Clarivate Plc

Good day and welcome to the Clarivate Q2 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mark Donohue, Head of Global Investor Relations. Please go ahead, sir.

Thank you, Sarah. Good morning, everyone. Thank you for joining us for the Clara of Eighth second quarter 2020 earnings conference call. With me today are Jerry Stead, Executive Chairman and Chief Executive Officer, Richard Hanks, Chief Financial Officer, Mukhtar Ahmed, President, Science Group, and Jeff Roy, President, IP Group. All will be available to take your questions at the conclusion of the prepared remarks. As a reminder, this conference call is being recorded and webcast and is copyrighted property of Clara of Eighth. Any rebroadcast of this information in whole or in part without prior written consent of Clarivate is prohibited. This morning, Clarivate issued a press release announcing our financial results. The period ended June 30, 2020. The release, as well as an accompanying supplemental presentation, is available in the Investor Relations section of the company's website, clarivate.com, under Events and Presentations. During our call, we may make certain follow-looking statements within the meaning of the applicable securities laws. Such follow-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the business or developments in Clarivate's industry that differ materially from the anticipated results, performance, achievements, or developments expressed or implied by such follow-looking statements. Information about the factors that could cause actual results that differ materially from anticipated results or performance can be found in Clarivate's filings with the SEC and on the company's website. Our discussion will include non-GAAP measures or adjusted numbers, including adjusted revenue and adjusted EBITDA. Clarivate believes non-GAAP results are useful in order to enhance an understanding of our ongoing operating performance, but they are supplement to and should not be considered in isolation from or as a substitute for GAAP financial measures. Reconciliations of these measures to GAAP measures are available in earnings release and supplemental presentation on our website. After I prepare remarks, we'll open the call to your questions. And with that, it's a pleasure to turn the call over to Jerry.

Thank you, Mark. And thanks to all of you for joining us this morning. 2020 has been a very productive year for Clarivate, and we still have five months left to go. What the team's accomplished in seven months is simply incredible, including our announcement this morning of a very, very solid second quarter results. Amazingly, we've been able to accomplish so much while close to 100% of our people are working from home. This is a great credit to all colleagues and their ongoing commitment to exceed productivity and service levels while continuing to execute on our strategic initiatives to drive profitable growth and long-term shareholder value. The improved results from our recent colleague engagement and customer service customer delight surveys validate the outstanding performance of our more than 5,300 colleagues that are in the great work they're doing every day. I'll cover those results in a moment. Yesterday, we took another big step forward in enhancing our product offerings with the announced proposed strategic combination with CPA Global, creating a world leader in intellectual property information and services. This transformative combination creates a full-service IP organization, which will provide customers with numerous products and services to meet their ever-increasing needs. Once the combination is completed, we will form a true end-to-end global solution covering the innovation and intellectual property lifecycle. Earlier this year, we acquired DRG, creating one of the largest and most complete providers of life science information in the world. with offerings across the entire life science value chain. Integration of DRG is well advanced. We are delivering on cost synergies and have initiated revenue synergy opportunities. The growth strategy we outlined at our investor day last November 12th is coming to life ahead of schedule, and we're just getting started. For the second quarter, we reported adjusted revenue of $277 million. an increase of 16% at constant currency. Excluding divested businesses, adjusted revenue increased 21%. In addition to recent acquisitions, sales growth was driven by a 4% increase in organic subscription revenue from new businesses and annual price increases. This more than offset a decline in transactional revenue due primarily to reduced demand resulting from the pandemic. I'm very pleased with the significant improvement in our profits this quarter, driven by the increase in sales and the cost efficiency initiatives that we are currently pursuing. Adjusted EBITDA increased 37% to $100 million for the second quarter, and our adjusted EBITDA margin continued to improve to 36% for this quarter compared to 30% last year. These strong results boost our adjusted earnings per share to 18 cents, the highest level since we became a public company. On our first quarter call in early May, we highlighted our expectations for the first half and second half considering the COVID pandemic. We continue to expect a gradual lifting of restrictions and a recovery starting in the fourth quarter. Our results for the first six months are exactly in line with our expectations. And we expect the second half will show a significant improvement over the first. Richard will cover the details in just a few minutes. In May, we completed our first colleague engagement and customer delight surveys for 2020. I'm very proud of our improved results. In a time of great uncertainty and disruption, the confidence in our company from our colleagues and from our customers has never been higher. Our success always begins with colleague engagement. We saw exceptional participation across Clarivate with a 91% participation rate, up 10% from last year. The engagement score increased a healthy seven points to 76 from our 2019 score of 69. Our score came in above the benchmark average of 72. Importantly, our company response and communications around COVID-19 scored an exceptional 93% favorable. That was our highest score. The improvements we have made internally are also making a real difference externally. This was validated by an improved results from our customer delight survey. In a time where we have limited virtual only customer interaction, we received a decisive score on the customer delight survey of 79. This represents an improvement from 76 we received in 2019. Best practice is 82. So while we still have some work to do, we are well on our way to reaching and eventually exceeding this target. Our improved score confirms the importance that our customers place on the work we're doing every day to help them be successful. We saw an increase in scores on key items, including information and insights and quality of products and services. Our biggest opportunity, which has not changed since last October, is our ability to be the easy-to-do business with company. While this is our lowest score question at 59%, we increased our performance by four points. This is a good improvement and reflects the focused effort we've made on delivering customer delight scoreboard actions. Our customers have given us a roadmap to world-class delight, and we will remain unrelenting in our pursuit of this goal. To help us get there in June, we acquired Customer First Now, a company led by Terri Nelson. Terri worked for me back at IHS and has built a business that is instrumental in introducing the discipline of superior customer experiences through their work on customer delight surveys, and very importantly, customer journey mapping. She's working closely with the science and IP groups to improve customer experience while building a customer-centric operational model across all of Clarivate. We will continue improving customer engagement as we quickly move ahead implementing the plans of our new global business centers. We are setting up three centers to drive improvements in productivity and customer delight and have made significant progress so far. London is up and running. Chandler, Arizona opens next week and Penang, Malaysia in December. Despite the global health pandemic, hiring is on track and we're seeing excellent quality candidates come forward. We're also looking into other parts of the business outside of inside sales and customer service that will too benefit from these centers, including more solid cost savings to come. Now, turning to our internal response to the epidemic, most of our colleagues continue to work from home. Our COVID response task force is working through our return to office plan. A very thoughtful plan is now in place. We continue to manage expenses very closely and extended hiring restrictions until November 1st as of now. We remain optimistic that we'll see a gradual lifting of restrictions with the recovery starting in October. Based on a solid first half of the year, We remain optimistic about the second half of 2020. We reaffirmed our outlook yesterday. Adjusted revenue at 1.13 billion to 1.16 billion dollars. Adjusted EBITDA 395 million to 420 million dollars. Adjusted EPS of 53 cents to 59 cents. And adjusted free cash flow of 220 million to 240 million dollars. This outlook does not reflect any impact with our plan combination with CPA. With that, I'll turn the call over to Richard.

Thank you, Jerry. Our second quarter results demonstrate that the actions we are taking to drive improved business performance are working. We reported adjusted revenues of $277 million, an increase of $35 million, or 16% at constant currency. The quarter includes a full contribution from the acquisition of DRG and Darts IP, which together added 20% to revenue growth. This was offset by the Mark Monitor brand protection divested products, which were sold on January the 1st of this year, and which reduced revenue by 6% compared to last year's second quarter. Excluding the divested product lines, total revenue increased 21% at constant currency in the second quarter. The foreign exchange impact in the second quarter was a negative drag of just under 1% due to dollar strength as compared to last year's second quarter. Organic business revenue, excluding acquisitions, divestitures, and foreign exchange, increased 1% as higher subscription revenue was partially offset by lower transactional revenue. On a reported basis, total subscription revenue was $217 million, an increase of 8% at constant currency. Recent acquisitions added 11% of subscription revenue growth, which was partially offset by the divested product lines, which decreased revenues by 17%. Excluding the divested businesses, subscription revenue increased 15% at constant currency. Organic business subscription revenue growth was almost 4% driven by new business including several large contract renewals entered into during the quarter as well as annual price increases. Subscription revenue renewal rates increased to 93% for the first six months of 2020 compared to 92% for the prior year. This is an important metric as we are enjoying the benefits of the product renovations flowing through to even higher renewal rates. Transactional revenue increased to $60 million, up $21 million or 53% year over year on a constant currency basis driven by the acquisitions. Recent acquisitions added 66% of transactional revenue growth and the product line divestiture lowered transactional revenues by less than 1%. Organic transactional business revenues decreased by approximately 13% as higher services revenues within the Web of Science and Life Sciences were more than offset by lower Web of Science back file sales and CompuMark search volumes due to the global pandemic. ACV growth was 9% for the second quarter, which includes the addition of DRG. Excluding acquisitions, ACV growth on an ongoing basis increased by almost 5% and was driven by organic growth and annual price increases. Looking now at the performance across our two product groups. For the science group, revenue increased $48 million, or 37%, to $184 million at constant currency, driven by the acquisition of DRG. Organic business revenue increased by 2%, led by higher subscription and services revenue within the life sciences product family, as well as the Web of Science group. For the intellectual property group, revenue for the second quarter, excluding divestitures, increased 2% to $93 million, a constant currency driven by the darts IP acquisition. Organic business revenue for the IP group decreased by less than 1% as subscription revenue growth was partly offset by lower CompuMark search volumes and IP services revenue. On a report basis, IP group revenue declined 12% due primarily to the divested products. Adjusted EBITDA in the second quarter increased $27 million or 37% to $100 million compared to the prior year period. This was driven by the increase in revenue and strong margin flow through, contributions from acquisitions, portfolio rationalization, as well as the benefit of the cost saving initiatives. Our adjusted EBITDA margin improved by almost 600 basis points to 36.2% as compared to 30.2% in last year's second quarter. Other operating income was $9 million in the second quarter, an increase of $2 million or 33% compared to last year's second quarter. The change was primarily related to a gain in foreign currency exchanges quarter compared to a loss in the prior year period. For the second quarter of 2020, we recorded a benefit to income tax expense of $5 million versus an expense of $4 million in last year's second quarter. The primary drift driver is the difference in the timing of the recognition of profits and losses at the company's mix of jurisdictions for the interim tax periods for the second quarters of 2019 and 2020. Cash taxes in the second quarter were $3 million compared to $7 million in the prior year period. Primary drivers of that decrease were that US income tax payments were deferred until July the 15th of this year due to the COVID pandemic, while last year's second quarter included foreign jurisdiction tax payments made for tax years 2017 and 2018. For the second quarter, adjusted net income was $70 million and adjusted diluted EPS was 18 cents. This represents a significant sequential increase compared to adjusted net income of $26 million and adjusted EPS of seven cents for this year's first quarter. The weighted average number of fully diluted shares outstanding used in the adjusted EPS calculation increased by 28 million shares to 395 million shares compared to this year's first quarter. The increase is mainly due to including the full share count versus weighted share count for the issuance of shares related to the acquisition of DRG in Q1 and the exercise of public warrants in exchange for ordinary shares in the first quarter. Capital expenditures were $33 million for the second quarter. The increase over the last year is due primarily to an acceleration of product development with significant cadence of new releases for renovated products, more time spent on application development as a result of COVID. And so therefore a higher proportion of time is capitalized together with the addition of DRG. Cash and cash equivalents were $609 million as of June 30th, an increase of $300 million from the March 31st, 2020 period. The increase was primarily driven by $304 million of proceeds from the June ordinary share which went. Adjusted free cash flow was $42 million for the quarter compared to a use of cash of $9 million in last year's second quarter. The year-over-year improvement of $51 million is due primarily to a $62 million increase in cash provided by operating activities in this year's second quarter partially offset by higher capital expenditures. As of June the 30th, we had total gross debt of $1.95 billion. Net debt was $1.35 billion. standalone adjusted EBITDA, which we are required to report on a trailing 12-month basis pursuant to the reporting covenants contained in our credit agreement and indenture was $439 million. refer to our earnings release or 10Q for a reconciliation from net loss to adjusted EBITDA and from adjusted EBITDA to standalone adjusted EBITDA. With net debt of $1.35 billion, our net leverage ratio improved from 4.7 times at the end of Q4 2019 to 3.1 times at the end of Q2 2020, driven by the increase in cash and standalone adjusted EBITDA. We ended the quarter with significant liquidity. In addition to the $609 million of cash on hand, we have an untapped revolver of $250 million. In conjunction with closing the proposed transaction with CPA Global, we are planning to use $400 million in cash to retire part of our outstanding debt. With that, I'll now turn the call back to Jerry.

Thank you, Richard. Before we open the line for questions, let me reiterate how excited we are with the progress we're making towards our long-term profitable growth objective. The proposed combination with CPA Global will play a big role in getting us there even quicker. I want to thank all colleagues at Clarivate for continuing to go above and beyond in the face of the pandemic. Not only did we deliver solid results for the first half of the year, we continued to make significant progress on many of our strategic initiatives, including two transformative acquisitions, and we improved our colleague engagement customer delight scores. Lastly, while we moved our investor day once this year due to the health crisis, we've decided to move it again to November, when we hope to have completed the proposed combination with CPA Global. This means that we'll be in a better position to further discuss the benefits of the combination, our integration plans, and provide a combined company outlook for 2020. We're now ready to take your questions. As a reminder, please limit yourself to one question, then return to the queue. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Mona Potnick with Barclays. Please go ahead.

Thank you. Good morning again, guys. I think the results are fairly straightforward. I guess my question, Jerry, is more, you know, you've got all these moving pieces thanks to COVID. You've got DIG on the science side. You just added CPA Global to the IP side. My question is, you know, working from home, like, how are you able to handle all this? Can you just give us a flavor of how the DRG acquisition has been going maybe as an example to kind of the capacity to handle all this?

Yeah, great question, man. I'll start to have Mukhtar add. It's a great example. To put that in perspective, we announced the closing of that, as you'll remember, on February 29th. And two weeks later, everybody was working from home. The integration is ahead of plan. I'm very proud of of Mukhtar, his team, and the entire DRG team. Our cost savings are above target, continue to be. The revenues, I just couldn't be happier with. And we've done it, I think, with a great integration team that Mukhtar will give you a couple points on in just a minute. And then we stay really close on top of things as we are doing and will continue to. Our productivity is the highest that I've ever seen it. I could tell you why it is for me, but let's focus on what Mutar can say with the progress on DRG. Great question.

Sure. Thank you, Jerry. Yes, the integration went very smoothly. We had a very experienced team here managing that program. And as Jerry says, it's been very smooth. We've realized not only our cost synergies, but also our revenue synergies A fair amount of cross-selling has also occurred, and we've reaped benefit from the initiatives associated with that, including obviously bringing various products to market. So overall, it's gone very well, and I think the unique aspect of what we do, which is we provide information and data. In fact, with... you know, with the COVID situation, there's actually been a greater demand here for, you know, digital engagement, online engagement, you know, data resources. And so that has certainly helped us to stay on the course here.

Thanks, Mukhtar. Great question. Next question, please.

Our next question comes from Seth Weber with RBC Capital Markets. Please go ahead.

Hey, good morning, guys. Hi. I appreciate the commentary about some of the new contract extensions and things we've got here in the quarter. I was wondering if you could just give us some more color on what you're seeing from specifically on the universities and the government side because I think there's some concerns out there that those end markets could be relatively softer here just in the current dynamics. Thanks.

Yeah, no, great question. I'll start, Mukhtar will pick up, and Richard will close this one off. We're really pleased with where we are operating. For sure, there are pressures on universities and government from a cost standpoint. Our renewal rates are actually slightly improved over last year at this point in that part of the world. And as just a reminder for everybody, about 70%, of our annual subscription-based renewals occur in the first half. So we've got a pretty good view of that. Mukhtar and his team have stayed on top of that. Great work. And we put in place about actually, I guess, three months ago, a team that Richard chairs to make sure any changes on pricing requests or terms, et cetera, out of that particular global market segment

come up so i'll have him comment after muktar sure thanks jerry um the you know with i mean what we've seen in 2020 um particularly from the academic sector here is pretty much continuity here primarily because a lot of the funding is already in place and much of the academic academic sector you know particularly um you know the upper tier universities and academic centers They have pretty sound funding structures and endowments and so forth. And of course, we've got a view towards 2021. And on a case-by-case basis, as Joey said, we're certainly looking at where we can potentially lend flexibility to certain universities in terms of adjusting to COVID and also the post-COVID potential scenarios where um certainly more online engagement may occur from students more distance distance learning use of digital resources and so forth um so so with with obviously with with the products and the data that we have we'll obviously continue to uh to serve that market uh postcode but um for for now we we haven't we haven't really seen seen an impact

Thanks, Mukhtar. Richard, just cover the term side, et cetera. Thanks.

Yeah, just a couple of the points on the university and markets. I mean, firstly, to Mukhtar's point, we sell to the top 7,000 research-intensive universities around the world. We monitor usage, and usage has been very, very good during this pandemic period. Secondly, the dollars allocated to universities Clarivate products is a very small percentage of the overall university budgetary spend on information resources. So we are not a significant part of the overall university spend. So we're not expecting that to be disruption consequently. And with respect to payment terms that Jerry was referencing, we put a task force in place at the start of the pandemic, which was a really essentially an enabler to allow sales to maintain the client relationship and any payment issues to be handled by a corporate team. I have to say that the number of instances we've had to manage through that mechanism has been very low. And our front office sales organization has managed these relationships extremely well. So we've not seen, at this stage, disruption in that respect.

Thanks very much.

Next question, please.

Our next question comes from Ashwin with Citi. Please go ahead.

Thank you. Hi, Jerry. Hi, Richard. Hello, Mukhtar. Good morning, and congratulations on the performance.

Thank you, Ashwin.

Yeah. I'm trying to primarily figure out how the environment changed through the quarter? So perhaps looking at it from two angles, one, you know, you launched the Web of Science beta with the new UI. Have you had an opportunity through the quarter to get some kind of, you know, initial feedback? Does the pricing benefit, the pricing for value come through, you know, as you proceed sort of with a separate process or is it synchronous? And then when you talk about, you know, large contracts entered in June. Is that because the environment has returned to a semblance of normalcy in June compared to April? Just trying to get some feel for how the quarter itself progressed.

Great question. I'll start. I'll ask Jeff to comment on the new product introductions and user interface, et cetera, and IT. And then Mukhtar, actually, because we introduced a tremendous amount of new products in life science and Q2. So we'll cover it. I would say two or three just as reminders for everybody. We said that we reduced our midpoint of our revenue guidance by $30 million. And just as a reminder, we said a million 130 to a billion 130 to a billion 150. And I think it's important that you remember we also said that we thought about 47%, 48% of our revenue would be in the first half versus 52% in the second half. We normally run without the pandemic about 49%, 51% on the base business. What I'm not sure, because I think it will be helpful for you, that we made clear is that with the addition of DRG for one month and a day in the first quarter and then three months in the second quarter, the spike in the second half of revenue comes from them running 40% first half, 60% second half. So, if you thought about it, I felt really good about where we ended up for the first half. And then I'll give a little more color and then turn it over to Jeff. A simple way to think about it is if we were annualizing, because I'm not sure we helped to make it clear, if you annualized approximately a full year of DRG at $220 million of revenue, you would see that the second half of their revenue would be $130 million. So that then you should subtract from what the guidance we've given you, That gives you a pretty good view of why we've got such high confidence in our core business in the second half. The subscription rate question that you ask, we feel really good about. We said at the time of the reduction that we would reduce the midpoint of our revenue guidance by $30 million. $25 million of that was on transactions, and That's turning out to be a reality, particularly Jeff will comment on it in a minute. We think we'll see a bit of a pickup in the second half with that. But we only had 5 million, and frankly, it was a conservative estimate for Richard and I on the subscription base. And I would say at this point, we couldn't be happier. The renewals are solid. And actually, on a year-to-date basis, the retention is up over 1%. So that feels good. Jeff?

Yeah, sure. Thanks, Jerry. I mean, to comment on the environment first, as Jerry said, we expected to see some softness, particularly in the transactional part of the IP business as a result of COVID. And I would say that the softness that we saw was right in line with our expectations. So no surprises there. We were really pleased in the first half with the underlying subscription strength. So we feel pretty confident that what we predicted at the end of the first quarter for the year is going to be exactly what's going to happen with the recovery starting in Q3 and hopefully accelerating beyond that. On the product side, I mean, with Q2, the work from home and the environment really hasn't slowed us down at all. We completed the DARPS IP integration with CompuMark right at the end of Q1. We completed the integration with Derwent at the end of Q2. We were able to make quite a bit of progress around adding data with the full-text expansion into Derwent from 20 to 65 authorities. And, of course, we also have added quite a bit of industrial design content to TMGO. So we continue to focus on the user experience for our customers, and we'll continue to do that through the second half. And we continue to focus on our data initiatives to improve and expand the scope of our content across the product. So we feel pretty good.

Thanks. Mukhtar.

Yeah, very similar to Jeff here. I think what we've enjoyed in Q2 is certainly an increase in, you know, in end user adoption right across our suite, particularly in web of science. And some of that, of course, is, the move towards distance learning and a lot of the universities sending their students home. So that uptick was certainly noticeable for us. In line to our product releases, particularly in the Cortellus suite, we've seen an increase in not only adoption, but also in subscription. Our retention has increased across the Cortellus suite in particular. We released a number of weather science improvements, including the UI. We had the 2020 version of, you know, the journal citation reports that we released. And so, you know, naturally those will take more time to adopt. So, you know, we're expecting obviously a response to those in Q3 and beyond as our customers can enjoy the benefits from those particular releases. And then on the DRG side, we've also seen, you know, great success here in Q2, particularly with the analytics business and the various products that accompany that particular suite. And that's in line with obviously all of our integration efforts here that we talked at the outset of this call with DRG as we brought, you know, that business fully in line to all of our product management and product launch, you know, practices.

Thanks, Mukhtar. Thanks, Jeff. Ashwin, great question. I hope that helps clarify why we've got such confidence in delivering the second half. Next question, please.

Again, if you'd like to ask a question, please press star, then one. Our next question comes from Andrew Nicholas with William Blair. Please go ahead.

Hi, good morning. This is actually Trevor Romeo in for Andrew. Thank you for taking the question here. Just wanted to ask one on the... on the IP business in light of the acquisition you announced yesterday, CPA, that that business is becoming a bigger piece of the total pie. So I was just wondering how you think about the market growth for the IP business broadly. I think you've talked about potentially double digits for life sciences over time. Just wondering what might be a comparable type of growth outlook for the IP segment. Thank you.

Great question. I'll have Jeff comment on that. If you A couple of the key statistics is the growth in patents and the growth in trademark inquiries. But the patent growth, Jeff, please comment on it because it's pretty remarkable.

Yeah, so we like the underlying strength in the market. I mean, you're seeing patents grow roughly 6%, you know, year on year. And you're seeing what I guess I would call a democratization of innovation where you're seeing a much larger spread of companies filing patents, so it's not dominated by just the larger players in each particular market. We think that creates an incredible amount of opportunity for us in the IP market, and particularly with the new mix of products that we expect to enjoy by the fourth quarter. The other thing that's always important to note when we talk about the IP group is the underlying data, and we've been doing a lot of work to decouple that data from the platform so that we can leverage the data and more of the data as a service program to serve particular needs of particular vertical markets. The data has a lot of value within IP, but it has a lot of value that we're not necessarily fully extracting yet. So we think we can get a pretty aggressive growth rate on the basis of all of those things.

Thanks, Jeff. Great question. Next question, please.

Our next question comes from George Tong with Goldman Sachs. Please go ahead.

Hi, thanks. Good morning. I wanted to dive deeper into the potential growth impact of the acquisition of CPA. Following this acquisition, Jerry, can you provide an update on what your aspirational organic revenue growth target is exiting 2021 and by 2023?

Great question. So two things. In November, we'll give you really crisp guidance and look forward to that out into the future. obviously based on our expectation to close early fourth quarter or sooner with the addition of a great business. A couple things. What we have said was that we expected to – Richard and I, just for a reminder for everybody, actually January 14, 2019, we said we expected to close 2020 between 4% to 6%. organic revenue growth. We feel very good about that target. If anything, if you included the organic growth in DRG, which we won't, but if you included that, it would be even higher at the top end of that. We also said then last year at our investor day that we expected to close run rate of 68% organic growth as we exit 2020. 2021. And we'll do that. I think what you should be thinking about is, as you heard us think, life science should be growing double digits, high degree of confidence as do all of us that that'll happen. We'll give you much clearer guidance on what we expect with the addition of CPA in November. And we'll also lay out to your question, George, a 2022 exit rate into 2023 on organic growth, free cash flow, and for sure an exciting number of EBITDA margins. So I think we'll do – I've got such great confidence in this team. I think we'll be at the upper end of the 6% to 8% organic growth as we exit 2022. 2021. Thank you. Great question. Next question, please.

Our next question comes from Zach Cummings with B Riley FBR. Please go ahead.

Yeah. Hi, good morning. Thanks for taking my question. Um, yeah, just talking about the pricing, uh, even in a difficult environment, it sounds like you were still able to actually increase prices here. So hoping you could just give a little more detail around kind of, uh, I guess the reception to the price increases and your ability to continue to see that move upward as the environment continues to improve from the tough conditions here in Q2?

Great question. I'll have Richard add color in just a second. We just had our first half report and annual report on pricing for the year. Felt very good about that. We had said last year that we hope to be north of 3% with vice realization. We're very much on track with that. We had a great meeting in the last week or two with Mukhtar, Jeff, Richard, myself, and others. And we'll be loading, as we've said consistently, our renewal information somewhere north of 4% expected growth. And I think I don't use the word price because I don't think of it that way. I use the word of value increase. And just for openers, if you think of everything we provide for annual subscription base, what you get at the beginning of the year versus what you continue to receive from us at the end of the year is a significant enhancement when we talk about all the new products, et cetera, we've done. I feel very good. One other quick comment, and to Richard for color, our feedback from the customer delight scores is very consistent. It's the highest scores I've ever seen in the value that our customers place in their work streams on our product offerings. So we want to continue to earn that kind of return and value recognition, and we'll continue to make sure that we demonstrate with our sales force, the increased value with the new products, enhanced timeliness, et cetera. Richard?

Yeah, I think as Jerry's covered it, the items I would add is actually relating to currency. And that is that over 75% of our revenue streams are dollar-denominated. And obviously, dollar's been relatively strong. And so when it comes to price increases, where we are invoicing in particular in emerging markets, where there's been currency devaluation against the dollar, that's the one area where we are ensuring that we're obviously selling on value. But as we think ahead, that would be one area where we would be a little bit more cautious. And we factored that into our estimates for price increases for next year. Looking at the ask, we're expecting a yield of at least 4%. in 2021. And as we've said on previous calls, we expect equilibrium of price increases annually to be between 4% and 5%. But the one area that we, as I said, that we're focused on is emerging markets because of dollar strength.

Thanks, Richard. Great question. Next question, please.

Our next question comes from Shlomo Rosenbaum with CECL. Please go ahead.

Hey, guys. A couple of questions on DRG. First, could you tell us specifically how much revenue DRG contributed in the quarter? And then also, can you comment on the progress of continuing to transition their revenue to more of a subscription-based than, you know, kind of transactional-based that they had had beforehand that was ongoing before you guys bought them?

That's a great question. Let me help on the first part, and then Mukhtar and Richard give our views on how that back in fourth quarter load will shift with time into more annual subscription base. Just to take it this way, if we'd have had them for a full year, they would have delivered between 210 and 220 million of revenue. Sixty percent of that is in the second half. So a simple way to think about it is make it easy. 130 million are there about in the second half. Had they been with us all year, that means they would have been at 90 million in the first half. They weren't because we had them for four months. So you can do that math. But the big thing is 60% comes in the second half with a big curve on the fourth quarter. Bukhtar, you start. Richard, please pick it up. Great question. Thanks.

Sure. Just a point of clarification here. I mean, we're talking about reoccurring revenue and not one-time transactional revenue, and there is a difference between the two. So reoccurring revenue allows us to obviously engage in long-term relationships with customers and offer significant size as well. So as part of that shift, we've started really taking a number of the assets particularly that customers use, our analytical tools and software products in particular. And we're shifting those over to 100% cloud subscription. And we'll continue with that effort as we build out the products and we productize those various use cases. So over time, we'll see some of that reoccurring revenue shift over to cloud subscription. But certainly in Q3 and Q4, we certainly expect to continue with with a real push here on bringing in a lot of the commitments around those reoccurring engagements. Thanks, Mukhtar. Richard?

Yes, so in terms of the contribution from DRG, in the press, you know, you can see that we bifurcate the revenue growth between acquisitions, divestitures, and organic growth and FX. So you can see it in the supporting documentation in the queue.

And I think the other thing I'd comment on the actual last year all in for DRG was 207 million. The hypothetical I gave you is not a big growth. So there's room for that too. But use the actuals and you'll see how it plays out. That's why we have such huge confidence in the second half delivery as we've given you the annual guidance. I think we're done with the questions at this point. And I would suggest that we look forward to any one-on-ones as we go forward. We're very, very pleased with the results. And as we said yesterday, really excited about having the good fortune to add DRG. And then we hope as quickly as we can with CPA. These are two amazing assets that puts us as world leaders in two of the greatest businesses that there is. And the only one that tracks innovation from the beginning to the real results of reality with innovation. So very pleased, very excited. I'm very proud of our team and the amazing work they continue to do. And I thank you all for your interest and participation. Thanks, operator.

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