Clarivate Plc

Good day, and welcome to the Clarivate fourth quarter and full year 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw yourself, press star, then two. Please also note this event is being recorded. And I would now like to turn the conference over to Mark Donahue, Head of Investor Relations. Please go ahead.

Thank you, Tom, and good morning, everyone. Thank you for joining us for the Clarivate fourth quarter and full year 2021 earnings conference call. With me today are Jerry Stead, Executive Chair and Chief Executive Officer, Jonathan Collins, Chief Financial Officer, Gordon Sampson, President, IP Group, and Steen Limholt-Thompson, Chief Revenue Officer. 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 Clarivate. Any rebroadcast of this information in whole or in part without prior consent of Clarivate is prohibited. An accompanying earnings call presentation is available in the investigation 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 the 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 follow-up or statements. Information about the factors that could cause actual results to differ materially from anticipated results or performance can be found in Clarivate's funds, the SEC, and the company's website. Our discussion will include non-GAAP measures or adjusted numbers, including adjusted revenue, adjusted EBITDA, They believe 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 an isolation from or as a substitute for GAAP financial measures. Reconciliations of these measures to GAAP measures are available in earnings release and presentation on our website. And after our prepared remarks, we'll open the call to your questions. And with that, it's a pleasure to turn the call over to Kerry.

Thank you, Mark. Thanks to all of you for joining us today. First, let me welcome Jonathan to his first earnings conference call. He's been with us for three months and his contributions are having a very, very positive impact on our company. We are happy to have him and look forward to working closely with him in the months and years to come. Since we went public in May of 2019, we've transformed and improved our company. While the journey has not always been linear, we've accomplished so much in a short period of time We're in a far better position operationally and financially than ever before. We will continue to evolve and embrace change. We are much more responsive and our improved colleague engagement and customer life scores confirm we're moving in the right direction. We still have lots to do to take advantage of the many opportunities that lie in front of us. My colleagues and I are 100% committed every day to meet or exceed our very achievable goals. Just three years, we've grown Clarivate from, in fact, less than three years, we've grown Clarivate from a company producing less than a billion dollars of annual revenue to the point we hope to exit 2022 on a $3 billion run rate. Our adjusted EBITDA margins have expanded more than 1,000 basis points, and our free cash flow continues to deliver significant increases each year. As we achieve and maintain a sustainable growth rate, the rewards for all of our stakeholders will be ever greater. 2021 was certainly a productive and yet challenging year for us. We made significant progress on transforming our business with value, enhancing acquisitions, new and improved product offerings, and a new customer-focused go-to-market strategy. We also made progress across many ESG initiatives and strengthen our executive leadership team. These positive changes better position us for short, medium, and long-term profitable growth. However, we did face headwinds late in the year. I'm personally very disappointed with how the year ended. We've taken steps, which I'll discuss in a minute, to address shortfalls within our transactional revenue base. I also want to add that with the addition of Jonathan and other members of the finance team, We are very, very committed to improving our internal controls and financial reporting functions to ensure we have a best-in-class infrastructure. While the past few months have been a challenge, Clarivate is really becoming a great company with industry-leading products and services and an outstanding group of more than 11,000 colleagues around the world. Our board of directors, our executive leadership team, and I are very positive about the future of our company and the opportunities ahead. An example of the confidence in our business was demonstrated when we announced last month that our board has authorized us to spend up to $1 billion to repurchase ordinary shares of Clarivate stock over the next two years. We believe that the company has so much potential for continued profitable growth and success, and that the current share price represents a compelling investment opportunity. We continue to generate strong cash flow, which Jonathan will cover in more detail in his remarks, and expect this to continue to grow. The revenue retention rates are high at over 90% and improving and remain stable in the last two years despite the pandemic. We have initiatives in place to move our rates higher, and we've repositioned the company through our One Clarivate strategy. I'm 100% convinced that we're on the path to ever greater success in our pursuit of excellence. We were very excited to finally bring ProQuest and Clarivate together late last year. While we were optimistic that the transaction could have closed in early July, we used the time to refine our integration plans and we hit the ground running on day one. This acquisition is reshaping our future and will drive future and further growth and greater success. Together, we now have more than 11,000 colleagues serving over 50,000 customers in 180 plus countries. Our future success depends on unlocking the tremendous potential of our newly united team. Acquiring ProQuest gives us a compelling opportunity to offer multidisciplinary curated content of one of the world's largest collections and best-of-breed SaaS software solutions, serving our strategic partners at governments, corporations, academia, and public libraries across the globe. We are now better positioned to help our customers help their customers. We're looking forward to updating you on our integration progress, including realizing more than $100 million in cost synergies over the next two years. and how we are maximizing the value that ProQuest brings to Clarivate. Jonathan will walk you through the benefits of these savings on our EBITDA and margin in a few minutes. Throughout 2021, we implemented many revenue improvement initiatives, including the customer migration to the Insight Sales Centers of Excellence. This migration was critical for us to be able to move to the one Clarivate structure which we announced in November of 2020, to better, far better serve our customers. Our one Clarivate strategy is to be a customer-centric organization that puts greater focus on our customers by providing end-to-end solutions to meet their industry needs. We've aligned into four customer verticals, which is focused outside in on our customers and the complete portfolio of products and solutions we can offer them. We also realigned our field sales force with the focus on our fewer accounts per rep so that we can create closer relationships and partnerships with our largest customers. We operate with a $100 billion plus addressable market with significant white space available to us now. Today, we capture less than 3% of that total market. That's why we are so excited about the growth opportunities in front of us. Last year, our product development teams did amazing work. We launched more than 90 new product offerings and enhancements, including a new web of science platform. We will continue to invest heavily to ensure we offer best of breed products, services, and solutions to our global customers. Our teams continue to deliver cost savings ahead of schedule and more than our targets. Through the end of 2021, We've removed $215 million of costs since going public in May of 2019. We completed the $100 million of cost synergy work for CPA at the end of last year. The integration team has moved quickly on to the more than $100 million of cost synergies we expect to realize from the ProQuest acquisition, with $50 million of this expected to benefit 2022 EBITDA. We are closely monitoring the impact of inflation on both our expenses and our customers' buying habits. We will continue to look for opportunities to efficiently run our business internally while continuing to positively increase the high quality of product services and solutions expected of us by our customers. 2021 was a good year of growth and evolution for sustainability. as we participated in numerous sustainability assessments and surveys for the first time to better understand our strengths and areas of opportunity while advancing at a very rapid pace in all areas of the environment, social, and governance dimensions. A few of our 2021 milestones include publishing our first annual sustainability report, reporting on global environmental metrics for the first time, launching the global volunteer recognition programs in our diversity, achieving ISO 27001 certification, and we issued board diversity policy. As we move into 2022, we've simplified our sustainability framework to align with the language of our customers to include the three dimensions of government, governance, environment, and social, and we'll continue mapping all we do to sustainability development goals. Since becoming CEO in June of 2019, we've made a number of executive leadership changes designed to help drive further success. We recently completed these organization changes in coordination with the rollout of one of our Clarivate strategy. This included the creation of the Chief Product Officer role now led by Gordon Sampson. I'm very pleased that Gordon agreed to step into this role as he continues to drive growth and success in our business, while enhancing our focus on bringing industry-specific end-to-end solutions to our customers. Uttar Ahmed, who led the science segment, has contributed significantly to Clarivate's growth and focus on our science customer. We thank him for his leadership. His role on the executive leadership team has helped drive our strategy, helped refine and improve our processes. Turning to the fourth quarter performance, let me share a few qualitative thoughts before Jonathan walks you through the numbers in more detail. First, again, I express how disappointed I was in how we ended the quarter due to the late December shortfall in our transaction revenue, which offset a very solid quarter of subscription and reoccurring revenue growth. We planned and we expected to have a strong fourth quarter, which did not materialize due to the very late year-end weaknesses, primarily within the transactional part of our health data solutions business. The basis of our optimism stemmed from strong recovery we saw in transactional revenue through the first nine months of the year. and a great backlog pipeline going into the end of the year. We were up more than 9% through the first three quarters, and a strong pipeline, as I said, through the quarter. Accelerating inflationary pressures on our customers' year-end budgets led to last-minute freezes on spending. We also experienced impact from the quick spread of Omicron variant. Additionally, like others, we are dealing with a tight labor market, where we had vacancies not filled that led to missed opportunities. We've taken actions to address all of these shortfalls. This includes having our sales force drive sales far earlier in the calendar year to reduce last year's dependence on year-end customer budget. We are also hiring aggressively to fill open roles, and we're planning and assuming higher levels of attrition as the labor market continues to be very tight worldwide. I'm confident we will overcome the recent obstacles and that we are headed absolutely in the right direction. I want to express how grateful I am to my colleagues, 11,000 plus, for their impressive work around the world to serve our customers, especially during these times when many of our workplaces have changed and the way we connect and work together have shifted. I'm very thankful for our colleagues' attention through our strategic goals and desire to delight our customers. I'll now turn the call over to John.

Thank you, Jerry. Good morning, everyone. Slide 15 is an overview of our 2021 fourth quarter and full year results compared with the same periods in 2020. Fourth quarter revenue topped $560 million, an increase of more than $100 million compared to the same period in 2020, driven primarily by inorganic growth. As the ProQuest acquisition closed on December 1st, as well as 4% organic growth, which was below expectations caused by the factors Jerry just highlighted on the previous slide. Adjusted EBITDA for the quarter was $257 million for a profit margin that approached 46% and represented a more than 300 basis point increase from the same period in the prior year. Net loss attributable to ordinary shares was $130 million in the quarter and increased as a result of substantially higher mark-to-market expense on the private warrants and higher interest expense. Adjusted diluted EPS for Q4 was $0.23 and represented a $0.01 increase over Q4 of 2020. For the full year, revenues approached $1,180,000,000, growth of more than $600,000,000 compared to 2020 on strong inorganic growth and solid organic growth of 4.5%. Adjusted EBITDA for the quarter was $800,000,000, a more than $300,000,000 increase over the prior year, leading to a margin expansion of 450 basis as a result of strong conversion on the sales growth and delivery of $70 million of cost synergies, primarily from the CPA acquisition. The full year net loss attributable to ordinary shares was $312 million, an improvement of nearly $40 million compared with 2020 on a dramatically lower mark-to-market expense on the private warrants, which was partially offset by higher interest and preferred dividend expenses. Adjusted diluted EPS for the full year was $0.72, an increase of $0.08 compared to 2020. And finally, we generated $459 million of adjusted free cash flow, an increase of $158 million for a growth of more than 50% compared to 2020. Please turn with me now to page 16 for a closer look at the adjusted revenue and adjusted EBITDA growth for the full year. 2021 top and bottom line growth over 2020 was driven by four key factors. First, organic growth of 4.5% added $57 million to the top line, and $30 million to the bottom line for a profit conversion of 52%. This was driven by solid subscription growth of 3.5% and strong reoccurring growth of almost 8.5%, but was curtailed by lower-than-expected transactional growth, which came in just under 6%. The profit contribution was delivered by maintaining strong cost discipline despite the transactional sales shortfall late in the fourth quarter. Inorganic growth contributed $530 million to the top line and $207 million to the bottom line for a profit conversion of 39% on a pre-cost synergy basis. This growth is primarily attributed to having a full-year contribution from the CPA and DRG acquisitions, as well as the one-month contribution from ProQuest, all net of the tech street divestiture. Third, cost synergies, net of certain operating expenses required to achieve them, contributed $70 million of incremental profit in 2021 compared to the prior year. The lion's share coming from the CPA acquisition, which contributed a total of $100 million on a run rate basis, and represents a third more than was originally committed. Finally, the translation impact of subsidiaries denominated in foreign currencies added $17 million of revenue and $7 million of profit. As for most of the year, the dollar weakened compared to a basket of these currencies. Please turn with me now to page 17 to understand how the $800 million of profit converted to cash flow. Free cash flow topped $200 million in 2021, which represented growth of more than 30% over the prior year. Adjusted free cash flow of $459 million exceeded the prior year by $158 million for growth of more than 50%. Growth in adjusted EBITDA was partially offset by higher one-time costs, which were primarily attributed to acquiring and integrating businesses. higher interest to fund the acquisitions, and an increase in working capital requirements compared to the prior year that were primarily associated with the timing of patent renewal payments in the services portion of the CPA business. This episodic working capital swing is the cause of the nearly 500 basis point compression in the adjusted free cash flow conversion. Please move with me now to slide 18, where we turn the page on 2021 and take a look at our full year guidance for 2020. As we look forward to this year, our guidance remains unchanged from what we provided last month. We expect revenue to grow nearly $1 billion to $2.84 billion at the midpoint of the range, fueled by the ProQuest acquisition and accelerating organic growth of 6.5%. We anticipate adjusted EBITDA will approach $1.2 billion towards the midpoint of the range for a profit margin of approximately 42%, which represents a slight compression compared to last year as the cost synergies of the ProQuest acquisition will not be fully recognized until next year. Adjusted free cash flow is expected to reach $700 million at the midpoint of the range for a conversion approaching 60%. Adjusted diluted earnings are expected at $0.90 per share at the midpoint of the range as a result of higher earnings and will likely be augmented by buybacks under our $1 billion share repurchase authorizations. Please turn with me now to page 19 for the major drivers of the expected revenue and profit growth for this year compared to last. As with the comparisons we provided for last year's top and bottom line growth, this year's results will be driven by the same four factors. First, organic growth is expected to accelerate by 200 basis points to 6.5% and deliver approximately $120 million of revenue growth and about $70 million of profit growth for a profit conversion of more than 55%. As you can see in the table on the lower left of the page, this growth rate expansion is attributable in equal parts to four items. One, improved pricing. Two, higher renewal rates. Three, significant cross-selling of all our products across the four customer verticals. And four, improved transactional sales. The one Clarivate go-to-market strategy will deliver these improvements as we move through the year. Second, inorganic growth is expected to contribute an additional $865 million of sales, $285 million of profit growth, for a profit conversion of just over 30% as a result of the ProQuest acquisition, but on a pre-cost synergy basis. Third, cost synergies associated with the transaction are expected to add $50 million to profit, as we recognize about half of the total amount this year, with the remaining half to be achieved next year. Finally, we expect a strong dollar trend we saw late last year could continue into this year, resulting in about a $30 million headwind to revenue and a $15 million flow-through to profit. Slide 20 illustrates the expected seasonality of our revenues for this year, which remains relatively consistent with last year's pro forma results. The stacked bars on the chart represent our actual reported and pro forma revenues for last year. As you can see, they improved sequentially from Q1 to Q2. then modestly abated in Q3, before improving again sequentially in Q4. We believe this represents the normal seasonality of our business after the full effect of the acquisitions. The solid line on the top represents our expectation for this year's revenue phasing, which is generally in line with what we experienced last year on a pro forma basis, and we expect our growth to accelerate as we move through the year. Please turn with me now to page 21 for more detail on how we expect the full-year adjusted EBITDA will convert to adjusted free cash flow. Our full-year outlook for adjusted free cash flow is $700 million at the midpoint of the range and represents an increase of nearly a quarter billion dollars compared to last year. We anticipate the profit growth of nearly $400 million will be partially offset by slightly higher interest to serve the debt used to fund the acquisitions, higher cash taxes on the profit growth, and modestly higher capital requirements as increased capital spending will be ameliorated by lower working capital needs. This outlook anticipates a nearly 200 basis point expansion of the cash flow conversion, and we expect $0.60 of every dollar of incremental profit will convert to cash. Please turn with me now to page 22, where I will outline how the expectations for this year position us to maintain our trajectory towards the midterm financial targets we outlined in November of last year. In the upper left of the page, you will see that with an organic growth rate next year comparable to this year's expectation, we will reach $3 billion of revenue. At that level, you can see in the upper right, we expect profit margins to expand meaningfully on the profit conversion from the organic growth and the realization of the cost synergies from ProQuest. The profit growth and the anticipated impact of the share repurchase program will lead to continued growth and adjusted diluted earnings per share as outlined in the lower left. And finally, in the lower right, we expect adjusted free cash flow to grow by more than 100 million next year, leading to a cumulative generation of more than 1.5 billion between this year and next. Please turn with me now to page 23, where I will outline how we plan to utilize this cash. The pie chart on the left of the page illustrates our capital allocation priorities. Working clockwise from the top, you will note we plan to service the dividends on the mandatory convertible preferred shares with cash as we did in Q4 of last year and have already in Q1 of this year. Next, we plan to pay down our cash flow revolver balance to zero over this period, and combined with the required amortization on the term loans will contribute to our deleveraging, which I'll touch on in a moment. Third, we plan to utilize a portion of the cash flow to complete the integration of the ProQuest acquisition. However, we do not expect any substantive M&A transactions until our stock price improves meaningfully from current levels. And finally, on the left of the pie, you will see we plan to set aside approximately two-thirds of our cash flow to repurchase stock, as we simply see no greater investment than to buy back more than 10% of the company at the current price level. Moving to the right of the page, you'll notice on the top, we plan to migrate our net leverage to between three and four turns by the end of next year. And this will largely be accomplished through the adjusted EBITDA growth I've outlined on the prior pages and the modest debt paydown we set aside in the capital allocation I just outlined. And finally, on the bottom, we expect our average share count to decline next year as a result of the buyback program, which will further accelerate our earnings per share growth. Slide 24 highlights the compelling investment opportunity that Clarivate represents, and here I'll work clockwise from the top. Our leading brands serve an atomized and global customer base across the broader information and software services landscape, which represents a massive TAM estimated at over $100 billion. And the resiliency of this business is remarkable, with approximately 80% of our revenue coming from subscription and reoccurring sales. What's more, our subscribers renew at greater than 90% each year, providing a spectacular base for organic growth. All of the products and services we provide deliver significant operating leverage, as manifested in our high profit margins as we utilize the build-at-once, sell-at-many-times approach in our product development. Not only does this deliver excellent margins, but our free cash flow generation is poised to lead our category as we integrate the last few major acquisitions and execute our plan to deliver more than 1.5 billion between this year and next. Finally, as Jerry highlighted earlier, we now have the accomplished leadership team in place to position Clarivate to scale by achieving a substantial position in the four customer verticals we serve, academic and government, life sciences and healthcare, professional services, and consumer products manufacturing technology. I'd like to conclude by thanking all of the more than 11,400 Clarivate teammates around the world for their tireless work to delight our customers, and in doing so, positioning us to deliver exceptional results for our shareholders in the months, quarters, and years ahead. Thank you all for listening in this morning. I'm now going to turn the call back over to Tom to take your questions. And as a reminder, please limit yourself to one question, then return to the queue. Tom, please go ahead.

Thank you. As stated in my introduction, to ask a question, press star, then 1. If you are using a speakerphone, it may be necessary to pick up the handset before you press any keys. If you'd like to remove yourself from the question queue, press star, then 2. And our first question comes from Tony Kaplan with Morgan Stanley. Please go ahead.

Hey, this is Greg Parrish. I'm for Tony. Thanks for taking our question. I want to start with organic growth, your 200 basis points of acceleration. I got sort of two parts. One, why do you have better visibility this year than in 2020 and 2021? And then why is 200 basis points of acceleration the right guidance? It just, it seems like a good time to sort of reset to more to a more conservative views or to change the paradigm. If you can give us your thoughts there. Thanks.

I'll start, Jonathan will pick up, and then Steen will wrap up. You're assuming 6.5 is conservative, huh? Isn't conservative. We'll see. But no, I'm teasing. Much more important is everything we laid out, we're executing. And if you go back to when I first talked about what we would do from an organic standpoint, I got a great question, which was, what will stop us? And I said, nothing except execution. We missed it on Q4 on one spot by $20 million in transactions. And we've taken, I think, all the right corrections to pick that up. But Jonathan, take them through the points of what we will deliver to get that extra two points.

Absolutely, and just to echo Jerry's comments on the guidance and your point about conservatism, we have lowered the guidance already by $65 million. So last year's missing Q4, we believe we've adequately reflected. And to his point, the inside sales motion that we started last year and really gained steam towards the end of the year to help with this year's renewal cycle is really going to help drive that incremental pricing and renewal rates, the first two items on the list that we've been talking about. being able to get another 100 bits of price yield on the renewal file. That's going to manifest itself at about a half a point of incremental growth. And then the renewal rates, focusing on those smaller customers around the world and making sure that they're pleased with the products and that they're continuing to renew at high rates is a great opportunity as well. The last two really come from the new one Clarivate model that's going to come out this year. And you have to remember, for the first time in the company's history, Every salesperson in the field is going to have access to every product that we sell for the customers that they're servicing, and we are convinced that that's going to drive additional new subscription growth, higher transactional sales, as our products have high relevance for all four of the customer verticals, and that should help to deliver those last two items. With that, I'll turn it to Steve to share some additional comments.

Thanks very much. And just to continue the reflection here. So on cross-sell, which is obviously the new business engine that we are very focused on, clearly having account managers identifying opportunities in our account is already yielding lots of new opportunities that we are seeing as we are now having a far more strategic conversation, an end-to-end conversation about how we can meet our customers' needs. So that is one engine of growth, just having an account manager really representing Clarivate end-to-end. The second point that we highlighted also at the capital market date in Q4 is that we put in place more than 100 new business sellers that's really supporting and enabling the account manager to drive new business and to drive strategic cross-sell by industry and by vertical. And through that collaboration between account managers and sales specialists, we have a dedicated engine to drive the growth that we're looking for, especially around cross-sale. And then finally, genuinely on renewals, as Jerry said, we have significantly improved the operational governance and control, and we're already seeing as we come into Q1 an improvement both in our retention rates and also improvement in our price realisation. Some of the actions we took in the second half to improve operational control, especially around our renewal base, is trending positively as we're heading to 2022. Back to you, Jerry.

Thanks, Dean, and thanks for the question. Next question, please.

The next question comes from Hamza Mazzari with Jefferies. Please go ahead.

Yes, hi, good morning. You know, my question is about execution going forward. And specifically, you know, I guess the size of the company has more than tripled from a revenue perspective. A lot of management change, you know, ProQuest integration, OneClarivate initiative, repositioning, et cetera. Has all that change been disruptive on the execution side, specifically on organic growth? And now going forward, more importantly, Is that is that kind of behind you or how do investors get confidence execution gets better? Thank you.

Yeah a great question. I'll start Actually, it's a critical question. I'll have Jonathan Gordon and steam pick up on it We laid this all out when we went public actually including the acquisitions privately because that's what we hope to pull off and in September 2019 we laid out the OneClarivate effort. So it's been underway for a long time. A lot of it I couldn't be more pleased with. There's no question in Q4, like I said, we didn't deliver, we didn't close the pipeline on the transactions, specifically, as I said, in DRG. And that really popped us hard. We've taken corrective action on that across the board, including Two things that we're working on and will continue to. We're on spot on with the ProQuest integration. The only good thing about the second request that we had on ProQuest when we actually finally closed December 1st was we were ready to run. We're delighted with that acquisition and them coming together with us. Much more potential we've already seen than we expected. But it's really important that I feel better than I've ever felt with the leadership team. If you watch me historically, it's pretty consistent. We had great people here that were running an $800 million business when I arrived. Today we have a team that I put up as the very best I've had anyplace, running a $3 billion business focused on getting to $6 billion. So I feel really good about where we're at at this point. And I do not think the changes we've made over the last two and a half years had an impact on being able to do what we said we're going to do. If you look, we delivered that almost 7% with our reoccurring and organic revenue subscription base in Q4. Our full mess, $20 million, to put it in perspective, cost us the difference between doing what we said we'd do, a 7.5%, 8% exit, and we blew it, and we didn't get it done. But I think we've made those corrective acts. It's Jonathan, please, then Gordon, then Steve.

Yeah, I'll just echo Jerry's comments on the acquisition integration and the success we've had there. As I've joined the business and taken a hard look at the plans and the execution, I've been pleasantly surprised with the very clear playbook, the transformation management, the change management that has to come with these types of things. So I think that's manifested in really strong cost synergies or over-delivery on CPA. As Jerry mentioned, the additional time was a bit of a blessing in disguise, at least from the planning standpoint on the ProQuest acquisition, so really feeling comfortable about the integration there. But I'd highlight it's that same change management that's really helping in the one Clarivate initiative. So this has been in the works for months. I've seen really strong evidence of that, and I've been very encouraged by what we're seeing in January and February with the new go-to-market motion. Maybe Steen could add a bit more about that.

Let's go to Gordon first, real quick, and then Steen, because it is the question we talk about every day.

Thanks, Jerry and Jonathan. Thank you for the question as well. Thanks, Jerry. I think you've both covered all the key points. I would just add two things. The structure one, Clarivate, actually makes it easier for us to bring acquisitions in. And if I look at IMA, CPA acquisition, so I know exactly how that feels and coming into a structured, organized business with a good transformation playbook. I think we learn every time we do this and we're absolutely on track with ProQuest. So That's my first point around disruption. It actually helps you to have the one clarivate structure. Second thing is that we're operating the business at scale, so we have flexibility in our operating model to make sure that we can accommodate both growth and also changes in the marketplace, and that can only be done by putting the business structure in place that we have. So those are two big positives, and the comments from Q4 have been mentioned by both Jerry and Jonathan. So back to, I think, Jerry or Steve now. Steve, please. Thanks, Gordon.

Yeah, let me just pick up. I think another important data point as Jerry mentioned, this is a journey that started more than two years ago and we've made incremental changes to the operating model over the last 24 months. So we implemented inside sales to be able to manage the smaller transaction and renewals. We made changes to our APAC go-to-market model as we came into 2021 and also to how we were serving clients in the IP space. So going to the one clarivate and having our four industry verticals has been an evolution through the organization over the last two years. And we are now ready and fully implemented with the right supporting structure and management system to execute by the four verticals. Similar to Jerry, on the go-to-market side, we've been able to attract really, really top talent, people that understand to operate at scale. people understand how to lead in those industries with strong industry domain expertise and was really able to drive the growth that we are looking for across our four verticals. So it's been an evolution, not a revolution. And finally, I would say on the ProQuest side, some absolutely amazing talent that we're adding into our business. And as a good example, the leader that's going to run the A&G segment is actually the leader that is joining us from ProQuest. So we have a level of continuity, customer relationship, and business insight that's really going to help us as we continue to grow and scale in the coming months, quarters, and years. Back to you, Jerry.

Thanks, Dean. Great question. Next question, please.

The 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 questions. I just wanted to touch on the margin outlook. I think at Investor Day last year, you talked about kind of a near-term goal for 47% to 48% adjusted EBITDA margins. Now the guidance for 41% to 42% in 2022. I know you also got some cost synergies from ProQuest fully kind of flowing through next year. So is high 40s kind of still your near-term outlook? Great question.

Jonathan will be happy to pick that up with fresh eyes.

Yeah, the short answer is this year's outlook is based on ProQuest coming in largely on a pre-cost synergy basis. So as you'll note, as that additional $50 million comes on next year, that'll continue to drive us up into the mid-upper 40s, combined with the fact of two years in a row of growth in the 6% to 7% range that we're effectively indicating here, with a strong profit conversion of more than 50%. really will drive those margins up from that 41% to 42% range to the mid to upper 40s by next year.

Thank you. Next question.

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

Hi, thanks. Good morning. You mentioned that transaction revenues were pressured by inflation, Omicron, and a tight labor market. Omicron's getting better, but inflation and tight labor market are still ongoing issues. How do you manage through these headwinds, and why do you believe transaction revenue performance will improve this year?

Yeah, no, great question, and you're correct. We spent a lot of time on this, and Jonathan, refer him to the chart and pick it up, please. Good question, George. Thanks.

Yeah, George, the bottom of page 13 is really where we highlight the things that we think will be different in 2022. So I'll just start with inflation. The short answer is we know it's here. We know it's accelerating. Our customers have the ability to plan better for that. So we believe that we'll be able to work into those discussions and have better planning in their spending cycle to be able to address that. The second thing we're doing is focusing our sales force and retraining them and effectively working on retraining our customers in a sense to avoid waiting until the very end of the year to make these purchases so bringing forward some of these sales recognizing the value proposition uh that can be achieved by making decisions you know i think you're right um omicron and covet seems to be getting better so that should put some women in our sales and on the labor market um even though we don't see necessarily signs of that getting better right now there are things that we can do to mitigate the impact that weren't in place last year so We're taking some unprecedented actions. We are hiring for positions that aren't vacant yet. Taking some different approaches to bringing people in to really get those staffing levels up because, as Jerry touched on, that is a key element of getting those deals closed or converted from a pipeline to a real sale, is having people that are building these relationships and driving these deals to closures, and we've got to have people in those positions.

Great, and I'd just add one quick thing. We don't talk about it a lot, but Julie Wilton joined us April of last year, almost a year ago. We're 50 miles ahead of where we were from an HR standpoint, including we were doing a lot of outside. We were using a lot of outside sources for hiring. We've built a really great system internally now, so we're miles ahead on that. We all see at the leadership level The number of openings, how old they are, where we're at, et cetera. You should know, and I'm sure a lot of other companies are doing it, but the day we anticipate two quarters ahead need, we're out shopping and hiring today. The last piece of that that gives us a bit of an edge, some of the cost, as you would expect out of the ProQuest and Clarivate cost savings, are people. And we take every one of those people and run them through our opening system so that that gives us a bit of in-house hiring that will also help us. But I'll tell you, this is now my 42nd year of being CEO. I've never seen a more competitive market. Flip side is I feel really good about our colleague engagement and the view that we have with our colleagues when they get here. At the end of the day, that's going to be the winning factor. Critical question. Thanks, George.

Next question.

Again, if you'd like to ask a question, press star, then 1 to join the queue. And the next question comes from Peter Christensen with Citi. Please go ahead.

Thank you. Good morning, gentlemen, and Jonathan, welcome to the call. Jerry, Please correct me if I'm wrong here, but I think my concern is U.S. dollar strength impacting retention, pricing realization for your U.S.-based, U.S. dollar-based international revenue. I was just wondering, and maybe Jonathan can help here, if you could remind us of that exposure broadly for the whole firm, and then more importantly, how are you managing potential demand elasticity in this area, both in the transactional and the subscription-based side. Thank you.

Great question, Pete. Go ahead, Jonathan. We spent a lot of time talking about that.

Yeah, I think our concern is with a few currencies. So there are some places around the world where there's meaningful change versus the dollar. And those markets were being very thoughtful about working with those customers and acknowledging the source of their funds is in local currency. I don't expect the impact of those to be significant. And I think across the more larger, more stable currencies, think euro, think pound, I think that we're very much going to be able to navigate through that. Probably one of the few benefits of the inflationary environment that we're in is a recognition from most people, regardless of what currency they're purchasing in, is that things are getting more expensive and that's being planned for. So I would say we've got an eye on it. We're being careful and thoughtful about it, but I would say it's not a meaningful concern for us at this point.

Great question, Pete. Thanks.

Next question.

The next question comes from Shlomo Rosenbaum with Stiefel. Please go ahead.

Hi, this is Adam . The bridge from the 2021 organic growth rate to the 2022 organic growth rate on slide 19 included about 50 basis points of improvement in each of the four areas. Can you provide more color on how you came to these estimates, top down, bottom up? It's just kind of interesting that they all contribute exactly the same amount.

Great question. Jonathan, again, had very fresh eyes on that one. And let her rip, Jonathan.

Yeah, it's absolutely built from the bottoms up. We spared the detail and didn't show the 47 bits, 54 bits, you know, exactly. But in principle, it's about an approximate contribution. It's not exactly equal. But I think what we would highlight here is when we built up what we expect the benefit to be in price realization on the renewal file, this is what it comes out to. And it's consistent with what Jerry indicated late last year from largely the new inside sales force that was heavily focused on these things. Same with renewal rates. That's very much looked at on a product-by-product basis. Jerry talked about all these great new enhancements that we've put into market, increasing the feature functionality and the insights that the products provide and recognizing a greater value proposition for our customers is going to help to drive that. The cross-selling is very targeted, so the teams have done a spectacular job of building out high-level pipelines for this year, products that customers should very much be interested in but didn't have exposure to before the new go-to-market strategy. So that was very much built up. And then on the transactional, this is one where we had to look back and take into account what happened in the fourth quarter, think about those transactions that were going to remain viable for this year that could close this year, and also try to take into account the improvement of those three factors that we just talked about. So you'll note that we're not expecting it to change. fully recover everything that we lost in the fourth quarter, but to make more product, more progress over what we did towards the end of the year. So short answer is it's been a very thoughtful and detailed build up. We've got a very solid roadmap to deliver this year.

And I think with that we'll end, I'll just add two things, three things actually. One, what Jonathan just said is critical. If you remember a couple of minutes ago when he talked about transactions, which was our issue period, that 20 million, took us to what we delivered in Q4 versus what would have been 7.5% organic growth. We blew it. And what he said was we're retraining our salespeople, we're retraining our customers. That's a shame on me. I did not realize that we had trained them over the years to wait until the last minute, and that's being corrected very loud and clear, as Jonathan just said. So we'll keep doing all the things we said we've done, will get better every day and we will report each quarter on those pieces that Jonathan just covered so you'll see where we're at on each of those 200 basis points of improvement and organic growth as we move forward in 2022. I thank you all very much. As I said, I'm very proud of our colleagues around the world. And we look forward to great progress in 2022 and 2023. Thank you.

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