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MarketScreener Homepage  >  Equities  >  Nyse  >  IHS Markit Ltd.    INFO   BMG475671050

IHS MARKIT LTD.

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IHS MARKIT : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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03/24/2020 | 04:16pm EDT
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help the reader understand the
financial condition and results of operations of IHS Markit Ltd. ("IHS Markit,"
"we," "us," or "our") as of and for the periods presented. The following
discussion should be read in conjunction with our 2019 Annual Report on Form
10-K and the Condensed Consolidated Financial Statements and accompanying notes
included in this

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Quarterly Report on Form 10-Q. References to 2020 are to our fiscal year 2020, which began on December 1, 2019 and ends on November 30, 2020.

Executive Summary

Business Overview


We are a world leader in critical information, analytics, and solutions for the
major industries and markets that drive economies worldwide. We deliver
next-generation information, analytics, and solutions to customers in business,
finance, and government, improving their operational efficiency and providing
deep insights that lead to well-informed, confident decisions. We have more than
50,000 business and government customers, including 80 percent of the Fortune
Global 500 and the world's leading financial institutions. Headquartered
in London, we are committed to sustainable, profitable growth.

To best serve our customers, we are organized into the following four industry-focused segments:

• Financial Services, which includes our financial Information, Solutions,

and Processing product offerings;

• Transportation, which includes our Automotive and Maritime & Trade product

offerings;

• Resources, which includes our Upstream, Downstream, Power, Chemical, and

Agricultural product offerings;

• Consolidated Markets & Solutions, which includes our Product Design;

Economics & Country Risk ("ECR"), and Technology, Media, & Telecom ("TMT")

benchmarking product offerings.




We believe that this sales and operating model helps our customers do business
with us by providing a cohesive, consistent, and effective product, sales, and
marketing approach by segment.

On December 2, 2019, we completed the divestiture of our Aerospace & Defense ("A&D") business line for approximately $466 million, which was previously included in our Transportation segment. Proceeds from the divestiture were primarily used to fund our first quarter accelerated share repurchase ("ASR").

Our recurring fixed revenue and recurring variable revenue represented approximately 88 percent of our total revenue for the three months ended February 29, 2020. Our recurring revenue is generally stable and predictable, and we have long-term relationships with many of our customers.

For the first quarter of 2020, we focused our efforts on the following actions:

• Increase in geographic, product, and customer penetration. We believe

there are continued opportunities to add new customers and to increase the

use of our products and services by existing customers. We plan to add new

customers and build our relationships with existing customers by

leveraging our existing sales channels, broad product portfolio, global

       footprint, and industry expertise to anticipate and respond to the
       changing demands of our end markets.


• Introduce innovative offerings and enhancements. In recent years, we have

launched several new product offerings addressing a wide array of customer

needs, and we expect to continue to innovate using our existing data sets

and industry expertise, converting core information to higher value

advanced analytics. Our investment priorities are primarily in energy,

automotive, and financial services, and we intend to continue to invest

       across our business to increase our customer value proposition.


• Balance capital allocation. We will continue to manage to our capital

policy target leverage ratio, and intend to return 50 to 75 percent of our

annual capital capacity to shareholders through share repurchases and a

quarterly dividend. We will continue to evaluate the long-term potential

and strategic fit of our asset portfolio, and we will also continue to

evaluate potential mergers and acquisitions, focused primarily on targeted

       transactions in our core end markets that will allow us to continue to
       build out our strategic position.



We are carefully monitoring the COVID-19 pandemic and the resulting length and
depth of the economic impacts on our financial condition and results of
operations. In early March 2020, we cancelled all of our large customer events
scheduled for the second quarter of 2020. We estimated the cancellation of those
events will reduce non-recurring revenue by approximately $50 million. We are
also experiencing pressure from an economic slowdown, from significantly lower
oil prices and related decrease in capital expenditure spending, and a near-term
shock to consumer spending impacting our automotive customers. We are closely
following developments related to oil markets worldwide, which have seen a sharp
decrease in the price of oil in recent weeks. A number of our small- and
mid-size oil and gas customers will be negatively impacted by this development,
which may result in a decrease in the amount of products and services they may
purchase from us, particularly in our Resources

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Upstream product offerings. The economic slowdown and decrease in consumer
spending pressures are also causing a near-term disruption in the car-buying
process, which is impacting our North American automotive dealer customers in a
manner that is not representative of a typical cyclical downturn. We are
anticipating incremental adverse revenue impacts from the current environment in
our Resources segment (primarily related to our Upstream product offerings) and
our Transportation segment (primarily as a result of an anticipated decline in
consumer automotive spending and related impact to our automotive dealer
customers). We also believe that there will be some level of revenue weakness
within Financial Services, particularly with our Solutions product offerings,
due to longer software sales cycles and lower volumes in our issuer services
business. As a result of the anticipated adverse revenue impacts, we are
implementing cost reduction efforts to partially offset the revenue decline.
Such cost reduction efforts will include both fixed and variable costs across
all areas of our business.

Key Performance Indicators

We believe that revenue growth, Adjusted EBITDA (both in dollars and margin),
and free cash flow are key financial measures of our success. Adjusted EBITDA
and free cash flow are financial measures that are not prepared in accordance
with U.S. generally accepted accounting principles ("non-GAAP").

Revenue growth. We review year-over-year revenue growth in our segments as a key
measure of our success in addressing customer needs. We measure revenue growth
in terms of organic, acquisitive, and foreign currency impacts. We define these
components as follows:

• Organic - We define organic revenue growth as total revenue growth from

         continuing operations for all factors other than acquisitions and
         foreign currency movements. We drive this type of revenue growth through
         value realization (pricing), expanding wallet share of existing
         customers through up-selling and cross-selling efforts, securing new

customer business, and the sale of new or enhanced product offerings.

• Acquisitive - We define acquisitive revenue as the revenue generated

from acquired products and services from the date of acquisition to the

first anniversary date of that acquisition. This type of growth comes as

a result of our strategy to purchase, integrate, and leverage the value

of assets we acquire. We also include the impact of divestitures in this

         metric.


• Foreign currency - We define the foreign currency impact on revenue as

the difference between current revenue at current exchange rates and

current revenue at the corresponding prior period exchange rates. Due to

the significance of revenue transacted in foreign currencies, we believe

that it is important to measure the impact of foreign currency movements

         on revenue.



In addition to measuring and reporting revenue by segment, we also measure and
report revenue by transaction type. Understanding revenue by transaction type
helps us identify and address broad changes in product mix. We summarize our
transaction type revenue into the following three categories:

• Recurring fixed revenue represents revenue generated from contracts

specifying a relatively fixed fee for services delivered over the life

of the contract. The initial term of these contracts is typically annual

(with some longer-term arrangements) and non-cancellable for the term of

the subscription. The fixed fee is typically paid annually or more

periodically in advance, and may contain provisions for minimum monthly

payments. These contracts typically consist of subscriptions to our

various information offerings and software maintenance, which provide

continuous access to our platforms and associated data over the contract

term. Subscription revenue is usually recognized ratably over the

contract term or, for term-based software license arrangements, annually

         on renewal.



•        Recurring variable revenue represents revenue from contracts that

specify a fee for services, which is typically not fixed. The variable

fee is usually paid monthly in arrears. Recurring variable revenue is

based on, among other factors, the number of trades processed, assets

under management, or the number of positions we value. Most of these

contracts have an initial term ranging from one to five years, with

auto-renewal periods thereafter. Recurring variable revenue was derived

entirely from the Financial Services segment for all periods presented.

• Non-recurring revenue represents consulting, services, single-document

product sales, perpetual license sales and associated services,

conferences and events, and advertising. Our non-recurring products and

services are an important part of our business because they complement

         our recurring business in creating strong and comprehensive customer
         relationships.




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Non-GAAP measures. We use non-GAAP financial measures such as EBITDA, Adjusted
EBITDA, and free cash flow in our operational and financial decision-making. We
believe that such measures allow us to focus on what we deem to be more reliable
indicators of ongoing operating performance (Adjusted EBITDA) and our ability to
generate cash flow from operations (free cash flow). We also believe that
investors may find these non-GAAP financial measures useful for the same
reasons, although we caution readers that non-GAAP financial measures are not a
substitute for U.S. GAAP financial measures or disclosures. None of these
non-GAAP financial measures are recognized terms under U.S. GAAP and do not
purport to be an alternative to net income or operating cash flow as an
indicator of operating performance or any other U.S. GAAP measure. Throughout
this MD&A, we provide reconciliations of these non-GAAP financial measures to
the most directly comparable U.S. GAAP measures.

•        EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are used by
         securities analysts, investors, and other interested parties to assess

our operating performance. For example, a measure similar to Adjusted

EBITDA is required by the lenders under our revolving credit agreement.

         We define EBITDA as net income plus or minus net interest, plus
         provision for income taxes, depreciation, and amortization. Our
         definition of Adjusted EBITDA further excludes primarily non-cash items
         and other items that we do not consider to be useful in assessing our
         operating performance (e.g., stock-based compensation expense,
         restructuring charges, acquisition-related costs and performance
         compensation, exceptional litigation, net other gains and losses,
         pension mark-to-market, settlement, and other expense, the impact of
         joint ventures and noncontrolling interests, and discontinued
         operations).



•        Free Cash Flow. We define free cash flow as net cash provided by

operating activities less payments for acquisition-related performance

compensation and capital expenditures.




Non-GAAP 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-GAAP measures when reporting their results. These measures
can be useful in evaluating our performance against our peer companies because
we believe the measures provide users with valuable insight into key components
of U.S. GAAP financial disclosures. For example, a company with higher U.S. GAAP
net income may not be as appealing to investors if its net income is more
heavily comprised of gains on asset sales. Likewise, excluding the effects of
interest income and expense moderates the impact of a company's capital
structure on its performance. However, non-GAAP measures have limitations as an
analytical tool. Because not all companies use identical calculations, our
presentation of non-GAAP financial measures may not be comparable to other
similarly titled measures of other companies. They are not presentations made in
accordance with U.S. GAAP, 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 U.S. GAAP or operating cash flows determined in
accordance with U.S. GAAP. As a result, these performance measures should not be
considered in isolation from, or as a substitute analysis for, results of
operations as determined in accordance with U.S. GAAP.

Global Operations


Approximately 40 percent of our revenue is transacted outside of the United
States; however, only about 20 percent of our revenue is transacted in
currencies other than the U.S. dollar. As a result, a strengthening U.S. dollar
relative to certain currencies has historically resulted in a negative impact on
our revenue; conversely, a weakening U.S. dollar has historically resulted in a
positive impact on our revenue. Our largest foreign currency exposures for
revenue are the British Pound, Euro, and Canadian Dollar.

Results of Operations

Total Revenue


Revenue for the three months ended February 29, 2020, increased 3 percent,
compared to the three months ended February 28, 2019. The table below displays
the percentage change in revenue due to organic, acquisitive, and foreign
currency factors when comparing the three months ended February 29, 2020 to the
three months ended February 28, 2019.
                                                 Change in Total Revenue
                                                                       Foreign
                                          Organic      Acquisitive     Currency
First quarter 2020 vs. First quarter 2019    6 %           (2 )%        -  %



We saw solid organic revenue growth in our Transportation and Financial Services
segments for the three months ended February 29, 2020, compared to the three
months ended February 28, 2019.

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Acquisitive revenue growth for the three months ended February 29, 2020,
compared to the three months ended February 28, 2019, was primarily due to the
A&D divestiture and sale of our TMT market intelligence assets, partially offset
by the Agribusiness acquisition.

Foreign currency had a negligible effect on revenue growth for the three months
ended February 29, 2020, compared to the three months ended February 28, 2019.
Due to the extent of our global operations, foreign currency movements could
positively or negatively affect our results in the future.

Revenue by Segment

                                                Three months ended February 29/28,      Percentage
(In millions, except percentages)                      2020               2019            Change
Revenue:
Financial Services                              $           436.0     $     409.2            7  %
Transportation                                              297.2           288.1            3  %
Resources                                                   225.6           216.8            4  %
CMS                                                         122.0           132.3           (8 )%
Total revenue                                   $         1,080.8     $   1,046.4            3  %


The percentage change in revenue for each segment was due to the factors described in the following table.

                                    Increase in revenue
                         First quarter 2020 vs. First quarter 2019
                                                                Foreign
                     Organic              Acquisitive           Currency
Financial Services     7 %                     -  %              -  %
Transportation         9 %                    (6 )%              -  %
Resources              1 %                     3  %              -  %
CMS                    3 %                   (10 )%              -  %



Financial Services revenue for the three months ended February 29, 2020,
compared to the three months ended February 28, 2019, increased organically from
strength across our Information, Solutions, and Processing product offerings.
Within our Information product offerings, organic revenue growth was led by our
core pricing, valuation, equities, and indices offerings, as well as our
advisory solutions. Within our Solutions product offerings, organic revenue
growth was led by our WSO, issuer services (particularly serving equity and
municipal issuances), and private capital markets offerings. Within our
Processing product offerings, organic revenue growth was led by derivative
processing activity.

Transportation revenue for the three months ended February 29, 2020, compared to
the three months ended February 28, 2019, continued to experience strong organic
growth, led by used and new car product offerings. Non-recurring organic revenue
growth was down slightly for the three months ended February 29, 2020,
reflecting lower recall and digital marketing revenues. Our automotive product
offerings continue to provide the largest contribution to Transportation revenue
growth, as our diversification in used and new car product offerings continues
to provide balanced opportunities for growth. As a result of COVID-19 and the
current economic environment, we anticipate a slowdown in the organic growth
profile for Transportation over the near term.

Resources revenue for the three months ended February 29, 2020, compared to the
three months ended February 28, 2019, experienced positive organic revenue
growth, with 1 percent recurring revenue growth and 2 percent non-recurring
revenue growth. Our Resources annual contract value ("ACV"), which represents
the annualized value of recurring revenue contracts, grew at a 3 percent rate on
a trailing annual basis. We expect that the cancellation of our annual CERAWeek
event in the second quarter of 2020 will result in an organic revenue decline in
our second quarter 2020 results. Additionally, as a result of COVID-19 and the
current economic environment, we anticipate a further slowing in organic revenue
growth for Resources over the near term.

CMS revenue for the three months ended February 29, 2020, compared to the three months ended February 28, 2019, increased 3 percent organically, which was primarily due to revenue growth from our Product Design product offerings.

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Revenue by Transaction Type
                                            Three months ended February 29/28,           Percentage change
(in millions, except percentages)               2020                   2019             Total         Organic
Revenue:
Recurring fixed                          $          804.1       $          767.2          5  %           7  %
Recurring variable                                  146.8                  136.0          8  %           8  %
Non-recurring                                       129.9                  143.2         (9 )%          (5 )%
Total revenue                            $        1,080.8$        1,046.4          3  %           6  %

As a percent of total revenue:
Recurring fixed                                        74 %                   73 %
Recurring variable                                     14 %                   13 %
Non-recurring                                          12 %                   14 %



Recurring fixed revenue organic growth increased 7 percent for the three months
ended February 29, 2020, compared to the three months ended February 28, 2019,
largely due to contributions from our Transportation and Financial Services
recurring offerings, with slight organic growth in Resources and CMS. Recurring
variable revenue was composed entirely of Financial Services revenue.

The non-recurring organic revenue decline for the three months ended
February 29, 2020, compared to the three months ended February 28, 2019, was
primarily due to Solutions software product offerings within the Financial
Services segment. We anticipate that the cancellation of our large customer
events in the second quarter of 2020 will negatively impact organic revenue by
$50 million and result in organic revenue decline in our non-recurring revenue
in the second quarter of 2020.

As a result of COVID-19 and the current economic environment, we anticipate a
slowdown in the recurring organic revenue growth profile in the near term and
expect nonrecurring organic revenue growth to continue its negative trend.

Operating Expenses

The following table shows our operating expenses and the associated percentages of revenue.

                                                 Three months ended February 29/28,          Percentage
(In millions, except percentages)                    2020                    2019              Change
Operating expenses:
Cost of revenue                              $          415.8         $          399.8            4 %
SG&A expense                                            316.2                    300.3            5 %

Total cost of revenue and SG&A expense $ 732.0 $

      700.1            5 %

Depreciation and amortization expense $ 145.3 $

      142.3            2 %

As a percent of revenue:
Total cost of revenue and SG&A expense                     68 %                     67 %
Depreciation and amortization expense                      13 %             

14 %

Cost of Revenue and SG&A Expense


In managing our business, we evaluate our costs by type (e.g., salaries and
benefits, facilities, IT) rather than by income statement classification. The
increases in absolute total cost of revenue and SG&A expense, as well as the
increase as a percentage of revenue, were primarily due to higher stock-based
compensation expense, as further discussed below.


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Within our cost of revenue and SG&A expense, stock-based compensation expense
increased by approximately $23 million for the three months ended February 29,
2020 compared to the three months ended February 28, 2019, which was largely due
to our higher share price and related employer tax impacts associated with the
exercise of stock options.

Depreciation and Amortization Expense


For the three months ended February 29, 2020, compared to the three months ended
February 28, 2019, depreciation and amortization expense increased slightly on
an absolute basis primarily because of capitalized software development
investments. As a percentage, depreciation and amortization expense declined
primarily because of continued organic revenue growth.

Acquisition-Related Costs


Please refer to Note 8 to the Condensed Consolidated Financial Statements in
this Quarterly Report on Form 10-Q for a discussion of costs associated with our
integration and other acquisition-related activities. During the three months
ended February 29, 2020, we recorded approximately $0.9 million of direct and
incremental costs associated with acquisition and divestiture activities.

Segment Adjusted EBITDA

                                                Three months ended February 29/28,          Percentage
(In millions, except percentages)                   2020                    2019              Change
Adjusted EBITDA:
Financial Services                          $          205.4         $          183.2           12  %
Transportation                                         118.0                    114.3            3  %
Resources                                               90.2                     93.2           (3 )%
CMS                                                     29.4                     29.4            -  %
Shared services                                        (11.4 )                  (12.0 )
Total Adjusted EBITDA                       $          431.6         $          408.1            6  %

As a percent of segment revenue:
Financial Services                                        47 %                     45 %
Transportation                                            40 %                     40 %
Resources                                                 40 %                     43 %
CMS                                                       24 %                     22 %



For the three months ended February 29, 2020, compared to the three months ended
February 28, 2019, Adjusted EBITDA increased primarily due to the leverage in
our business model, as incremental revenue drives higher margins, partially
offset by the sale of our A&D business line. We continue to focus our efforts on
organic revenue growth and cost management to improve overall margins. Financial
Services segment Adjusted EBITDA and associated margin continued to increase
because of organic revenue growth. The increase in Adjusted EBITDA for the
Transportation segment was due to organic revenue growth, partially offset by
the divestiture of the A&D business line, which also negatively impacted margin
expansion. Resources Adjusted EBITDA and associated margin decreased due to the
slowdown in organic revenue growth.

Provision for Income Taxes

Our effective tax rate is estimated based upon the effective tax rate expected to be applicable for the full year.


Our effective tax rate for the three months ended February 29, 2020 was 1
percent, compared to negative 1 percent for the three months ended February 28,
2019. The low 2020 tax rate is primarily due to excess tax benefits on
stock-based compensation of approximately $64 million and the tax-efficient
divestiture of the A&D business line (U.K. share sales are exempt from tax) of
approximately $29 million. The negative 2019 tax rate is primarily due to tax
benefits associated with excess tax benefits on stock-based compensation of
approximately $12 million and change in partnership basis related to intangible
assets of approximately $7 million.


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EBITDA and Adjusted EBITDA (non-GAAP measures)


The following table provides reconciliations of our net income to EBITDA and
Adjusted EBITDA for the three months ended February 29, 2020 and February 28,
2019.
                                                 Three months ended February 29/28,         Percentage
(In millions, except percentages)                    2020                    2019             Change

Net income attributable to IHS Markit Ltd. $ 485.0 $

     109.7          342 %
Interest income                                          (0.4 )                   (0.4 )
Interest expense                                         61.2                     66.9
Provision (benefit) for income taxes                      4.3                     (0.9 )
Depreciation                                             51.1                     46.6
Amortization                                             94.2                     95.7
EBITDA                                       $          695.4         $          317.6          119 %
Stock-based compensation expense                         82.6                     59.7
Restructuring charges                                     4.5                      8.2
Acquisition-related costs                                 0.7                      7.5
Acquisition-related performance compensation              0.2                     15.3
Loss on debt extinguishment                                 -                      0.2
Gain on sale of assets                                 (372.3 )                      -
Pension mark-to-market and settlement
expense                                                  21.2               

-

Share of joint venture results not
attributable to Adjusted EBITDA                           0.3               

0.1

Adjusted EBITDA attributable to
noncontrolling interest                                  (1.0 )                   (0.5 )
Adjusted EBITDA                              $          431.6         $          408.1            6 %
Adjusted EBITDA as a percentage of revenue               39.9 %             

39.0 %




Our Adjusted EBITDA margin performance for the three months ended February 29,
2020, compared to the three months ended February 28, 2019, increased primarily
because of margin flow-through on our organic revenue growth, as well as our
continued cost management efforts. We expect to continue to drive margin
improvement, albeit from lower revenue growth and tighter cost management
activities as a result of COVID-19 and the current economic environment. These
near-term pressures may adversely affect our ability to grow Adjusted EBITDA and
margins as quickly as anticipated in the near term.

Financial Condition (In millions, except As of February 29, As of November 30, percentages)

                 2020                   2019             Dollar change      Percentage change
Accounts receivable,
net                  $            979.7     $             890.7     $         89.0               10  %
Accrued compensation $             84.5     $             215.2     $       (130.7 )            (61 )%
Deferred revenue     $          1,029.7     $             879.7     $        150.0               17  %



The increases in accounts receivable and deferred revenue were due to increased
billing activity in 2020. Accrued compensation decreased primarily due to the
2019 bonus payout made in the first quarter of 2020, partially offset by the
current year accrual.


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Liquidity and Capital Resources


As of February 29, 2020, we had cash and cash equivalents of $143.9 million. Our
principal sources of liquidity include cash generated by operating activities,
cash and cash equivalents on the balance sheet, and amounts available under a
revolving credit facility. We had approximately $5.21 billion of debt as of
February 29, 2020, consisting primarily of $323.0 of revolving facility debt and
$4.68 billion of senior notes. As of February 29, 2020, we had approximately
$927.0 million available under our revolving credit facility.

Our interest expense for the three months ended February 29, 2020, compared to
the three months ended February 28, 2019, decreased primarily because of a lower
debt balance compared to the prior year.

Our Board of Directors approved a quarterly cash dividend of $0.17 per share
during the first quarter of 2020, which resulted in a $67.7 million cash payout
in February 2020.

Our Board of Directors has authorized a share repurchase program of up to $2.5
billion of IHS Markit common shares through November 30, 2021, to be funded
using our existing cash, cash equivalents, marketable securities, and future
cash flows, or through the incurrence of short- or long-term indebtedness, at
management's discretion. This repurchase program does not obligate us to
repurchase any set dollar amount or number of shares and may be modified,
suspended, or terminated at any time without prior notice. Under this program,
we are authorized to repurchase our common shares on the open market from time
to time, in privately negotiated transactions, or through accelerated share
repurchase agreements, subject to availability of common shares, price, market
conditions, alternative uses of capital, and applicable regulatory requirements,
at management's discretion. In December 2019, we entered into an ASR to
repurchase $500 million under this authorization, and in March 2020, we entered
into an ASR to repurchase $250 million under this authorization.

Our Board of Directors has separately authorized, subject to applicable
regulatory requirements, the repurchase of our common shares surrendered by
employees in an amount equal to the exercise price, if applicable, and statutory
tax liability associated with the vesting of their equity awards, for which we
pay the statutory tax on behalf of the employee and forgo receipt of the
exercise price of the award from the employee, if applicable. Such repurchases
have been authorized in addition to the share repurchase program described
above.

Based on our cash, debt, and cash flow positions, we believe that we will have
sufficient liquidity to meet our ongoing working capital and capital expenditure
needs. Our future capital requirements will depend on many factors, including
the number and magnitude of future acquisitions, amount of share repurchases and
dividends, the need for additional facilities or facility improvements, the
timing and extent of spending to support product development efforts,
information technology infrastructure investments, investments in our internal
business applications, and the continued market acceptance of our offerings. We
could be required, or could elect, to seek additional funding through public or
private equity or debt financings; however, additional funds may not be
available on terms acceptable to us. Given current market conditions as a result
of COVID-19, we are focused on maintaining high levels of liquidity and capital
structure flexibility. We maintain a solid balance sheet, investor grade rating,
a well-positioned debt maturity ladder, and a strong diversified bank group.

Cash Flows

                                     Three months ended February 29/28,
(In millions, except percentages)        2020                  2019           Dollar change     Percentage change
Net cash provided by operating
activities                        $         119.5       $         188.0      $       (68.5 )            (36 )%
Net cash provided by (used in)
investing activities              $         387.0       $         (68.8 )    $       455.8             (663 )%
Net cash used in financing
activities                        $        (462.1 )$        (111.9 )$      (350.2 )            313  %


The decrease in net cash provided by operating activities was primarily due to $75.9 million of payments for acquisition-related performance compensation associated with the aM acquisition described in Note 2, partially offset by improved operating performance and working capital activities in the three months ended February 29, 2020.

The increase in net cash provided by investing activities was primarily due to the sale of the A&D business line.


The increase in net cash used in financing activities is primarily due to the
$500 million in share repurchases and our dividend payout, partially offset by
increased proceeds from stock option exercises.


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Free Cash Flow (non-GAAP measure)

The following table reconciles our non-GAAP free cash flow measure to net cash provided by operating activities.

                                      Three months ended February 29/28,
(In millions, except percentages)         2020                    2019           Dollar change      Percentage change
Net cash provided by operating
activities                        $          119.5         $          188.0
Payments for acquisition-related
performance compensation                      75.9                        -
Capital expenditures on property
and equipment                                (78.0 )                  (63.2 )
Free cash flow                    $          117.4         $          124.8     $        (7.4 )            (6 )%



The decrease in free cash flow was primarily due to higher capital expenditure
activity, partially offset by higher net cash provided by operating activities
through continuing operational improvements. The payments for
acquisition-related performance compensation are associated with the exercise of
put provisions by aM equity interest holders, as further described in Note 2.
Our free cash flow has historically been positive due to the robust cash
generation attributes of our business model, and we expect that it will continue
to be a significant source of funding for our business strategy of growth
through organic and acquisitive means.

Credit Facility and Other Debt


Please refer to Note 6 to the Condensed Consolidated Financial Statements in
this Quarterly Report on Form 10-Q for a discussion of the current status of our
debt arrangements.

Share Repurchase Programs

Please refer to Note 13 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q and to Part II, Item 2 in this Quarterly Report on Form 10-Q for a discussion of our share repurchase programs.

Off-Balance Sheet Transactions

We have no off-balance sheet transactions.

Critical Accounting Policies


Our management makes a number of significant estimates, assumptions, and
judgments in the preparation of our financial statements. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Critical Accounting Policies and Estimates" in our 2019 Annual Report
on Form 10-K for a discussion of the estimates and judgments necessary in our
accounting for revenue recognition, business combinations, goodwill and other
intangible assets, income taxes, and stock-based compensation.

Recent Accounting Pronouncements

Please refer to Note 1 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements and their anticipated effect on our business.

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