This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good morning and welcome to CLI RAGE Q2 2021 Earnings Release Conference Call. All participants will be in listen-only mode. To generate 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. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would like to turn the conference over to Mark Danayou, Vice President and Investor Relations. Please go ahead.
spk02: Thank you, and good morning, everyone. Thank you for joining us for the Clarivate Second Quarter 2021 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 Gordon Sampson, President IP Group. All will be available to take your questions to the conclusion of the prepared remarks. As a reminder, this conference call is being recorded and webcast in the copyrighted property of Clarivate. 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 for the period ended June 30, 2021. 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 forward-looking statements within the meaning of applicable securities laws. Such forward-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 to differ materially from the anticipated results, performance achievements, or developments expressed or implied by such forward-looking statements. Information about the factors that cause your actual results to 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, adjusted EBITDA. Clarivate believes non-GAAP results are useful in order to enhance an understanding of ongoing operating performance, but they are supplemented to and should not be considered in isolation from or as a substitute for GAAP financial measures. Reconciliation of these measures to GAAP measures are available on earnings release and supplemental presentation on our website. After a prepared remark, we'll open the call to questions. With that, it's a pleasure to turn the call over to Jerry.
spk06: Thank you, Mark, and thanks to all of you for joining us this morning. We had a very busy, eventful, and exciting first half of the year. I am very proud of what our team has accomplished. In addition to the positive financial results, we are well ahead of schedule on integration of CPA Global. We've identified an additional $25 million in cost synergies, taking the CPA program to $100 million, which we will deliver. Our track record of success with quickly integrating acquisitions gives us the confidence and bandwidth to do more M&A. This certainly includes the proposed acquisition of ProQuest, an acquisition we are very excited about. We've also made excellent progress in our customer account transition to inside sales in the global business centers, and we launched several new and enhanced product offerings, including a new web of science platform. We also completed our first colleague engagement and customer delight surveys for 2021 and issued our first ever annual sustainability report. My colleagues continue to be highly energized in our pursuit to be the best information service companies and one of the very best places to work in the world. Turning now to our second quarter results. Adjusted revenue from the second quarter was up 57%. to $447 million on a constant currency basis, driven by the acquisition of CPA Global and organic revenue growth of 5%. Organic transactional revenue increased 16%, and organic subscription revenue increased 1.5% in constant currency. As we have consistently said, we expected subscription growth to be lighter in this year's second quarter after a strong first quarter, our first quarter increased 6% due to the timing benefits that were realized in this year's first quarter. For the first six months, adjusted organic revenue increased 6%, which is a better reflection on our performance and normalizes COVID-related events in 2020. As a result of the favorable first half, we've tightened the range of our 2021 outlook. We currently expect to exit the fourth quarter with organic revenue growth towards the upper end of our 68% organic growth target. For the second quarter, adjusted EBITDA was $189 million, up $89 million from the prior period. Our adjusted EBITDA margin continues to improve at 42% compared to the 36% in last year's second quarter. We also delivered strong adjusted free cash flow in the second quarter of $95 million and $259 million for the first half of this year, both up more than 100% over last year's periods. Richard will cover our results in more detail soon. In May, we were pleased to announce our proposed acquisition ProQuest, which we continue to be very excited about. The combination will enrich our value chain across research lifecycle with solutions across content, analytics, and workflows with our highly complementary products, we will be in an even better position to serve the evolving needs of researchers, learners, and innovators in academia, governments, corporations, schools, and libraries around the world. This proposed acquisition will strengthen Clarivate's revenue and EBITDA growth, and we anticipate it will further enhance our subscription and reoccurring revenue base. Additionally, we expect this transaction to result in double-digit accretion to Clarivate's earnings. Late yesterday, we received a second request from the FTC in order to help them analyze this transaction. We are cooperating with them fully. We remain confident that after conclusion of this process, antitrust concerns should not interfere with our acquisition of ProQuest in any significant way. We're hopeful we can complete the proposed acquisition in the second half of this year. Since acquiring CPA Global 10 months ago, our team has swiftly brought our two organizations together. We are more than four months ahead of schedule and have identified, as I mentioned earlier, an additional $25 million of cost synergies. Therefore, we will deliver $100 million of savings compared to our original estimate of $75 million. The majority of the additional savings is coming from facilities rationalization and our digital workforce transformation projects. As I said before, we've made great progress in our customer accounts transition into inside sales and global business centers. We're nearing completion of the first phase with 80% of accounts, 20% of our revenue being served by these centers, including DRG and CPA global customers. Our plan is to continue to expand this capability, leading to higher sales and leading to client retention rates improvements. In April, we launched OneClarity, a critical shift of our strategy. We're transforming from being a collection of distinct market-leading products and services to becoming a key partner to our customers by delivering the critical data, insights, and workflow solutions, coupled with very deep domain expertise that our customers need to drive their innovations and their businesses with confidence. With our customer-focused facing activities focused on five industries, our customer segment. We're now training our colleagues in sales on these segments. For example, understanding the industry dynamics, the sub-segments and key organizations. We're teaching our sales folks to gain better understanding of the roles and responsibility of our users, our customers, and their customers, helping us to build further credibility as a trusted advisor. Importantly, the combination of the move to inside sales and our OneClarivate strategy is expected to help push our retention rates higher. To lead our transition to OneClarivate across all sales, we welcome our Chief Revenue Officer, Steen Lomholt-Thompson, who will join Clarivate starting August 2nd. In this new role at our company, Steen will be responsible for driving global revenue and customer engagement. He will align our sales teams under his leadership, ensuring that we pursue a one-clarified approach for new business and with our existing customers. In May, we completed our first of two colleague engagement and customer delight surveys for this year. We're in pursuit of becoming and being recognized as one of the best places to work in the world. To get there, it is essential that we regularly listen to and act on our colleagues' feedback. One of our core values is we value every voice. We had terrific survey participation of 88% and more than 6,000 write-in comments. I personally read as our leadership team has every comment and they're very helpful for us. As you can see, we have a highly engaged workplace for which I'm very thankful of. This past year has taken a toll on each of us in dealing with the pandemic in both our personal and professional lives. Julie Wilson, our new chief people officer, joined us in April as working with her team and many leaders across our organization in developing new options and ideas to promote and enhance our colleagues' well-being and work-life balance. I look forward to sharing our progress with you. Our customer delight score in the recent survey came in at 75 as compared to our score of 76. for 2020. The last year brought many unique challenges, such as the global pandemic, along with economic fluctuations and societal unrest, to name just a few. Comparing our score across other industries, we saw a one to three point decrease worldwide, which means our results are at the very top of the global trend. We did see a number of positive developments, including a higher proportion of positive writing comments versus opportunity areas. We also receive strong scores for quality of products and services and information and insights. Additionally, we're very pleased to see DRG's Delight score improve five points under our ownership. We will run a second colleague and customer survey in DePaul, and we'll share those results with you at our November 9th virtual investor day. Turning to our 2021 outlook, we are tightening our revenue and adjusted EBITDA guidance because of the strong first half. Let me give you a bit of color to frame how we see the second half of this year. Organic revenue in the first half was almost 6%. We currently expect to deliver 6.5% to 7% plus in the second half of this year, with a big pickup in fourth quarter compared to the second and third quarters. What's driving the increase? As an important reminder, 60% of DRG's business comes in the second half of the year, with 60% of this in the fourth quarter. We will also benefit from a full quarter of organic growth from CPA Global in the fourth quarter and realize the benefits of the cost synergies that will drive significant margin expansion in the fourth quarter. Additionally, transactional revenue is seasonally strongest in the fourth quarter. These items together will drive our organic growth rate into the upper end of our 68% target rate exiting 2021. Taking all of this into account, adjusted revenue guidance is now $1.8 billion to $1.84 billion. Adjusted EBITDA is now $795 million to the top at $825 million. Adjusted EPS is now expected to be $0.70 to $0.74. This is due to a higher fully diluted weighted average score count for 2021 as a result of our June primary and convertible share offerings with proceeds which are intended to be used to fund the proposed acquisition of ProQuest. There is no change to our adjusted free cash flow of $450 million to $500 million. I'll now turn the call over to Richard.
spk07: Thank you, Jerry. Our adjusted revenues for the second quarter were $447 million, an increase of $170 million or 57% to constant currency compared to last year's same period. The increase was primarily driven by the acquisition of CPA Global last October and a 5% increase in organic revenue at constant currency. The gain was partially offset by the tech street disposal last November. The second quarter, the foreign exchange impact on revenues was a very favorable 4.3% due to the continued weakness of the U.S. dollar as compared to last year's second quarter. Subscription revenue was $244 million, an increase of 8% of constant currency, primarily driven by acquisitions and partially offset by divested products. Second quarter organic subscription revenue growth was about 1.5% of constant currency, organic subscription growth in the second quarter was primarily impacted by timing, which we benefited from in this year's first quarter when we delivered an increase in organic subscription revenues of 6%. For the first six months of 2021, organic subscription growth increased 4% at constant currency. The subscription revenue renewal rate at the end of the second quarter was 91%. Down less than 2% from last year's second quarter, approximately half of the decline can be attributed to an IP customer cancellation. We're obviously disappointed any time a customer cancels, but we are optimistic that we'd be able to serve this particular client through other channels, including on a transactional and services basis. ACV growth at constant currency was 8% for the second quarter, as compared to the same period prior year. which includes acquisitions. On an organic basis, ongoing ACB increased just over 2% at constant currency. Transactional revenue was $90 million, an increase of 49% year on year on a constant currency basis, primarily driven by acquisitions, but also organic growth. Organic transactional revenues increased by $10 million, or 16% at constant currency, due to strength in our professional services business, which increased 11%, including a strong performance from HDS, our healthcare and data solutions unit, previously known as DRG, and an increase in trademark search volumes in CompuMark. We continue to see a nice recovery in this segment of our business, with transactional revenues increasing 13% on a constant currency basis for the first six months of 2021. We're seeing a subtle shift in the growth profile of transactional business compared to subscriptions, with transactional revenue growing at a faster rate and we believe this is sustainable. The increase is primarily across health data services and the life sciences segment. We serve many of the largest customers within the healthcare space, including the top 50 life sciences companies. We have established senior relationships and transact on a repeat basis with this marquee client base. Reoccurring revenue, which is derived from the CPA global patent renewals business, was $114 million in the second quarter, with no figure for the comparative period as the CPA business was acquired in October 2020. Subscription plus reoccurring revenue accounted for 80% of adjusted revenues in the second quarter, demonstrating our highly predictable and reliable revenue model. Turning to the business segments, organic revenue growth within the science group for the second quarter increased by 5% or $10 million, driven by strong transactional revenue growth due to strength in professional services and back file and custom data sales. For the IP group, second quarter organic revenue increased by 3% or $3 million on a constant currency basis, primarily due to an increase in transactional revenue from improved trademark search volumes. Geographically, organic revenue growth in the Americas for the second quarter was almost 9% at constant currency, primarily driven by the strength in transactional revenue. For both EMEA and Asia Pacific regions, organic revenue growth in the second quarter grew less than 1%, with these regions favorably impacted by the timing benefit of a 7% increase in each region in this year's first quarter. The customer cancellation in the IP group also impacted the lower growth rate for Asia in the second quarter. Adjusted EBITDA in the second quarter increased by $89 million to $189 million, driven by contributions from acquisitions, organic revenue growth, and strong margin flow through and the benefit of the cost saving initiatives. Adjusted EBITDA margin once again improved up to 42% for the second quarter, up 610 basis points versus prior year. Cash taxes in the second quarter were $10 million compared to $3 million in the prior year period. The increase in cash taxes this quarter was due to the addition of CPA Global and lower tax payments in last year's second quarter as a result of the COVID pandemic, whereby US federal estimated tax payments were deferred until July the 15th. Adjusted net income increased by $41 million to $110 million for the second quarter, while adjusted EPS declined by 1 cent to 17 cents compared to the prior year period. The decline is due to the significant increase in weighted average ordinary shares, which increased by 247 million shares primarily related to the ordinary share issuance for the CPA global acquisition in October 2020. Capital expenditures in the second quarter were $29 million, a decrease of 4 million compared to the prior year period, primarily due to additional COVID-related IT equipment spend in last year's second quarter as compared to this year's quarter. Adjusted free cash flow was $95 million in the second quarter, an increase of $54 million compared to the prior year period, driven by the strong operating results and an improvement in working capital. For the first six months of 2021, adjusted free cash flow was very strong at $259 million, an increase of $139 million over the prior year period. We ended the June 30th, 2021 period with $2.6 billion of cash in hand, an increase of 2.3 billion from the prior year period. This is primarily a result of the 2 billion equity offering in June to fund the proposed acquisition of ProQuest. Additionally, we added $2 billion of restricted cash in the second quarter. This represents the cash in escrow from the June debt offering of $2 billion with proceeds also targeted for the acquisition of ProQuest. The recent debt offering is shown as a current liability on our balance sheet until we close the proposed acquisition. With that, I'll now turn the call back to Jerry.
spk06: Thank you, Richard. In conclusion, the first half was a really great start for us this year, and we're eager to deliver even better results and achievements in the second half. Again, I want to thank all of our colleagues from around the world, who continue to do great things every day. We're now ready to take your questions. As a reminder, please limit yourself to one question, then return to the queue. Operator, please.
spk03: We will now begin the question and answer session. To ask a question, you may press 1001 on your telephone keyboard. To withdraw your question, please press 1002. The first question is from Tony Kaplan with Morgan Stanley. Please go ahead.
spk00: Thank you so much. Just wanted to delve a little bit more into the science organic growth. You grew 5% this quarter there. And embedded in that, you have DRG, which is growth accretive. So is that implying the legacy business is growing roughly around, let's say, 4% and mostly all from pricing? Just wanted to understand the different pieces going on within science. Thank you.
spk06: A great question, Tony. Richard will start, and Muktar will pick up on it. Good question. Thanks.
spk07: We acquired in February 2020 the DRG business, which we've now renamed HDS. As you can see from the that we filed pre-market, HDS grew 18% in the second quarter. It is a faster-growing asset. in that very attractive life sciences space. In the second quarter, the other elements of the science group, being Web of Science in particular, didn't have the same level of growth that we generated in the first quarter, principally due to timing, because we obviously renewed our subscription base on a more timely basis in Q1 as compared to prior year. So there was a lag effect into the second quarter. But all in, we're very satisfied with the science product group performance. And as you said, 5% growth for the quarter, impressive results. And most importantly, the pipeline for the life sciences business is looking particularly strong for the second half of the year.
spk06: Once we get Mukhtar off of mute, we'll have him comment too. But let's go ahead to the next question. Tony, thanks so much. Next question, please.
spk03: The next question comes from George Tang with Goldman Sachs. Please go ahead.
spk09: Hi, thanks. Good morning. You touched on progress with transitioning to inside sales and new product launches made in the quarter, such as the new web of science platform. Can you elaborate on these areas and other initiatives that you're working on that should help accelerate organic constant currency revenue growth over the remainder of this year? and to the high single-digit range over the long term?
spk06: Yeah, great question. And Richard picked it up. We were talking about it just before the call this morning.
spk07: So I think that structurally the transition to one clarivate and the focus on the five industry segments or customer segments that Jerry referenced earlier will ensure that our sales organization is really attuned to supporting our clients in those particular verticals and being a truly value-added solutions provider, number one. Number two, as we focus on price realization as we look into 2022, Jerry, Mukhtar, Gordon, and myself have reviewed our pricing algorithms for next year. and we're very confident that we will realize plus 4% across the portfolio next year. The transition to inside sales, structurally very important. We've moved approximately 25,000 client accounts into inside sales in our three global business centers, Chandler, Arizona, London slash Belgrade, EMEA, and then Penang, Malaysia. that will generate a stronger interface with our clients, particularly in the long tail, which will drive improved retention rates. So those final pieces would then include professional services, particularly in the life sciences space. We also see some really attractive opportunities in IP. So I think professional services, which we've spoken on previous calls, not just being important transactional growth for us, but also giving a vehicle for us to sell subscription products in behind is a really important interaction we have with our clients. So those would be some of the elements that we have that support second-half growth, but also our expectations with respect to organic growth in 2022.
spk06: Which we'll talk more about at our November 9th virtual conference. Mukhtar, go back and pick up, if you would. Tony's question and anything you'd like to add to George's too.
spk05: Sure. Happy to do so. I mean, I think Richard has touched on most of the important elements here, but the key thing here is we continue to invest in our products. We continue to invest in our world-class data assets. And, you know, we've released a number of new versions of our products, particularly, you know, the new Web of Science platform, which, really enhances the personalized experience here for both researchers and research practitioners. And I think this in combination to some of the investments that we're making in the life sciences discovery preclinical and preapproval stage, I think all of those will pay dividend here as we roll those out and drive adoption in our longstanding customer basis. You know, we would expect to see some good growth there, you know, in the remainder of the year and certainly going into next year. Thanks, Mukhtar.
spk06: Gordon, just pick up, if you would, on the efforts that are underway with you and Mukhtar of the consulting, if you will, professional services as we bring that into IP.
spk08: Sure. Thanks, Gerry. Mukhtar and I are looking across the organization to see where we have both strength in depth and capability, looking to see where we can look at those market verticals where we deeply understand the client requirements and pull together both a consulting and professional services group that's focused on client solutions. I think to quote Mukhtar from the past, professional services sells products, and that's absolutely true. And I think we have a much greater opportunity across the IP and science business by acting as one in that space in both consulting and in professional services. So I'm pretty excited about that, Jerry.
spk06: Thanks, Gordon. Just one other quick comment. We'll go to the next question, please. We talked about the five global markets that we're going head forth with that STEAM will be already off and running. It's $102 billion total market potential for us through those five. Two of the largest are where we're strong today, $26 billion and $33 billion, faster growing. So that makes it a very exciting step forward. Great question, George. Thank you. Next.
spk03: The next question is from Manos Patnaik with Barclays. Please go ahead.
spk01: Thank you. Good morning. I was just hoping, you know, you could just refresh us with, you know, the cadence of growth that we've seen at DRG and CPA, you know, versus last year, because I know they both were, you know, impacted obviously by COVID and, you know, obviously the acceleration is the reason for your kind of fourth quarter optimism as well. So I was just hoping that 18% you talked about for DRG, I guess, how has that changed? And then maybe something similar for CPA.
spk06: That's a great question. I'll have Gordon comment on CPA in a minute. We're delighted with him leaving IP with his years of experience from CPA. But Mukhtar gets the joy of sharing the great progress that we've made with DRG and where we're at and where we'll go in the second half. Mukhtar?
spk05: Sure. I mean, last year, you know, of course, you know, we were in the throes of the pandemic. And I think, you know, we all saw, many of the economies kind of slowed down and shut down and decision-making was deferred to a large extent. So with DRG, what we saw was low single-digit growth last year. And this year, our growth has been certainly in line to the industry. A lot of demand there, certainly in the post-approval space. And as a consequence of that, Our real-world solutions, particularly in that healthcare space, have performed extremely well, and we expect those to continue to do so. And then the other area is really in the medical technology space. That market is certainly quite buoyant, so we've had really good success there. And again, the growth there is in line to you know, what we're, you know, seeing by way of market dynamics and also in response to just customer demand here. And, you know, as I said earlier, this also revolves around the investments that we've made in terms of enriching the analytics, the experience, the data, and ultimately the value that we're creating through our assets for our customers.
spk06: So great start, much more to come. Please, Gordon, on CPA.
spk08: Thanks, Jerry. Thanks. So on CPA, a similar story during the COVID intensive period where there were impacts on some of the transactional business, which of course is the smaller part of legacy CPA business and some impact by pruning our portfolios. So reducing some portfolio numbers in the core annuities business. Those factors have changed as we've been emerging from COVID. And we've seen a very strong performance so far this year. And we expect CPA coming towards the end of this year to be in the historic growth range that you've seen before in the 5%, 6% range. And the other thing which is making that feel good is we're focusing on integrations between products. So not just with CPA, but with Clarivate and CPA, where the combination of our products gives us a much greater opportunity to penetrate new parts of the market. So those two dynamics together make me feel good about legacy CPA performance, but more importantly, I'm positive about the IP group performance in H2.
spk06: Thank you. Thanks, Matt. I'll just add one thing to that, because what we've tried to point out is that fourth quarter is the way this model plays out. Our strongest quarter will be. That's why we've got the high confidence and exiting 2021 at the upper end of the 68% organic. We're tracking that by the day, and confidence increases each day. And then the other thing I'd just add is that as we leave 2021 into 2022, the changes that we are making, particularly when you think about the inside sales and all the efforts there, We'll see that reflected in Q1 and Q2 because a large percentage of our renewals, particularly on the very long tail that we have of smaller customers, comes up. That's where the weakness has been historically, and that's why we're so pleased with the progress on inside sales. Thanks, Manav. Next question, please.
spk03: The next question is from Shlomo Rosenbaum with Stiefel. Please go ahead.
spk10: Hi. Good morning. Thank you for taking my questions. I noticed there's a change in kind of the one-half, two-half fallout of the EBITDA. It was supposed to be at 42.58. It's now moving to 44.56. Is there something changing operationally in the business that's making it that you're having more of the EBITDA in the first half of the year? than expected, or is there just some kind of timing issues that are happening? I'm trying to understand because, like, you know, the strong EBITDA on the quarter, it implies a little bit on the forward basis that maybe things would go down a little bit. I'm trying to understand if there's a pull forward or a shift or just what the dynamics are there.
spk06: No, great question. Just as a refresher, in my script I said you should think about it. This is as close in my 42 soon to be. 42 years leading public companies I've ever gotten to give in quarterly guidance. And we need to do that, but everything's going on. What you should have heard from my comments was Q3 will be pretty close to where we are with where we were with Q2, and Q4 will be very strong as we exit. And actually part of it, slow-mo, is timing only from the standpoint of all of the cost savings. that we got. Remember, we increased another $25 million with CPA, et cetera. Great question. I'll pick it up, Richard.
spk07: Yes. So on the revenue profile, we held to the 48-52 H1-H2 split, which we explained in the first quarter results. You're right that we did say 42-52 LME BIDAR. Excuse me. We're now at 44.56. We're slightly ahead of where we were expecting to be, which is a positive feature of our results for the year. And as Jerry said, we've executed flawlessly on the integration of CPA Global into the portfolio. As Jerry referred to in his script, we've increased our run rate cost savings target for that business from our commitment of $75 million exiting this year to $100 million exiting this year. And we will, as we have done in the second quarter, you will continue to see sequential quarterly margin EBITDA improvement in Q3, and then obviously peak margin in Q4, where we get the superior revenue results flowing through to improve margins. So we see it as a positive feature of our results.
spk06: And thanks for asking, because that shift in place is one that – will really reflect in Q4. You're going to see what this business model can do when we get the kind of top-line growth that we expect to get, and you'll see very significant improvement with the margins as we exit 2021. Then we're going to continue basically with that same effort, first half, second half, as you'll see as we go into 2022. But we'll clear that up with guidance that we'll give on November 9th. Thanks, Slow Mo. Great question. Next, please.
spk03: Again, if you have a question, please press button one. The next question is from Hamza Mazari with Jefferies. Please go ahead.
spk04: Hi, this is Mario Cortolacci filling in for Hamza. Could you just talk about how your contract renewals work and specifically how you think about annual contracts switching to multi-year and maybe the pricing that's associated with that? Correct me if I'm wrong, but I think that maybe 70% of your contracts are annual today. And just maybe you can give us an update on that figure if there's any change.
spk06: Yeah, great question. Thanks. Pick it up, Richard. You're spot on on the 70.
spk07: Yeah, your profile is correct. I'd also add that with respect to multi-year contract renewals, we are much more disciplined now in ensuring that we have annual price increases baked into those multi-year contracts. And what we have done, what I've done historically, what we as a team have done collectively in our different experiences is also give a commission bonus to a sales colleague that delivers a multi-year contract with an annual price increase baked into it. And that is expected to be, that is essentially our policy. So as you know, 70% of the book renews in the first half of the year. So we've got 30% of the book still to renew in H2. But what you will see in the second half of the year is a real focus on driving net installations into H2 and driving that entry rate going into the first quarter of 2022 to drive that year-on-year growth. So, yeah, it's a good question. Annual contract is 70% of the book and a very, very strong focus on delivering price increases into our multi-year agreements.
spk06: I'd just add one thing. Thanks, Richard. What he said is, in general, we're much, much more disciplined on everything we do from a selling standpoint today than we were, including particularly what Richard just touched on. I'm very pleased with the progress and with the addition of Steen to partner with Richard, Gordon, Mukhtar, myself, the rest of the team. We'll continue to see that discipline improving everything that we do from an organic standpoint for years to come. Thanks. Next question, please.
spk03: The next question is from Andrew Nicholas with William Blair. Please go ahead.
spk11: Hi. Thank you for taking my question. I was hoping you could just spend a bit more time on or provide a bit more color on the client loss impacting renewal rates. Just curious kind of what the driver of that decision was, the nature of that relationship, and maybe – how we should think about that revenue impact on a net basis, because if I heard you correctly, I think you said that you expect some of that hit to come back in the form of transactional revenue. So any additional color on what happened there would be great.
spk06: Oh, there's a good learning lesson for sure. Richard will start, and Gordon will close it up. Good question. Thanks.
spk07: Yeah, thanks, Andrew. So it was a relationship in Asia. April 1 renewal, there was a change in scope of the client. And so we will be working with them going forward in terms of what additional data and services we can provide to meet their needs. We do have an ongoing transactional relationship with them that we need to, frankly, build upon. But it was essentially the change in scope and that we obviously need to now respond to. But Gordon can provide some more color.
spk06: And just as a refresher for everybody, Gordon's had done a great job for us leading Asia PAC for the first six months. That's the first place we set up the one clarity. He's got a great job. Now he continues to have that. And, of course, very pleased that he's got IP. Gordon, please.
spk08: You're on mute.
spk06: Gordon, you're on mute.
spk08: Sorry, failed the intelligence test completely there. Thank you for the summary, Richard, which is spot on. A couple of things I would add to that. We do indeed have an ongoing relationship, so this is a longstanding client and remain a longstanding client. The change of scope and process within their operation is what principally drove our inability together to find a way to make our existing product and service in that part of our relationship work for them. We are actively servicing them elsewhere. Indeed, we are participating in a couple of RFPs, which are in the market for them. So very active relationship. We have opportunity to regrow business there. It may not be in the same product line, but there is substantial opportunity within that client and some of their subsidiary organizations. So We're very focused on that in H2 as we enter 2022.
spk06: And the last thing I'd add to that, thanks for the question. We've built in any loss of revenue from that annual, biannual actually, subscription base into the numbers that we're talking about today. Thank you. Great question. Next question, please.
spk03: The last question is a follow-up from Shlomo Rosenbaum with FIFA. Please go ahead.
spk10: Hey, Jerry, thanks for taking my questions again. Hey, if I'm the last guy in here, are you still going to hold me to just one?
spk06: I never have held you successfully, so let's try.
spk10: All right. I just want to start a little bit with just on the ProQuest stuff, a couple different questions there. Number one, it looks like, you know, regulatory-wise, this is slipping a little bit. It seems like that's what's happening just in general. Are there any significant concerns about achieving the regulatory approvals to actually get this deal done? And then just as a second thing, just regulatory-wise outside the U.S., there's been a big China crackdown on all kinds of, you know, verticals and You know, big point from ProQuest is your ability to take ProQuest into the clients that you have there in China. Are you anticipating any issue from what's going on in China in terms of potentially impeding the cross-sell on that side?
spk06: Yeah, no, great question. I'll just start with the first part of your part A, slow-mo, that the, I think to say I'm just going to reread because I want to stick to script with it. We received the second request from the FTC yesterday to help them analyze this transaction further. We're cooperating with them. We're very well prepared for that. We remain very confident that after conclusion of the process, antitrust concern should not interfere with our acquisition of ProQuest in any significant way. And as I said, we're hopeful. we can complete the proposed acquisition the second half of this year. So I think we're in great shape. We'll cooperate with them in every way we can and look forward to getting that really exciting addition to our company done. Good question. I'm going to start and then I'm going to have Mukhtar and Gordon both comment on China. I was delighted, by the way, if you've not read, you should, that the new ambassador from China who was appointed and appeared yesterday for the first time, read what he said. It's interesting. It's the first thing I've seen really positive in the last couple of months, very conciliatory. So that's always welcome to see. But, Mukhtar, you start, and then, Gordon, you close it up, because it's an important question for us.
spk05: Sure, happy to do so. Hey, Shlomo. Listen, I think the way to look at this is that there will be no change to how we do business in China. We have fabulous relationships there, longstanding customers. We're very strong in academia. We're strong in life sciences and across the corporate sectors. And we value those relationships. Now, in terms of how we operate, You know, we have strong governance in place. We've got strong business and corporate controls. And, you know, we abide by a set of values in terms of how we operate as a business. And, you know, we will continue to operate against those and we'll continue to work, you know, in China in that part of the world. So we at this stage don't, you know, don't foresee any issues in terms of, you know, how we act, behave, and operate, you know, in that part of the world.
spk06: Thanks, Muktaj.
spk08: Gordon, wrap it up. All the right tones, all the right notes. I would just add a couple of things. I think our approach to monitoring both locally as well as how we manage, monitor, and govern regulations all over the world, China obviously is the topic of the question, is very strong. And I think our local team are very well connected to the marketplace. And as Mukhtar said, no change in our approach to doing business, which we feel is well-placed. And in fact, very excited by the ProQuest acquisition, which we feel fits very well with our approach in the Chinese market.
spk06: Thanks, guys. And I'm going to close just thanking you all. Just two quick comments. I'm feeling really good about our progress. We've done so much, made so many changes, all of which are now starting to bloom or are blooming. So as we exit 2021, And I think back to when we went public on May 14th of 2019, progress is huge. We'll continue to make that. We'll deliver the kind of numbers that you as Southside and investors deserve. And we expect to see that to come for years to come. But I'm just so pleased with the progress. Thank you all very much.
spk02: And that concludes our call. Thank you very much.
spk03: The conference call has just concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer