in effective tax rate in 2015 is primarily the result of prior period adjustments being recognised during the year ended December 31, 2015. In addition, the impact on deferred tax balances of a change to US state taxes had the result of increasing the tax charge and effective tax rate in the year ended December 31, 2015.

Share based compensation and related items

Share based compensation and related items increased by $34.8 million to $50.8 million for the year ended December 31, 2015, from $16.0 million for the year ended December 31, 2014.

Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA of $496.9 million for the year ended December 31, 2015 increased by $8.7 million, or 1.8%, from $488.2 million for the year ended December 31, 2014. This increase was driven by the Solutions and Information segments, partially offset by a decrease in the Processing segment and reflects the operating performance as described above. Adjusted EBITDA also includes a $14.0 million loss in the year ended December 31, 2015 associated with our share of the KYC joint venture, which is included in our Solutions segment.

Adjusted EBITDA margin decreased to 45.0% for the year ended December 31, 2015, compared to 46.0% for the year ended December 31, 2014, largely as a result of reduced revenue in the Processing segment.

Adjusted earnings and Adjusted earnings per share, diluted

Adjusted earnings for the year ended December 31, 2015, decreased $5.1 million, or 1.8%, to $273.9 million from $279.0 million for the year ended December 31, 2014. This reflects an increase in the depreciation and amortisation charge and cash interest expense for the period which outweighed the increase in Adjusted EBITDA for the period.

Adjusted earnings per share, diluted for the year ended December 31, 2015 was $1.44 compared to $1.51 for the year ended December 31, 2014. This reflects the decrease in year-on-year adjusted earnings as well as increased dilution from a higher, post-IPO share price and the associated impact on share option dilution, in addition to dilution from share option exercises since December 31, 2014.

Share repurchases and financing activities

In 2015, our board of directors authorised share repurchases of up to $550 million. In June, we repurchased shares from certain shareholders for an aggregate purchase price of approximately $350 million. In December, we entered into an aggregate $200 million accelerated share repurchase (ASR), which delivered on commencement shares representing an aggregate principal amount of approximately $150 million, and we may be entitled to receive additional shares at the final settlement of the ASR, which we currently expect to be completed in the third quarter of 2016.

On November 4, 2015 we issued two series of senior unsecured notes having an aggregate principal amount of $500 million to certain institutional investors. One series of the notes was issued in an aggregate principal amount of $210 million, bears interest at a fixed rate of 3.73% and matures on November 4, 2022. The other series of the notes was issued in an aggregate principal amount of $290 million, bears interest at a fixed rate of 4.05% and matures on November 4, 2025. The proceeds from the notes were used to pay down debt drawn on our existing revolving credit facility.

In February 2016 our board of directors authorised the repurchase of up to $500 million of our common shares over the next two years, at the discretion of our management and subject to market conditions.

Table 2: Revenue growth composition by segment

Table 3: Segmental analysis

Fourth quarter 2015 segment results

Information

Revenue in our Information segment increased by $8.4 million, or 6.8%, to $131.6 million for the three months ended December 31, 2015, compared to $123.2 million for the three months ended December 31, 2014. Organic revenue growth was 4.7%. Acquired revenue growth was 4.0%, following the acquisition of CoreOne in October 2015, which is reported across the Information and Solutions segments. Adverse movements in exchange rates period-over-period offset this growth, reducing Information revenue growth by 1.9%.

Organic revenue growth was largely driven by new business wins within the Pricing and Reference Data, and Indices sub-divisions, as well as increased customer assets under management in products benchmarked to our indices.

Processing

Revenue in our Processing segment decreased by $8.7 million, or 12.7%, to $59.8 million for the three months ended December 31, 2015, from $68.5 million for the three months ended December 31, 2014. Organic revenues decreased 14.7%. Adverse movements in exchange rates period-over-period contributed 1.9% to the decrease in revenue. Partially offsetting this was the acquisition of DealHub in September 2015, which contributed an increase of 3.9% to Processing revenue.

The organic revenue decrease reflects the impact of previously announced price reductions in our derivatives processing product introduced on April 1, 2015 in the rates asset class, decreased volumes in the credit asset class in 2015 and one-off regulatory reporting revenue in 2014. In addition, we saw lower revenues in our loans processing product associated with reduced primary loan issuance volumes period over period.

Solutions

Revenue in our Solutions segment increased by $20.4 million, or 25.6%, to $100.1 million for the three months ended December 31, 2015, from $79.7 million for the three months ended December 31, 2014. Organic revenue growth was 9.0%. Acquired revenue growth was 18.8%, driven by the acquisitions of thinkFolio, Tax Solutions, Information Mosaic and CoreOne in January 2014, July 2014, July 2015 and October 2015, respectively. Adverse movements in exchange rates period-over-period reduced Solutions revenue by 2.2%.

Organic revenue growth was driven by new business wins across our Enterprise Software and Managed Services sub-divisions, as well as increased customer assets under management in our Managed Services sub-division.

Full year 2015 segment results

Information

Revenue in our Information segment increased by $15.1 million, or 3.1%, to $501.6 million for the year ended December 31, 2015, compared to $486.5 million for the year ended December 31, 2014. Organic revenue growth was 5.2%. Acquired revenue growth was 1.0%, driven by the acquisition of CoreOne in October 2015, which is reported across the Information and Solutions segments. Adverse movements in exchange rates period-over-period offset this growth, reducing Information revenue growth by 3.1%.

Organic revenue growth was largely driven by new business wins within the Pricing and Reference Data and Indices sub-divisions, as well as increased customer assets under management in products benchmarked to our indices.

Processing

Revenue in our Processing segment decreased by $28.9 million, or 10.1%, to $256.0 million for the year ended December 31, 2015, from $284.9 million for the year ended December 31, 2014. Organic revenues decreased 8.2%. Adverse movements in exchange rates period-over-period contributed 3.2% of the decrease in revenue. Partially offsetting this was the acquisition of DealHub in September 2015, which contributed an increase of 1.3% to Processing revenue.

The decrease in organic revenue reflects decreased revenue in our derivatives processing product due to previously announced price reductions introduced on April 1, 2015 in the rates asset class, reduced volumes in the credit asset class and one-off regulatory reporting revenue in the prior year comparator. In addition, we saw lower revenues in our loans processing product associated with reduced primary loan issuance volumes period over period, partially mitigated by increased secondary trading levels.

Solutions

Revenue in our Solutions segment increased by $62.1 million, or 21.1%, to $355.8 million for the year ended December 31, 2015, from $293.7 million for the year ended December 31, 2014. Organic revenue growth was 12.3%. Acquired revenue growth was 11.1%, driven by the acquisitions of thinkFolio, Tax Solutions, Information Mosaic and CoreOne in January 2014, July 2014, July 2015 and October 2015, respectively. Adverse movements in exchange rates period-over-period reduced Solutions revenue by 2.3%.

Organic revenue growth was driven by new business wins across our Enterprise Software and Managed Services sub-divisions, as well as increased customer assets under management in our Managed Services sub-division.

Webcast and conference call information

Markit’s management will host a conference call at 8.30am EST today to review and discuss the company’s results. The live audio webcast, press release and accompanying financial information can be accessed on Markit’s investor relations website: http://www.markit.com/Company/Investors-Events-And-Presentations or by dialing +1 888 771 4371 (US toll free) or +1 847 585 4405 (outside US). The conference ID for the call is 41568940. A replay of the webcast will be available through the above link following the conference call.

Note on IFRS reporting standards

We prepare and report our consolidated financial statements and financial information in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). We have made rounding adjustments to some of the figures included in this press release. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them.

Use of non-IFRS financial measures

Non-IFRS results are presented only as a supplement to our financial statements based on IFRS. Non-IFRS financial information is provided to enhance understanding of our financial performance, but none of these non-IFRS financial measures are recognised terms under IFRS and non-IFRS measures should not be considered in isolation from, or as a substitute analysis for, our results of operations as determined in accordance with IFRS. Definitions and reconciliations of non-IFRS measures to the most directly comparable IFRS measures are provided within the schedules attached to this release.

We use non-IFRS measures in our operational and financial decision making, as we believe that it is useful to exclude certain items in order to focus on what we regard to be a more reliable indicator of the underlying operating performance of the business. As a result, internal management reports feature non-IFRS measures which are also used to prepare strategic plans and annual budgets and review management compensation. We also believe that investors may find non-IFRS financial measures useful for the same reasons, although investors are cautioned that non-IFRS financial measures are not a substitute for IFRS disclosures.

Non-IFRS measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies comparable to us, many of which present non-IFRS measures when reporting their results. Non-IFRS measures have limitations as an analytical tool. They are not presentations made in accordance with IFRS, are not measures of financial condition or liquidity and should not be considered as an alternative to profit or loss for the period determined in accordance with IFRS or operating cash flows determined in accordance with IFRS. Non-IFRS measures are not necessarily comparable to similarly titled measures used by other companies. As a result, you should not consider such performance measures in isolation from, or as a substitute analysis for, our results of operations as determined in accordance with IFRS.

Forward-looking statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that Markit expects, believes or anticipates will or may occur in the future are forward-looking statements. Markit’s estimates and forward-looking statements are mainly based on its current expectations and estimates of future events and trends, which affect or may affect its businesses and operations. Although Markit believes that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to Markit. When used in this press release, the words “anticipate,” “believe,” “could,” “intend,” “expect,” “estimate,” “should,” “plan,” “will” or other similar words are intended to identify forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of Markit, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Further information on such assumptions, risks and uncertainties is available in Markit’s filings with the US Securities and Exchange Commission, including its annual report on Form 20-F. Markit undertakes no obligation and does not intend to update or correct these forward-looking statements to reflect events or circumstances occurring after the date of this press release, except as required by applicable law. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement.

Notes to Editors

About Markit

Markit is a leading global provider of financial information services. We provide products that enhance transparency, reduce risk and improve operational efficiency. Our customers include banks, hedge funds, asset managers, central banks, regulators, auditors, fund administrators and insurance companies. Founded in 2003, we employ over 4,000 people in 11 countries. Markit shares are listed on Nasdaq under the symbol MRKT. For more information, please see www.markit.com.

Markit Ltd.
Consolidated income statement (unaudited)

There were no discontinued operations for either period presented.

Consolidated Balance Sheet (Unaudited)

Consolidated Statement Of Cash Flows (Unaudited)

Markit Ltd.
Notes to the consolidated financial statements (Unaudited)

The operating expenses above exclude exceptional items, acquisition related items, other gains/(losses) – net, share based compensation and related items, depreciation on property, plant and equipment and amortisation of intangible assets.

Legal advisory costs are associated with ongoing antitrust investigations by both the US Department of Justice and the European Commission and the associated consolidated class action lawsuit relating to the credit derivatives and related markets. These costs have been classified as exceptional due to the complexity and individual nature of these related cases along with the size of the costs being incurred. These costs represent an industry-wide issue and are consequently not considered part of the normal course of business of Markit Ltd. (the “Company”) and its consolidated subsidiaries (collectively, the “Group”).

During the third quarter of 2015, the Group provided $45.0 million to settle an antitrust class action lawsuit in the United States relating to credit derivatives and related markets. These costs have been classified as exceptional due to the one-off, individual nature of this matter along with the size of the costs being incurred. These costs are consequently not considered to be part of the normal course of business.

For the year ended December 31, 2014:

• During the fourth quarter, a $31.9 million impairment of goodwill was taken in relation to Analytics, within our Solutions segment, as developments in the regulatory and business environment have resulted in weaker than anticipated growth.
• A $7.9 million impairment charge, relating primarily to Credit Centre’s other intangible assets, within our Processing segment, was recorded following a decision to wind down the business due to the market not evolving as expected.
• IPO preparation and execution costs consisted of legal and professional fees associated with the Company’s initial public offering. These costs are one off in nature and not considered part of the Group’s normal course of business.
• The completion of the IPO resulted in a non-recurring acceleration of vesting for options granted prior to August 2013. The accelerated share based compensation charge reflects the impact of the IPO process.
• During the second quarter of 2014, the Group recognised a liability for social security costs on employee equity instrument exercises as the Group agreed to meet these obligations on behalf of employees. This has been classified as an exceptional item due to the one-off nature and size of the initial recognition.

Reconciliation to Non-IFRS Financial Measures

Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA is defined as profit for the period from continuing operations before income taxes, net finance costs, depreciation and amortisation on fixed assets and intangible assets (including acquisition related intangible assets), acquisition related items, exceptional items, share based compensation and related items, net other gains or losses, including Adjusted EBITDA attributable to joint ventures and excluding Adjusted EBITDA attributable to non-controlling interests.

Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue, excluding revenue attributable to non-controlling interests.

The following table reconciles our profit for the period from continuing operations to our Adjusted EBITDA for the periods presented:

Reconciliation to Non-IFRS Financial Measures

Adjusted Earnings and adjusted earnings per share, diluted:

Adjusted Earnings is defined as profit for the period from continuing operations before amortisation of acquired intangibles, acquisition related items, exceptional items, share based compensation and related items, net other gains or losses and unwind of discount, less the tax effect of these adjustments and excluding Adjusted Earnings attributable to non-controlling interests.

In addition we use Adjusted Earnings for the purposes of calculating diluted Adjusted earnings per share.

The following table reconciles our profit for the period from continuing operations to our Adjusted Earnings for the periods presented:

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