Right. Good afternoon from The US, and good evening to our UK and European clients. My name is Manav Patnaik. I'm Barclays' business and information services analyst. Thank you all for joining our America Select conference again.
Unfortunately, it is virtual for the second year in a row, but fingers crossed. And, hopefully, next year, we'll be in person. But, you know, either way, you know, we've had a lot of interest both from investors and our companies, and I'm especially pleased to have with us today, Jerry Stead, who's the CEO at Clarivate, and Richard Hanks, who's the CFO. So firstly, Richard and Jerry, thank you so much for your time.
Thank you.
So Thank you. So, Jerry, I I tried to do a lot of prep in terms of what questions to ask you in this session, but you made the job really easy on Monday, I guess. So let's let's start with the ProQuest acquisition, you know, $5,300,000,000. Maybe you can just set us up with a high level, you know, reasoning or or or the strategy behind making making that deal.
Yeah. No. Thanks, man. A quick comment. If you remember on this event in 2016, you and Lance and I sat together because we had just announced that one.
And coincidentally, we were 2,000,000,000. They were 900,000,000. Happens to be about the same as this one. So five years later, I'm glad to be back and talk about it. Quick background.
When when two two years ago, last week, we started public turned public. And what we did was lay out a series of steps, man, of what we wanted to do to get scale and be the world leaders. We actually had identified five global markets, and one of them being the second largest one was academics and government, 26 to 30,000,000,000. And we laid out a series of acquisitions that would get us there. We were able and as you remember, we don't do any auctions.
We make sure that we have exclusive agreements. We were able to get DRG, which was a big step last year in February. Then we closed on CPA in October of last year. So that gave us a big step up with with the ability to have scale, billion dollar business, and intellectual property. And I it's very significant step up with the life science.
This was the next logical step because this now puts us where we've got the scale I hope to have. I had wanted to make sure that we were on track to be a $3,000,000,000 business if possible in 2022. I EBITDA business of 44 to 47% in 2022 exiting in a billion dollar free cash flow, and we're on point to do this. This one was very interesting because I'd actually looked at it in 2,014 at IHS as to whether that would be a a good leg of the stool. That was before ProQuest had acquired the software company, and that was a huge change for us.
So we we made that all happen. We actually started discussions with Andy Schneider, the chairman of of ProQuest and executive CEO of the family company in January. We reached a conclusion of pricing, value, etcetera. In the the April, we did all the due diligence. A week ago, Monday, we had our due diligence meeting, Got good thumbs up.
It was everything we hoped it would be. And then last Friday, we got approval from our board to move forward. We closed the signatures late Saturday evening, announced it Monday morning. And what it does is I've never had one quite like this. Two things.
It like the rest of Clarivate, it's immune to downturns, and that's a great thing for us. They were down worst case 1% in 02/2010. '2, they provide us together with them the best total one stop shop for as we move to those five global markets in in academic and government. Couldn't feel better. Their software is becoming the plumbing, if you will, for all of the academic world.
They've got great software. They're in with 2,200 customers now. We see the opportunity to grow that very significantly. And as we bring our piece of web of science together, it lets us touch literally every every class from kindergarten through doctor's degrees in every university and academic area in the world by country. Also gives us a chance to continue to tailor of what we want to provide, what the customers want us to provide from a research standpoint, where we you know, our purpose, we set out to change the world at Clarivate through research, and that's what this one does.
So it met all of the criteria, including the scale we wanted, the ability to get us to significant year in, year out organic growth and to get through after the cost takeout of you can pick their number. But as we exit 2023, you should expect this to be 47, 40 eight, maybe 50% adjusted EBITDA. So that's the logic behind all of it.
Got it. Richard, maybe I can just have you go over the, you know, the financials and, you know, kind of synergy targets and, you know, how you're seeing that, being accretive to Clarivate?
Sure. So approximately, it's a $900,000,000 top line revenue stream. 30 just over a third of that is software and services, and, 60% is content. And the fastest growing segment of the market is ed tech, so it's that software and service piece that we're, you know, we're interested in the whole business, but that's really attractive to us. Margins are 30% trailing.
We will get the margins over the course of the next eighteen months up to the 45% marker, which is the Clarabay guidance for this year, excluding ProQuest. So we're looking at $100,000,000 of expense synergies that we will execute over that eighteen month time frame post close. That's going to be, you know, a combination of back office savings, a natural, you know, expense duplication that we see across the portfolio that we will we will execute against over the next year and a half. Coming out of 2022, we'll have basically the the integration completed.
Got it. And, you know, you both talked, or referred to the software piece being critical, and very attractive. Can can we maybe get a sense of what does that software do and and and why it's so critical for you?
Great. You start, Richard. I'll pick up because it's really exciting.
Yeah. So the the strategy here is to unify the platform applications which in which a which a higher education institution is using with the with the provisioning of contents and services. And so ProQuest brings to us that library management platform that is used to, collect, collate, and distribute information around the around the university or college. And so that's a third of the business. It's the fastest growing segment of the market.
And there are other ancillary software platforms that have been built around their core ALMA and Vega, knowledge management applications. So we see plenty of lots of room for growth just selling more of what we already have, but there are a lot of exciting new products that ProQuest have brought to market and new more products that we'll continue to build in the future. So it's a it's a fantastic opportunity for us in that regard.
And in a lot of the places around the world, China is an example, where we've got large scale in in web of science, that's just great opportunity for us to place that software in place as well as the rest of ProQuest. So it's really very exciting, very complementary. And the way they've laid this out is, right, as you may remember, man, if I've read led a couple of pretty large software companies over the years, this is as well laid out as anything I've ever seen and changes the game from a cost efficiency standpoint for universities at the provost provost level or higher.
Got it. You know, so software is, I think, 35, 40 percent of the mix. Can we do the same thing to just appreciate what the content side, brings to the table?
You start, Richard. That's great.
Absolutely. So they have a a very broad, content set within their ProQuest within the ProQuest one cloud. You know, that comprises, you know, just for some factual context in higher ed, it's 1,800,000 ebooks. It's, you know, 824, call it 900,000,000 issues of newspapers and general business information, 285,000,000 journal articles, data on 40,000,000 books, 5,000,000 dissertations. So they have a very broad corpus of content that is used across the, higher educational space.
And what's really terrific is with the with the ERP platforming that we have and the solutions we have from ProQuest, we'll own the piping through which this content is distributed. So it it that's where the synergistic opportunity for us exists and will further enable us to increase our retention rates of the clients we serve today.
It makes it that, as we said I said a few minutes ago, Mana, our whole goal is to provide the best the best total offering in the world to help researchers in all businesses, by the way, not just academic, be able to do better research than ever before. And that, as Richard just described, in adding our web of science information to that gives it a place that nobody in the world has ever had the ability to go in and stay there and learn what they need to.
Got it. So, Jerry, you know, it's obviously 900,000,000 of revenue. You get it to 45% margins. That gets you fairly close to your, you know, twenty twenty three personal goals that you'd set out. So does that mean the m and a pipeline is shortened, or does that mean we need another personal goal from you?
Yeah. No. No. It's a great question. It gives us the scale that we wanted to have for sure.
We'll continue to do a pipeline's full and fuller yet this week after the announcement of ProQuest of tuck ins at a lab, both regional as well as customer base, and we'll continue to do that. This does get us to a point that we'll we'll be 3,000,000,000 north of that man off. We'll be a billion dollars plus. That's the beauty of the model, as you know, of free cash flow. We'll spend, just to put it simple, 5% on on CapEx of revenue.
So let's just say that's a hundred and 50,000,000 a year. Our all in tax, all in, including ProQuest will be $5,055,000,000 a year. So think of a billion 4 EBITDA and 200,000,000 plus any interest we have, all free cash flow to do two things. One, allow us to continue acquisitions. We now have the core nucleus in place, and that's what's so exciting.
We'll be always looking for proprietary data and other data. We'll always be looking to fill in just like the acquisition we made last year in China, the small one this year in Korea to complement geographic areas. Both of those were great ones because they strengthened our patent part of the business and our CPI CPA business significantly. So I couldn't feel better about where we're at. And it is a year ahead.
I gave that guidance last November 10, I think it was. And so what we'll be focused on is getting ourselves at a I I believe we have all the things in place today to be able to operate consistently at that eight to 10%, maybe higher organic growth complemented by tuck ins for for years to come. You know the model so well, which is you get north of five, five and a half percent of organic growth, and we'll drop 50, hundred and 60 basis points to the bottom line of EBITDA every year. And it gives us great flexibility. We'll take the debt down.
This will be four and a half times when we close. What next year, when we execute 2022, we'll be down under three and a half. And it it, of course, just a wonderful magnitude of free cash flow. That'll let us continue. We we have 400,000,000 in cash on the balance sheet at in the q one.
So we can continue to do the tuck ins, and we will. We'll take the debt down. We'll look to see if there are larger tuck ins. And if there are, we'll make those happen. And then we'll look at what we can do to give the best single return to shareowners, including looking at share buyback if that gave a better return than any acquisitions
But it's I'm very excited about the fact that we're at the scale that we hope to be.
Got it. Well, it doesn't look like share buybacks will be anytime soon because it sounds like your pipeline is is full. But the the one question I had was, you know, after CPA, you know, the mix of revenue is skewed towards IP. Now after ProQuest, it's it's skewed back towards science. You know, in a steady state, which is gonna be the biggest segment if you had to you know, if you had the ability to execute on your entire pipeline?
Yeah. Great question. The five global markets we're moving to, as we said, with one one Clarivate. You know, we took the intermediate step, man, off. When I first got involved in May of twenty nineteen, there were seven businesses being run independently.
We put those into science, two of them, five of them into IP. We divested two of the five in IP, acquired CPA, and and also DRG. So that gave us the scale. So we're now moving. July 1, we'll have Asia focused in the sales organization in those five global markets.
This will allow us to sell all of our products, whether it's been historically in IP or or in science, into those global markets. So for example, like I said, this one's the second largest market, 26,000,000,000. We'll be selling all of Web of Science. We'll be selling all of ProQuest. And complementing that with life science products that we'll sell into research and academic medical universities, IP to manage governments and universities, their intellectual property and their patents.
So when we look forward, and it's a great question, when we do our Investor Day in November this year, we'll show you the opportunities we see in each of those five global markets. And that would be a better way to think about it than where where we are are in science and IP. Because we'll there are places that we can grow in those markets that we have good strength but can get better strength. But that's what we'll lay out in some detail.
Okay. That's helpful. And, you know, maybe shifting a little bit to the organic growth side of the equation. Just the first question I had was, you know, I think you talked about ProQuest will grow 6% organic. And then on top of that, you will have revenue synergies.
So just help me appreciate, you know, what those revenue synergies are and how meaningful could they be.
Yeah. Just a great question, Manav. Thanks. Two things. As you remember, we don't when we do revenue synergies, we don't put value on that.
We gain the value when we deliver. This one has three areas I would talk about. One, I mentioned a couple minutes ago. Our strength in Asia will let us provide a big, big platform for ProQuest products, software and and all the other great data they provide. So that's a big step forward.
For example, we're in every one of the level one and two universities in China. That will be a big step forward for us. Secondly, we will put a lot of they've got 25,000 customers today, ProQuest does. We'll put a lot of our web of science onto the platforms they currently have. They have very high retention rate, 98, 90 nine percent, into some of the smaller upside universities around the world.
Then the third bucket is where we'll we'll bring together with their software, which is really outstanding. We'll bring together our offerings and their offerings for packages. We'll sell in academia and government, certainly at the provost level in academia. And think if you think about the three of those, short term, the biggest one is geographic. Second is our ability to sell through web science into their their existing customer base.
Third is we'll move they have 25,000 customers. We'll move in at least at least 80% of those customers in the following years to our inside sales, and that will allow us to gain more penetration with the smaller ones that we have not been in. We meaning Clarivate. So those are the three buckets. They're they're it's I I would say it this way, and let's talk next year to see if I'm right.
This is the single biggest opportunity I've had at Clarivate to be able to gain the synergies, my words, across selling, but it'll be going into that academic market.
Okay. Got it. Well, maybe somewhat tied to that. Right? I mean, six to eight is your kind of exit rate this year, and that's, you know, I think the the the range that most investors are looking at.
Earlier in the call, you talked about consistently doing eight to 10. What is the gap in those two ranges? Like, what do you need to get done at Clarabate to be able to successfully do eight to 10? Because that's quite ambitious.
So great question. You'll see us when we deliver. We don't, as you know, do quarterly forecasting our guidance. But just remember, 48, 50 two percent this year split on revenue. Forty two fifty eight split on EBITDA because q four is the largest we have for traditional Clarivate, for DRG, and for CPA.
ProQuest is forty nine fifty one. What you'll see, though, is once you get scale, the number somewhere above let's just say it this way. Second half 52% revenue is in q four. So you're gonna see great drop through. You'll see EBITDA 48 to 50% there, and you'll also see what we're able to do on an annual subscription base going forward.
So the eight to 10, think about the tar the targets we've got. Inside sales will add one and a half to 2% organic growth as we focus and harvest those smaller customers. Price realization all in consistently will be I'll be conservative and say 4%. So I get to six new product offerings between the two businesses, ours and ProQuest is at least worth 2%. We'll continue to increase our renewal rates.
We expect to get north of 95%. We will also complement that as we continue to grow our professional services, which has become a great business because what that gives us is for every dollar we spend about two years later, we'll get $20 of pull through, almost for sure of of annual subscription based. So that's another 2%. And that then the new names that we go after is probably another one, one and a half percent. So I just gave you 12 and what is there for us to execute.
We have to execute it, of course. But that's why I think the eight to 10 is the realistic number, and our team has signed up for that.
Okay. That's super helpful. One area I wanted to talk about, you know, you had brought it up as kind of a, you know, an opportunity that you bring to ProQuest, which is your APAC China presence. Can you just talk to us about, you know, the importance of APAC China in in both your segments? And, you you know, I believe APAC's 20 5 Percent of revenues perhaps today.
So what could that be?
Yeah. So when we close this acquisition with ProQuest, we'll be just about just over 20%, in 2020 going into 2022. There you're right. We believe there's four to 5% of growth in the next five years, meaning we'll grow that part of the world faster than the rest. It won't be we don't grow, but grow faster.
Life science is the fastest growing in the world, as you know, 12 to 14% new, by far the fastest in Asia. Academically, the fastest increase in spending has been and continues to be in Asia. And the IP business, about 6% to 7% is growing of new patents every year. 70% of those, 65% of the trademarks come out of Asia. So that's the portfolio.
We thought about it intentionally. It's a great question of how do we make sure that we take because we've got the scale there now. How do we make sure and take advantage of that? So that's the if you will, if we can accomplish that in the next four to five years, that will give us a a big leg up on the organic growth.
Okay. That's super helpful. Maybe we can shift gears to CPA Global. You know, just a quick update on where we are in the integration there, you know, and and also just in terms of what the growth rate at CPA Global looks like now. You know, I think they did get impact impacted by the pandemic.
So just curious if you're back to those levels.
Yeah. Great. I'll start, Richard. You pick up. We're about five months ahead of our original plan on integration with CPA.
I couldn't be more pleased. Give Manas the color, Richard, if you would.
Sure. So with the commitment we gave to the market was exiting 2021 with run rate savings of 75,000,000. We're ahead of plan in terms of timing and ahead of plan in terms of quantum, so we'll we'll we'll exceed the 75,000,000, you know, with with with some margin. And in terms of growth, CPA will come into will anniversary into our organic growth rates in October 1, so we'll have a full quarter this year for CPA. As Gerry said, the global patent market is growing 5% to 6% a year.
That's in terms of the universe of patents. And CPA manages 15% of all active So it's got a nice market share, but plenty of room for growth either organically or through tuck ins. And we expect the business to grow 6% to 7% year in, year out with further, yeah, revenue growth opportunities on top of that. But it's a very, very predictable high level of recurring and reoccurring revenue. And and how And great margins, terrific margins.
Got it. You know, just, again, to that question on revenue synergies on top of that, you know, typically, Jerry, how long does it take to start showing that post integration and, you you know, yeah, I mean, just how meaningful do do they end up being?
Yeah. No. Great question. Sorry. CPA, you should think about seeing the cross selling, if you will, as we go into those markets that I talked about of getting though that picked up at the end of twenty one and significantly in the first half of twenty twenty two.
We saw that by the way, it was interesting with DRG, which had a great q one in 2021. Part of that was because of timing with pandemic that came out of q four, which wasn't what it usually was. But we saw that happening where we're now packaging really well, Cortellis and DRG. And so you'll see that pick up because so much of our business is annual as you know, annual subscription based, and theirs is 98% recurring recurring. You see that happening heavier in the first half of next year than it was in the first half of of this year, but that's why I feel good about going out of 2021 with the CPA cross selling coming into 2022.
Got it. Jerry, in the five minutes or so we got left, maybe let's start with DRG. Right? I think that one's fully integrated. Maybe you're already starting to see some revenue synergies.
Maybe it's a good case study to show us what CPA and ProQuest might bring to the table. So maybe if you could just talk about that asset.
Yeah. It's turned out to be a great one. It suffered. There's no question in q four, which is historically their biggest 35% of their revenue has been historically in q four. And we're we're well on track.
We brought in an outstanding executive. She's done a great job of doing that integration, which is finished and now selling in. I think you should think about very strong double digits in DRG in '20 not think about it. I know it's gonna happen in 2021. And you'll see that cross selling as we move to those five global markets in health health care and life science, you'll see that growing equal to at least eleven, twelve to 14% global.
And a big piece of that's because of DRG, man.
It. And so, you know, again, Jerry, maybe just to round up the conversation here. You bought DRG in life sciences. You bought CPA Global more on the IP management side of things, it looks like. And ProQuest gives you kind of the software and content thing.
Can you just help us visualize the white space or the areas where, you know, we we we'll see you guys do more deals in.
Yeah. And, again, I'll give you a great detail when we can map it out. But those five global markets that we set out actually before we even closed two years ago are a hundred and 2,000,000,000 in total of of TAM, actually, total available market. Current available market of that is probably 40,000,000,000 for us. And if you think about us being 3,000,000,000, let's just say it's 10%, and it is the ability to sell across every region.
It's the ability to sell, as I said, bundles that nobody else in the world has. I I'll just use one example in which is an exciting one. One of the universities I've been working with last year, which is a top research university in The United States. Last year, we did 540,000. We we are operating with an opportunity to provide them with 3 and a half million, which includes life science, which includes managing their patents for them.
And I just learned this morning, I got the number. There's probably a million dollar addition opportunity because they currently do not use any of the software that we'll pick up from pro ProQuest. So that's the kind of scale that we'll be looking towards growing. They're all not gonna be seven times as big, but that's what we'll see happening. And I feel so good about this because we we're blessed to have the best total set of assets that we could be for those five global markets.
Alright. Well, Jerry, I'm gonna end with one last one, and that is, you know, in before you bought DRG, it felt like you guys were not ready for a large deal, and you bought DRG. After DRG, we thought you'd have to wait it out at least a year, but you, a few months later, bought CPA Global. Then we were convinced you need time to digest both those assets before you did the next big one, but yet you did this on Monday. What's the secret behind, like, how you guys can just, you know I think talk to us about the capacity and the capabilities there.
Great question. We felt the best team I've and a lot of them have been with me before I've ever had for integration, and it feel really good. Now the facts are, Manav, it's a great question. Because we were as far ahead as we were with the CPA, I felt good. Richard felt good.
We all did, Mukhtar, everybody, of our ability to, assuming July 15 or thereabouts, to start the integration of ProQuest. And these are big ones, including in the backroom, but it's a world class team. They've proven what they can do. And like I said, being five months of ahead of CPA integration gave me a great deal of comfort. So we feel good about it.
By the way, we spent a lot of time, and questions are great one, didn't a lot of time making sure that we knew exactly the steps we needed to take if we were successful as we're delighted to hopefully adding ProQuest as soon as possible. So we felt really good, and we've actually started today internally making sure we've got everything ready to go when we get the opportunity to have them join. They have wonderful colleagues, great customers, and we're on point to get that integration done, as Richard said earlier, by the end of twenty twenty two. So it's an exciting time for us and one I'm very thankful to be part of.
Got it. Well, it sounds like, there's a lot going on, Jerry. So looking forward to tracking your goals. Thank you, Richard, as well for your time. Really appreciate it.
Thank you, man. We're very appreciative of you.
Alright. Take care, everybody.
Thank you.