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 2020 Annual Report on Form 10-K and the Condensed Consolidated Financial Statements and accompanying notes included in this Quarterly Report on Form 10-Q. References to 2021 are to our fiscal year 2021, which began on December 1, 2020and ends on November 30, 2021. 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.
In order to better serve our customers, we are organized into the following four industry-focused segments:
â¢Financial Services, which includes our financial Information, Solutions, and Processing product offerings; â¢Transportation, which includes our Automotive and Maritime & Trade product offerings; â¢Resources, which includes our Upstream and Downstream product offerings; and â¢Consolidated Markets & Solutions, which includes our Product Design, Economics & Country Risk, and TMT benchmarking product offerings. Our recurring revenue streams represented approximately 88 percent of our total revenue for the nine months ended
August 31, 2021. Our recurring revenue is generally stable and predictable, and we have long-term relationships with many of our customers.
For the nine months ended
â¢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. â¢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 innovating using our existing data sets and industry expertise, converting core information to higher value advanced analytics. We also intend to continue to invest across our business to increase our customer value proposition. â¢Improve efficiency, productivity, and financial strength. We are striving to strengthen our operational excellence by consistently improving productivity and efficiency, particularly as we continue to work through the effects of the COVID-19 pandemic. We also continue to build on our strong financial foundation, balancing capital allocation between returning capital to shareholders (targeting an annual capital return of 50 to 75 percent of our annual capital capacity through share repurchases and cash dividends) and completing 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. The merger agreement with S&P Global restricts our ability to purchase our shares and therefore our share repurchase program is currently suspended through
November 2021, other than for the repurchase of shares associated with tax withholding requirements for share-based compensation; consequently, our cash balance is higher than we would typically strive to maintain. 22 -------------------------------------------------------------------------------- Table of Contents On November 29, 2020, we, S&P Global Inc., and Merger Sub entered into an agreement and plan of merger, which was subsequently amended on January 20, 2021, pursuant to which Merger Sub will merge with and into IHS Markit, with IHS Markitsurviving such merger as a wholly-owned, direct subsidiary of S&P Global. The merger intends to bring together a unique portfolio of highly complementary assets, as well as innovation and technology capability to accelerate growth and enhance value creation. At the completion of the merger, each IHS Markitshare that is issued and outstanding (other than dissenting shares and shares held by IHS Markitin treasury) will be converted into the right to receive 0.2838 fully paid and nonassessable shares of S&P Global common stock, and, if applicable, cash in lieu of fractional shares, without interest, and less any applicable withholding taxes. If the merger is completed, IHS Markitshares will cease to be listed on the New York Stock Exchangeand IHS Markitshares will be deregistered under the Securities Exchange Act. The merger was approved by IHS Markitand S&P Global shareholders on March 11, 2021, but is still subject to antitrust and regulatory approval requirements, as well as other customary closing conditions. As a result of regulatory feedback, we decided to sell our Oil Price Information Services; Coal, Metals and Mining; and Petrochem Wire businesses (collectively, "OPIS group") and have entered into an agreement to sell the OPIS group to News Corp for approximately $1.15 billionin cash. The sale is expected to be completed at the close of the merger between IHS Markitand S&P Global. We currently anticipate closing the merger with S&P Global during the calendar fourth quarter of 2021.
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:
â¢ Organic – We define organic revenue growth as the 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 the portfolio share of existing clients through upselling and cross-selling efforts, securing new clients, and selling. new or improved product offerings.
â¢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. â¢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: â¢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, and may contain provisions for minimum monthly payments. The fixed fee is typically paid annually or more periodically in advance. 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. â¢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. 23 -------------------------------------------------------------------------------- Table of Contents â¢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. 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. â¢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 equity-method investments and noncontrolling interests, and discontinued operations). â¢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.
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
Revenue for the three and nine months ended
August 31, 2021, increased 10 percent and 9 percent compared to the three and nine months ended August 31, 2020. The table below displays the percentage change in revenue due to organic, acquisitive, and foreign currency factors when comparing the three and nine months ended August 31, 2021to the three and nine months ended August 31, 2020. 24
Table of Contents Change in Total Revenue Foreign Organic Acquisitive Currency Third quarter 2021 vs. Third quarter 2020 9 % - % 1 % Year-to-date 2021 vs. Year-to-date 2020 8 % - % 1 % Organic revenue growth for the three and nine months ended
August 31, 2021, compared to the three and nine months ended August 31, 2020, was led by strong performance in the Transportation segment as the economic environment continues to recover from the pandemic. Financial Services segment organic revenue growth continued to be solid. We continue to experience negative organic revenue growth in the Resources segment, albeit very minimal in the three months ended August 31, 2021, and CMS segment organic revenue growth benefited from Boiler Pressure Vessel Code("BPVC") sales associated with the BPVC release in the third quarter of 2021. Foreign currency had a slight positive effect on revenue growth for the three and nine months ended August 31, 2021, compared to the three and nine months ended August 31, 2020. 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 August 31, Percentage Nine months ended August 31, Percentage (In millions, except percentages) 2021 2020 Change 2021 2020 Change Revenue: Financial Services $ 489.7 $ 445.610 % $ 1,467.6 $ 1,325.111 % Transportation 347.4 298.9 16 % 1,003.2 839.3 20 % Resources 207.9 208.2 - % 631.4 652.8 (3) % CMS 135.5 120.5 12 % 379.6 363.4 4 % Total revenue $ 1,180.5 $ 1,073.210 % $ 3,481.8 $ 3,180.69 %
The percentage change in revenue for each segment was due to the factors described in the following table.
Change in revenue Third quarter 2021 vs. Third quarter 2020 Year-to-date 2021 vs. Year-to-date 2020 Foreign Foreign Organic Acquisitive Currency Organic Acquisitive Currency Financial Services 8 % 1 % 1 % 9 % 1 % 1 % Transportation 15 % - % 1 % 18 % - % 2 % Resources (1) % - % 1 % (4) % - % 1 % CMS 11 % - % 1 % 4 % (1) % 1 % Financial Services revenue for the three and nine months ended
August 31, 2021, compared to the three and nine months ended August 31, 2020, experienced broad-based organic growth. Within our Information product offerings, organic revenue growth was led by strong demand for our pricing, reference data, and valuation offerings, as well as continued growth in our equities regulatory reporting and trading analytics platforms. Within our Solutions product offerings, organic growth continued to benefit from robust market activity in equities and loan markets, combined with a broad-based rebound of investment by our customers in our software solutions and our corporate actions and regulatory and compliance offerings. Within our Processing product offerings, organic revenue growth was driven by steady market activity in loan markets versus the same period last year. Transportation revenue for the three and nine months ended August 31, 2021, compared to the three and nine months ended August 31, 2020, experienced very strong organic revenue growth. The dealer-facing portion of our automotive offerings experienced strong growth across CARFAX and automotiveMastermind, as we built back from the effects of the pandemic in 2020. Other parts of our automotive offerings, such as products supporting OEMs, parts manufacturers, and banking and insurance clients contributed organic revenue growth, albeit at a more stable pace. Our automotive product offerings continue to provide the largest contribution to Transportation revenue, and our diversification in used and new car product offerings allows for balanced opportunities for growth. 25 -------------------------------------------------------------------------------- Table of Contents Resources revenue declined for the three and nine months ended August 31, 2021, compared to the three and nine months ended August 31, 2020, respectively, with our Upstream product offerings continuing to be negatively impacted by constrained industry capital expenditure spend. The Upstream declines have been partially offset by the return of our CERAWeek energy conference, which we held virtually in March 2021, and organic growth from our Downstream offerings. We believe our Resources annual contract value ("ACV"), which represents the annualized value of recurring revenue contracts, bottomed in the first quarter of 2021, and we expect growth throughout the rest of 2021. ACV increased $7 millionin the quarter and has declined 3 percent on a trailing annual basis. CMS revenue for the three and nine months ended August 31, 2021, compared to the three and nine months ended August 31, 2020, increased largely due to sales associated with the biennial release of the BPVC in the third quarter of 2021 and recurring organic growth. Revenue by Transaction Type Three months ended August 31, Percentage change Nine months ended August 31, Percentage change (in millions, except percentages) 2021 2020 Total Organic 2021 2020
Total Organic Revenue: Recurring fixed
$ 860.0 $ 796.28 % 7 % $ 2,521.6 $ 2,355.57 % 6 % Recurring variable 170.0 153.0 11 % 8 % 525.5 457.8 15 % 12 % Non-recurring 150.5 124.0 21 % 20 % 434.7 367.3 18 % 17 % Total revenue $ 1,180.5 $ 1,073.210 % 9 % $ 3,481.8 $ 3,180.69 % 8 % As a percent of total revenue: Recurring fixed 73 % 74 % 72 % 74 % Recurring variable 14 % 14 % 15 % 14 % Non-recurring 13 % 12 % 12 % 12 % Recurring fixed revenue organic growth increased 7 percent and 6 percent for the three and nine months ended August 31, 2021, respectively, compared to the three and nine months ended August 31, 2020, largely due to our Transportation and Financial Services recurring offerings, partially offset by a decline in our Resources recurring offerings. Recurring variable revenue was composed entirely of Financial Services revenue, which continued to experience strong performance. The non-recurring organic revenue increases for the three and nine months ended August 31, 2021, compared to the three and nine months ended August 31, 2020, were primarily driven by continuing strength in our Financial Services Solutions offerings, more normal activity in our Transportation offerings, the return of our annual conference events, and the BPVC release. These increases were partially offset by lower transactional content purchases for Resources Upstream offerings for the nine months ended August 31, 2021. 26 -------------------------------------------------------------------------------- Table of Contents Operating Expenses The following table shows our operating expenses and the associated percentages of revenue. Three months ended August 31, Percentage Nine months ended August 31, Percentage (In millions, except percentages) 2021 2020 Change 2021 2020 Change Operating expenses: Cost of revenue $ 425.7 $ 385.610 % $ 1,266.7 $ 1,189.76 % SG&A expense 285.6 258.7 10 % 871.1 833.0 5 % Total cost of revenue and SG&A expense $ 711.3 $ 644.310 % $ 2,137.8 $ 2,022.7
Depreciation and amortization expense
$ 145.1 $ 147.6(2) % $ 447.2 $ 442.31 % As a percent of revenue: Total cost of revenue and SG&A expense 60 % 60 % 61 % 64 % Depreciation and amortization expense 12 % 14 % 13 % 14 %
SG&A Cost of Revenue and Fees
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 cost of revenue and SG&A expense were largely due to the normalization of our business activities in 2021, compared to the strict cost control measures we employed in 2020 at the onset of the COVID-19 pandemic. Within our cost of revenue and SG&A expense, stock-based compensation expense decreased by approximately
$3 millionand $41 millionfor the three and nine months ended August 31, 2021, respectively, compared to the three and nine months ended August 31, 2020, which was largely due to lower employer tax impacts associated with the lower level of stock option exercises in 2021.
Depreciation and amortization
For the three and nine months ended
August 31, 2021, compared to the three and nine months ended August 31, 2020, depreciation and amortization expense changed nominally, but decreased as a percentage of revenue due to our strong revenue growth.
Restructuring and depreciation charges
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 cost-reduction initiatives. During the three and nine months ended
August 31, 2021, we recorded approximately $2.5 millionand $11.2 million, respectively, of direct and incremental costs associated with restructuring and impairment charges, compared to $12.1 millionand $97.9 million, respectively, of restructuring and impairment charges for the three and nine months ended August 31, 2020. The 2020 charges included employee severance and the abandonment or partial abandonment of various office locations around the world.
Costs related to the acquisition
Please refer to Note 9 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 and nine months ended
August 31, 2021, we recorded approximately $24.4 millionand $70.8 million, respectively, of direct and incremental costs associated with acquisition and divestiture activities. 27 -------------------------------------------------------------------------------- Table of Contents Other Expense (Income), Net Other income for the nine months ended August 31, 2020includes an approximate $372 milliongain on sale related to the A&D business line divestiture in December 2019. Please refer to Note 2 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional discussion about the divestiture. Segment Adjusted EBITDA Three months ended August 31, Percentage Nine months ended August 31, Percentage (In millions, except percentages) 2021 2020 Change 2021 2020 Change Adjusted EBITDA: Financial Services $ 240.7 $ 225.97 % $ 711.4 $ 662.67 % Transportation 167.1 153.6 9 % 484.5 373.2 30 % Resources 83.6 86.4 (3) % 249.2 272.8 (9) % CMS 37.5 31.0 21 % 92.3 95.4 (3) % Shared services (13.3) (10.7) (37.6) (32.2) Total Adjusted EBITDA $ 515.6 $ 486.26 % $ 1,499.8 $ 1,371.89 % As a percent of segment revenue: Financial Services 49 % 51 % 48 % 50 % Transportation 48 % 51 % 48 % 44 % Resources 40 % 41 % 39 % 42 % CMS 28 % 26 % 24 % 26 % For the three and nine months ended August 31, 2021, compared to the three and nine months ended August 31, 2020, Adjusted EBITDA increased primarily due to strong Transportation revenue performance and solid Financial Services revenue growth, as well as our continued cost containment efforts in the current COVID-19 pandemic environment, although all segment margins have been impacted as certain temporary cost containment measures have ended. We continue to focus our efforts on organic revenue growth and cost management to improve overall margins. Financial Services segment Adjusted EBITDA continued to increase due to organic revenue growth, although the associated margin declined because of increased investment in segment product offerings. The increase in Adjusted EBITDA for the Transportation segment was primarily due to organic revenue growth, which improved substantially compared to the prior year, when it was negatively impacted by the pandemic. Resources Adjusted EBITDA and associated margin decreased due to the organic revenue decline as a result of the COVID-19 pandemic, and CMS Adjusted EBITDA and margin increased for the three months ended August 31, 2021as a result of in-quarter organic revenue growth and BPVC sales, while Adjusted EBITDA and margin for the nine months ended August 31, 2021was negatively impacted by mix shift.
Provision for income taxes
Our effective tax rate for the three and nine months ended
August 31, 2021was 30 percent and 25 percent, compared to 20 percent and 6 percent for the three and nine months ended August 31, 2020. The higher 2021 tax rates are primarily due to the change in U.K.tax rates described below, as well as U.S.minimum tax impacts of approximately $16 millionand $50 millionfor the three and nine months ended August 31, 2021, respectively. The 2021 tax rates are partially reduced by tax benefits associated with R&D tax credits of approximately $19 millionand $19 million, and excess tax benefits on stock-based compensation of approximately $4 millionand $28 million, for the same respective periods. On June 10, 2021, the U.K.enacted an increase in corporation tax rate from the current 19 percent to 25 percent, effective from April 1, 2023. Due to our fiscal year end, the higher tax rate will be phased in, resulting in a U.K.statutory rate of 23 percent for our fiscal year ending November 30, 2023and 25 percent for subsequent fiscal years. Accounting Standards Codification ("ASC") Topic 740, "Income Taxes," requires that we remeasure our deferred tax assets and liabilities and recognize the effect of the tax law change in the period of enactment. We recorded a tax expense of approximately $26 millionfor the three and nine months ended August 31, 2021to remeasure our U.K.deferred taxes for the tax rate change. 28 -------------------------------------------------------------------------------- Table of Contents The varying 2020 rates are primarily due to excess tax benefits on stock-based compensation of approximately $13 millionand $89 millionand the tax-efficient divestiture of the A&D business line ( U.K.share sales are exempt from tax) of approximately $10 millionand $48 million, respectively, partially offset by U.S.tax reform impacts of approximately $6 millionand $38 millionand a 2020 U.K.tax rate change that resulted in incremental tax of approximately $23 millionfor the three and nine months ended August 31, 2020.
EBITDA and Adjusted EBITDA (non-GAAP measures)
The following table shows the reconciliations of our net income to EBITDA and Adjusted EBITDA for the three and nine months ended.
Three months ended August 31, Percentage Nine months ended August 31,
(In millions, except percentages) 2021 2020 Change 2021 2020 Change Net income attributable to IHS Markit Ltd.
$ 161.3 $ 162.9(1) % $ 469.6 $ 719.6(35) % Interest income (0.1) (0.2) (0.2) (0.8) Interest expense 54.8 57.7 165.7 178.9 Provision for income taxes 71.7 39.9 159.6 48.9 Depreciation 54.8 54.5 170.2 162.0 Amortization 90.3 93.1 277.0 280.3 EBITDA $ 432.8 $ 407.96 % $ 1,241.9 $ 1,388.9(11) % Stock-based compensation expense 52.7 56.0 168.4 209.8 Restructuring and impairment charges 2.5 12.1 11.2 97.9 Acquisition-related costs 20.7 3.8 59.3 6.6 Acquisition-related performance compensation 3.7 4.9 11.5 9.6 Loss (gain) on sale of assets - 0.4 (0.2) (370.5) Pension mark-to-market and settlement expense - - - 30.0 Adjusted EBITDA impacts from equity-method investments and noncontrolling interest 3.2 1.1 7.7 (0.5) Adjusted EBITDA $ 515.6 $ 486.26 % $ 1,499.8 $ 1,371.89 % Adjusted EBITDA as a percentage of revenue 43.7 % 45.3 % 43.1 % 43.1 % Our Adjusted EBITDA performance for the three and nine months ended August 31, 2021, compared to the three and nine months ended August 31, 2020, increased primarily because of organic revenue growth without proportionate growth in expense as we continue to focus on cost management activities as a result of COVID-19 and the current economic environment. Adjusted EBITDA margin decreased slightly for the three months ended August 31, 2021, compared to the prior year period, as our business activities began normalizing from the effects of the pandemic and certain temporary cost containment measures have ended, as well as a slight shift in product offering mix. Adjusted EBITDA margin for the nine months ended August 31, 2021, compared to the prior year period, is largely unchanged. Financial Condition (In millions, except As of August 31, As of November 30, percentages) 2021 2020 Dollar change Percentage change Accounts receivable, net $ 857.8 $ 891.7 $ (33.9)(4) % Accrued compensation $ 188.6 $ 206.1 $ (17.5)(8) % Deferred revenue $ 939.7 $ 886.2 $ 53.5 6 % The decrease in accounts receivable was primarily due to the reclassification of MarkitSERV and OPIS group accounts receivable to assets held for sale, while the deferred revenue increase was primarily due to year-over-year organic revenue growth. Accrued compensation decreased primarily due to the 2020 bonus payout made in the first quarter of 2021, partially offset by the current year accrual. 29 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources As of August 31, 2021, we had cash and cash equivalents of $337.9 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 $4.88 billionof debt as of August 31, 2021, consisting primarily of $235.0 millionof revolving facility debt and $4.67 billionof senior notes. As of August 31, 2021, we had approximately $1.01 billionavailable under our revolving credit facility. Subject to certain exceptions, the merger agreement with S&P Global restricts our ability to borrow more than $500 millionin the aggregate without the prior consent of S&P Global. We do not believe this restriction will impact our liquidity to meet our ongoing working capital and capital expenditure needs. Our interest expense for the three and nine months ended August 31, 2021, compared to the three and nine months ended August 31, 2020, decreased primarily because of lower floating interest rates in 2021 compared to the prior year, as well as decreased borrowings on our revolving facility debt. Our Board of Directors approved a quarterly cash dividend of $0.20per share in each of the first three quarters of 2021, which resulted in approximately $238.8 millionof cash payouts in the nine months ended August 31, 2021. Our Board of Directors approved quarterly cash dividends of $0.17per share in each of the first three quarters of 2020, which resulted in approximately $203.0 millionof cash payouts during 2020. Our Board of Directors has authorized a share repurchase program of up to $2.5 billionof IHS Markitcommon 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. The merger agreement with S&P Global restricts our ability to purchase our shares and therefore our share repurchase program is currently suspended through November 2021, other than for the repurchase of shares associated with tax withholding requirements for share-based compensation. 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. Given current market conditions as a result of COVID-19, we are focused on maintaining higher 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. We expect to continue to operate within our capital policy target range of 2.0x-3.0x gross leverage.
Nine months ended August
(In millions, except percentages) 2021 2020 Dollar change Percentage change
Net cash flow generated by operating activities
30 % Net cash (used in) provided by investing activities
$ (445.0) $ 255.6 $ (700.6)(274) %
Net cash used in financing activities
(63) % The increase in net cash provided by operating activities was primarily due to the negative impact of 2020 cash payouts for acquisition-related performance compensation associated with the aM acquisition described in Note 2, pension contributions associated with the distribution and transfer of pension liabilities, payroll tax payments on stock option exercises, and tax payments associated with divestiture activities. Improved working capital in 2021 also contributed to the growth in net cash provided by our operating activities. 30
The decrease in net cash provided by investing activities was primarily due to the sale of the A&D business line in the first quarter of 2020, as well as the current year acquisition of Cappitech and investment in Gen II.
The decrease in net cash used in financing activities is mainly due to the decrease in share buybacks in 2021, compared to 2020, of
Free cash flow (non-GAAP measure)
The following table reconciles our measure of non-GAAP free cash flow to the free cash flow generated by operating activities.
Nine months ended August 31, (In millions, except percentages) 2021 2020 Dollar change Percentage change Net cash provided by operating activities
$ 1,037.2 $ 800.5Payments for acquisition-related performance compensation -
Capital expenditures on property and equipment (220.0) (211.8) Free cash flow $ 817.2
$ 664.6 $ 152.623 % The increase in free cash flow was primarily due to increased operating performance and working capital balances, as well as the absence of one-time pension and tax payments that were paid in the prior year. 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 debts
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 14 to the condensed consolidated financial statements of this Quarterly Report on Form 10-Q and Part II, Section 2 of this Quarterly Report on Form 10-Q for a discussion of our share repurchase programs.
Off-balance sheet transactions
We do not have any 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 2020 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 positions
Please refer to Note 1 to the condensed consolidated financial statements to this Quarterly Report on Form 10-Q for a discussion of recent accounting statements and their expected effect on our business.
Â© Edgar online, source