Clarivate Plc (CLVT) Earnings Call Transcript & Summary

Good morning, and welcome. I'm George Tong. I cover business and information services at Goldman. Really pleased to be joined by Jonathan Gear, CEO; and Jonathan Collins, CFO of Clarivate. Welcome, Jonathan G. and Jonathan C.

Great.

Thanks for having us.

Great to be here. Great to be here again. Thank you.

Thank you. So Jonathan, you assumed the role of CEO of Clarivate just earlier this month, but you've been with Clarivate since July. So you've seen the inner workings of the company, and of course, you've worked with Jerre for a number of years at IHS. What are your initial observations of Clarivate stepping into your role? And what are some of the differences between your strategic vision for the company and Jerre's?

Great. Thanks so much, George. And as you alluded, I've been in information services for 17 years at IHS and IHS Markit, and a chunk of that was certainly with Jerre as CEO and Chairman of IHS before we move to Markit. So I came into this role and come into Clarivate certainly knowing the business model. And the business model is identical to IHS Markit in so many ways. Obviously, business information, enrich data, I believe, analytics leading to workflow solutions, 80% recurring revenue, 20% transaction. I mean, you could drop the same words and numbers on top of IHS Markit, and they would be, again, absolutely identical. So as I've kind of spent, as George, you said, I joined the company on July 11, spent about 6 weeks traveling the world, getting to meet colleagues and offices and then took over the CEO role 2 weeks ago now. And the initial impressions as I come in, first, no huge surprises. It kind of is what I thought it was for the most part. And I see a company compared to my previous company that serves kind of 3 end markets, again, very similar to my last company. But IP, Academics & Governments, and Healthcare & Life Sciences. And what's maybe the same, what's the difference, again, business model identical, completely identical business model. What we need to do to grow and lift the growth curve up, again, very similar to what we did at IHS and IHS Markit. What's a little bit different? It's certainly, end markets obviously are different. In fact, our 2 large end markets are very -- I mean, compared to what I'm used to, I -- used to drill me about what's happening with oil and gas and an upstream and why is oil price going from $140 to $28. The 2 main end markets we serve at Clarivate are extremely stable. So IP operates in a very, very steady growth range, has historically through ups and downs through different economic cycles. And then Academic & Government, same story. Kind of slightly lower growth end market, but very, very stable. And our products are extremely -- they must have products in those end markets. So I come into a company with extremely stable products, extremely stable end markets, even as we potentially enter a down cycle. And the thing which certainly has impressed on me as I've, again, toured the world and met with our colleagues, and this is an obvious statement to make if you know the company, but the pace of change of this company has been incredible. I mean, going from $1 billion of revenue to $3 billion over roughly 30 months, bringing in 3 very large acquisitions through DRG, CPA and ProQuest, and then all under the cover of COVID when people couldn't travel, people couldn't do this. And so as I've again traveled the offices, it's just I feel that change. And as I told my colleagues, it's actually growing as we are, this year, we signaled mid-single-digit organic growth, kind of 4% to 5%, so lower than the expectations we had entering the year. But as I told them, actually growing at that level, given the pace of change, is actually a great foundation from which to build. But it's a great business. And again, no surprise, very similar to what I'm used to, right?

What are some of the key milestones that you hope to achieve at Clarivate within the first 90 days, 180 days and 365 days?

The story and the stock certainly has been punished the last 12 months. We had certainly issues in December and January, and we know what those are. But I think step #1 is stabilize the expectations with investors. And Jonathan and I certainly did that in July. When we looked at the second half profile of the business, the growth, and we took down organic growth by 200 basis points, took it from 6.5% down to 4% to 5%. And right now, I view myself very much as -- I need to be a COO type of CEO right now. So very operational focused, very executional focused', very much involved supporting Steen, our Chief Revenue Officer; Gordon, our Chief Product Officer, on delivering Q3, delivering Q4. So certainly, making sure we're clear on what we're going to do and then doing what we said we're going to do is extremely important. Very focused on culture. Again, traveling the world, seeing our colleagues, you feel a business that's moved so quickly, so very quickly. And George, I was telling you before we miked up here, I was in India, seeing our 4 offices out there. It's always great to go to India, about 1/3 of our colleagues are in India. And as far as the new CEO-elect coming in, we're in a room very much like this in our 4 locations. And as I met them for the first time in this kind of format, and then I did a little meet and greet afterwards, I realize they were meeting each other for the first time. And that is an outcome of the pace of change and COVID. And so very strong focus on culture, on driving growth, on driving accountability and creating -- continuing on the key pillar of One Clarivate on the culture side is where I'm very, very focused on.

Right. Yes, it makes a lot of sense. Jonathan C., you assumed the role of CFO back in December 2021. How does your financial management philosophy differ from your predecessors? And what are your capital allocation priorities?

Sure. Thank you. So one of the early things that I've been focused on is identifying the areas that we can underwrite for investments to help catalyze organic growth. So we've been working on that through this year with a core team on the product and commercial organizations to develop the places where we can accelerate investments in content and technology to be able to drive that. We're looking forward to talking about those when we host an Investor Day at some point here in the near future. And that's been an area of determining how we can use our cash flow most effectively, and that would be a big area of focus early on for me.

Right. Makes sense. Now Jerre Stead had previously outlined a long-term target of high single-digit organic revenue growth. What are the operational and competitive characteristics of Clarivate's business lines that may support or potentially prevent high single-digit organic revenue growth? And the question is open to both of you.

Okay, great. Maybe I'll go first, and Jonathan, you can correct me, as you often do correctly. So a couple of things. So first, look -- I'll start with this year. So we've guided to 4% to 5% this year on the core -- what's currently in organic for Clarivate, that excludes ProQuest, ProQuest business. And I look at that 4% to 5%, and we've had some headwinds this year. We've had headwinds from removal from Russia that cost us 50 bps of organic growth. We've had headwinds of the impact of the slowing economy on our trademark business. And while we're very -- more insighted than most in terms of slow economies, that particular part of our business does slow down. As companies, if they're investing less in new products because of a slow economy, they're just not invested as much in trademarks and search and things like that. So I look at the business today that on a normalized basis, and then we have, as we also called out, some transactional slowdowns, economic driven from our expectations, consulting and transactions. But I kind of look at the totality of the business, and it feels like a normalized mid-single-digit grower in an economy which is not particularly supportive of growth this year. So I kind of view that a little bit as the floor of the business. Now when we do bring in ProQuest next year, ProQuest is a slightly lower grower than what's currently organic. So there will be a tiny bit of downward pressure. But look at us today as a kind of 4-ish -- 4%-plus grower today on a totality, again, in a market where we've had headwinds, not tailwinds. So we started at that point. Then I look at how do we build it from there. And it's 2 key levers for organic growth. One is on driving the sales motion, and we brought in Steen, our Chief Revenue Officer, former IHS Markit sales leader, and he's doing everything right. He's been here exact -- well, 1 year in 1 month, he's been here 1 year in 1 month, implemented kind of his view on the sales motion. And as I travel the world and meet with sales reps around the world, and I meet with them, just the way they're discussing with me, how they're doing the pipeline coverage, what they're talking about, I feel that begin to stick. Now it's going to take a while to get the full motion and the full acceleration into it, but that's kind of bucket #1. And then bucket #2 is driving innovation with our products. And this is what I saw at IHS Markit, when we really began to move the needle on increasing organic growth, you have to have the sales motion working well. So I think the order is right. But then you need to be investing in and seeing the results of revenue growth from innovative products. And the good news here is, in most of our end markets, we're starting from a position of strength. So in the Academic & Government position, we're primarily focused on library sciences. We run the ERP systems for the libraries. We're the Oracle or SAP of library systems. So we're extremely embedded in the workflows of our clients there, and the ability to innovate and begin just moving up the ecosystem of how we can additionally support them, leveraging that prime position and then the content we have is I think a great place to start. Second is IP, our other very, very large segment, similar story. We have a very strong market position. Very, very trusted both in the software and the managed services side around IP. Again, it creates a great position for us to begin to move up the value chain and find other areas of pain points to help our clients. So those would be the 2 key levers we do around both sales motion and product.

Anything to add? Okay. Great. Earlier this week, Clarivate announced that it was going to sell MarkMonitor for $303 million. What's the rationale for divesting MarkMonitor? And are there other businesses within Clarivate that may not be core?

Okay. I'll ask -- as Jonathan led the process for us, I want to have him answer this.

Sure.

Yes. So one of the early things we did earlier in the year is take a look at the products that may not have as much strategic leverage or benefit us so that we could free up capital for some of those investments I mentioned earlier. So we identified this as a business that we weren't necessarily the best owners of, ran a process, concluded that. So we do intend to use those proceeds to accelerate our deleveraging. So we started with the one that we felt would have the most significant impact. So we would intend to use that cash in the next coming months once that closes, hopefully, here in the fourth quarter to get us closer to that 4 turns of net leverage by the end of this year. We may continue to look for some smaller things. But in terms of size, they'll be meaningfully less than this. We think the strategic coherence of the A&G offering, the Life Sciences & Healthcare offering, as well as IP is very strong and there's a lot of fit with the products we have there. In each of these categories, we really do have end-to-end capabilities across the innovation life cycle. So there's nothing that sticks out. This was the obvious one, and we're really thrilled that we were able to get the deals signed.

Got it. Got it. Also earlier this week, Clarivate reduced its third quarter revenue guidance by $10 million, citing FX headwinds of about $20 million for the second half of the year. And you're also assuming 3Q organic revenue growth of 3%, which is a touch lower than about 4% initially. Can you talk a little bit about what's changed in the business to catalyze this shift in view around organic growth, so putting FX aside?

Sure. Well, one thing I'll comment on is our organic growth this year before ProQuest turned organic is extremely sensitive. And as Jonathan described in the -- earlier in the week, we did take down FX, and we can't control FX by $10 million for the quarter, for instance. We're still holding FX, adjusted our total revenue cost in. So we still see visibility, the ability to deliver what we expect during the quarter. But we're seeing like $1 million or $2 million shift from the legacy Clarivate to the ProQuest business. We're thrilled ProQuest is doing well. So we're very happy with that. But what's interesting is given our current organic base, yes, $1 million switch on organic from that to ProQuest constitute 25 bps growth in the quarter. So we're extremely sensitive right now on that organic growth figure to switching. But I think the key thing for us is when we look at managing the portfolio of our business, we're still feeling very good about our Q3 outlook.

Yes. Can you talk a little bit more about the switching and what dynamics are going on there? How long do you expect that to persist, mechanically how it's happening?

It's hard to tell, George, because again, if we were managing this as a totality business, we wouldn't even see it. And it'd be like talking about switches between product A and product B. We're seeing a slight -- a less growth than we perhaps expected in consulting in Q3. We did have a churn of our consulting leaders at the tail end of last year. We replaced those in health care and there's a little bit of a build. But again, these are frankly pretty darn small number to swing the percent growth rate.

Right. And this touches on the point you mentioned earlier, but you kept your full year 2022 guidance unchanged, even though there are incremental FX headwinds. Does this assume that the underlying business should inflect higher in 4Q to sort of absorb the FX? And how does the full year outlook contemplate the divestiture of MarkMonitor?

Yes. So the MarkMonitor acquisition is not contemplated. So if it closes a little earlier in the fourth quarter, we'll update based on that. So just to be clear, that's not there. Second comment on FX, all else being equal, the FX, if it stays where it is now, would push us closer to the lower end of the range. We didn't increase our organic growth guidance for the full year or did we change our view on ProQuest. The seasonality is affected by a couple of things Jonathan just mentioned, but also there's a bit of lumpiness in our patent renewal business. We talked about this earlier in the year. That reoccurring order type for us had been growing in the high single digits, about 8% in the first half of the year. We [ intone ] that's going to be lower in the second half of the year. And the third quarter is where we're going to see most of that impact. We would expect that in some of our transactional business to pick up as we move into the fourth quarter. It's also helpful and important to remember that the second and fourth quarters are our highest transactional quarters. So those are associated with the academic calendar year-end and the corporate calendar year-end, respectively. Some of our higher growing products like real-world data that had an exceptional second quarter tend to have a bigger impact on the quarters in the second and fourth quarter. So we would expect organic growth rate to be higher in Q4 compared to the third quarter due to those factors.

Right. We touched on this a bit earlier, but in connection with your 2Q results? You took down the guide for organic revenue growth from 6.5% to 4% to 5%. You cited 4 buckets contributing roughly equally to the incremental headwind. So if we perhaps look at that first bucket, which is reduced trademark brand registrations, talk a little bit about what's happening there, what trends you're seeing and what conditions you would need to see for that piece to really recover?

Sure. So it is the one piece of our business, which I would say is sensitive to what's happening in the global economy. And the reason behind this is that maybe talk to the business model is these are companies when they invest in new products, launching new products, et cetera, they invest in trademarks, trademark search and then registering trademarks. And if companies out there are seeing an economic slowdown, assuming perhaps that consumers or businesses are going to slow down their buying, they themselves pull back on product launches. It's very understandable, if you will, and not something we can control ourselves. So we began seeing that at the tail end of Q2. It was one thing we certainly saw. We had visibility to that as we entered our Q2 earnings call and as we discussed it on the line. So for that, and as we've looked on the outlook for the rest of the year, we're assuming no turnaround of that business. We're assuming we're in an economic slowdown. And this is kind of behind our feeling in our Q2 call when we call that -- called out Russia. And then we called out, I'm sure, you'll get to this George, the other 2 chunks of forward risk that we saw in the business in another portion of transactions, which is around kind of reports and consulting. And entering that call, we actually did -- at that point, hadn't seen a slowdown, but I've read this book before. I've seen how this works in information services. When the economy slows down, the CFOs of this world, people like Jonathan Collins, get the word out. Anything that's discretionary, slow it down, slow it down. So we made the decision in that earnings call to say, we don't know yet, but we suspect we're going to see 100 bps of impact on slowing down around consulting and transaction reports. Now given where we are right now and as we discussed this week, we've seen that play out. And so it's playing out as we expect it to, again, slight slowdown in consulting, slight slowdown on discretionary reports that is -- that was contemplated in our Q2 guidance.

Okay. That makes sense. And maybe touching on that second piece, which is the slowdown in consulting. As of the second quarter, you didn't really see a slowdown. But it sounds like now you are.

It is. It's playing out as I thought it might play out. Yes.

And what are some of the areas where you are seeing a pullback? How are -- within consulting, how are utilization rates performing, headcount, discretionary spend? Any sort of color around the consulting piece.

So in our consulting piece, we did have attrition last year in our consulting headcount across the board, including leadership. We did rebuild that first half of the year. So we do have the right capacity in place right now. Our utilization rates are running a little on the low side. And what we're seeing is it's not any one sector or any one thing I can point out. It's just things slow down. Deals which we think are going to get signed, they get pushed off a week or 2 or 3 weeks. Projects we're engaging with the client, the client slows down on the engagement. So the rev rec gets kind of pushed out. It's just a general slowdown. And again, George, it's really similar to what I've seen in previous cycles like this.

Right. The other piece contributing to the reduction in the full year guide earlier was a lower conversion of new business trends. Can you discuss what you're seeing there? How those conversions are progressing? If it's underperforming or outperforming your most recent expectations?

So it is -- great question, so it is underperforming our expectations entering the year based upon what we guided and Q2 is performing as we expect it to perform.

Okay. And how do those new business conversions compared to -- with subscription compared to transaction? Any differing trends there?

None that come to mind. Jonathan, anything you want to comment on that...

No. Yes, the pressures we're seeing are going to affect both of those. We are seeing encouraging signs in the second quarter of improvements in the go-to-market motion where we sell broader solutions and add new products and services to existing customers. So we talked about the average deal size, the number of products being sold are moving in the right direction. As Jonathan said, though, as we see that pressure coming on budgets in the second half of the year due to the slowdown, we believe that people are going to pull back a little bit. We are seeing that in the third quarter, as Jonathan indicated, based on what we know for July and for August, there's a bit of a lengthening of the cycle for new subscriptions, and to a lesser extent, some of the transactional business. But it's broadly in line with what we were expecting when we moved into Q2 -- Q3.

Yes, makes sense. And then lastly, the guide down on organic growth reflected impact from your exit from Russia, Clarivate made the decision to exit Russia in March. So what drove the decision to cut your expectations for Russia with 2Q results rather than 1Q results? What was the incremental change there?

Yes. You'll recall the commentary at the time was we continue to expect we'd have the wind at our backs with the new selling motion, and we saw some opportunity to be able to offset that. So that was the reason we highlighted it. It was a risk, but identified that we would come back on that later. And then at the end of the second quarter, as Jonathan indicated, as we saw the economy softening in the second half of the year, we recognized that, that's something we weren't going to be able to offset in the calendar year.

Got it. That makes sense. You're continuing to push forward with your One Clarivate initiative, which verticalizes your sales model, really focuses on 4 key end markets. Can you describe for people here what this sales model involves? How far along you are in developing it or if it's already fully flushed out? And how it's benefiting your revenue performance?

Sure. So One Clarivate, it's a key enabler of growth going forward. And one thing -- I think the word One Clarivate or phrase means different things to different people. And I think up to now, we've really focused on the sales motion, which is critical for step. To me, One Clarivate is much larger than that. And it's around -- it's on the sales motion. It's around how do we drive innovation and get innovative growth out of the company. It's how do we drive best practice, functional best practice across the path. So there were many pieces on this. At Investor Day, we'll kind of delve into the different levers of growth reach around One Clarivate. But focusing on the sales motion, again, I touched on this earlier, Steen, our Chief Revenue Officer, came in on August 1 of last year. Again, I used to work with him at IHS Markit, he and I go way, way back. And he spent the first 4 months kind of looking and getting a feel for the sales org. We got through most chunk of Q1. Q1 is a big renewal month -- sorry, renewal quarter for us. So that time, you don't want to be doing a lot of disruption. But exiting Q1, really kind of put his fingerprint on the organization. And we did a couple of key things. One is we structured our sales organization by vertical end markets, by the 4 vertical end markets. Structurally, we put an account management team, and the account management team is there to really understand the needs of the client-to-client level. So be very customer in-focus on sales and unlocking of opportunities. Put in field sales specialists for larger accounts, and then very importantly, built out an inside sales team, which we call digital sales. And we brought in a great leader, Jane Grey from HPE, to lead that function, and she's been in the seat about 4 or so months. And so that dropped in Q2 of this year -- late Q1, early Q2, and underneath that, a couple of very key things. And I think I got my hats off to Steen and the team. He did a fantastic job. That involved in [ requoting ], doing re-territory, everything across the new model. That is a heavy, heavy lift. And I did -- I think, again, my hat is off to them, they did this major change. Nothing got dropped. And as we came into kind of early Q2, we had that all in place. And the final key thing is around expectations. So around the pipeline velocity, measuring pipeline coverage, showing accountability on pipeline build, and that helps -- it helps us identify on the forecasting, where we need to dive in and do help. And to me, it is this professionalization of the sales force and the whole metrics and the culture around sale. And we're beginning to see it across, every single month, it gets better, it gets tighter. I mentioned a couple of folks this morning when I was in East Asia a couple of weeks ago in Tokyo and Seoul visiting our teams in there. I sit down with the sales reps. And as they meet with me, they bring out their pages and they would talk to their pipeline, their velocity, their coverage. And I said, this is it. This is what I want to see and this is what we're beginning to see. So it's -- the heavy lifting has been done. Now the results from this heavy lifting are going to unveil themselves over the next few quarters. But I feel the team has done a fantastic job, and we're well positioned with that function.

That's great. I'm going to pause here and see if there are any questions from the audience before we continue with some of the questions. Yes, we have one question there. No, you can go ahead and we'll just repeat the question.

[indiscernible]

So the questions are, what are the impacts to margins from investments required to achieve your longer-term strategic initiatives? And how is the industry flash market growing relative to the company?

Okay. Great. So let me tackle those in turn. So first, in terms of our margins. So this year and headed this year, we're kind of mid to low 40s in terms of our margin profile. And the -- we will continue to invest in our products. And that -- I'm a huge believer, that's 1 of the 4 key levers I'm focused on coming in as CEO. I also know as I tour the world, we've done a great job before me. The role -- we have done a great job about as we brought on these different companies of doing -- taking out chunks of duplicative costs, whether it be CPA, ProQuest, et cetera. That being said, this is a company that still needs to be optimized. And I see it and I feel it when I get out there. Now the model for driving margin improvement, it starts with top line growth of given that organic growth rate at humming at an appropriate level, 4.5%, 5% is an okay level. It's not great. We're not satisfied, but it's not a bad place to start for margin accretion. Our cost base, our biggest cost base is colleague cost. And certainly, in this market, we'll make sure we reward our colleagues correctly and retaining them appropriately. At the same time, there's efficiency. And I'll give an example of -- a small example, but I see this sprinkled throughout the organization. Right now, we have 6 different CRM systems that we're using. So our sales force today, if they're addressing an opportunity, selling to one of our large clients, they're logging in and out of 3 or 4 different systems to log and track the activity within that client base. Obviously, there's a huge sales inefficiency there in terms of the motion, which we're going to unlock over the time. There's also a cost. It means I'm paying for 4 different sales force licenses for that 1 single sales rep. And I see examples like this sprinkled throughout the organization. So we're going to continue to -- again, the measurement is organic growth rate, recognizing this increased colleague cost and then we will continuously drive efficiencies through the organization, and that's a non-soft exercise of doing these things. In terms of the growth markets, I'll talk about maybe the 3 segments and how we look at it. So the IP market traditionally is growing at kind of a mid-ish single -- and I speak of the end market now, kind of a mid-single-digit grower, anywhere between 3% to 5%, 4% to 6% is what that has traditionally grown at. And the historical assets that we've brought in to Clarivate have been kind of at that level. We've kind of grown at the market. The Academic & Government is growing a little bit lower than that. So growing more in the 2% to 3%, 2% to 4% has been the end market growth rate of that market. And so for us to grow at a faster -- and we've traditionally grown at that pace. For us to grow to faster pace than that, we're going to have to innovate. And that type of market, you grow by capturing wallet share, you grow by innovation. We'll be very focused on that. And finally, Healthcare & Life Sciences, our third segment represent about 20%. It is the one that has the most headwinds behind it. And that sector -- we see sectoral growth taking place here with a continued investment in health care and pharma and the like. So that's the end market that grows at a much faster clip. And as a result, our own products also grow at a much faster clip in that end market.

Thanks. Great. So you touched on this actually just now product innovation. It's going to be a key growth driver for the company going forward. So what are some recent product innovations that Clarivate has launched and what's in the roadmap? What's in the product road map in the quarters ahead?

So recently -- maybe Jonathan, you comment on a few of them, but they tend to be -- and I want to maybe comment thematically before Jonathan maybe give some specifics. So thematically, we -- I don't want to give the impression we're not innovative. We are taking out every quarter, new products, bringing new data sets, building new analytics. And often, they actually -- the innovation comes from the consulting team. It's why consulting is so important for us as we find opportunities initially on a bespoke basis and move it on the product basis. The theme, which I'm looking for, for this organization, which we will drive is programmatically driving innovation and measuring it. And the reason I have this very strong impression is, while we are innovative on a spot basis, it's not in our DNA. It's #1, we don't measure it. We don't measure it. And George, you'll be familiar from my last company. We never told you the number, but we internally measure it what we called our vitality index of how much revenue came from products that we launched in the last 3 years. And I love that hard type of metric because that tells us, are we actually driving growth from our investments and understanding the customer needs, investing around that need and then appropriate marketing, selling and meeting that need? And to me, the number -- the absolute number is less important that, every year, you're showing an improvement on that. So that will be certainly a frame we'll be dropping here. With that being said, Jonathan, do you want to comment on any of the points, improvements we have made?

Yes. Maybe in the A&G category, our insights product within the Web of Science Group is an analytic tool to help create greater value coming out of the information that we have in Web of Science. So that's what I would point to. We also created the leading product within the ILS market for Academia Alma, purely SaaS-based solution that's targeted towards digital collection within the library, provides tremendous amount of value for our customers, librarians. Also tools -- software tools like Pivot and Esploro that helped to deal with grant funding and research availability. So those are some examples of newer products that are on the software side, some that have very robust workflow capabilities to add a tremendous amount of value. So that would be within the A&G segment. I think our real-world data product is a great example within the Life Sciences space. So this is just helping to provide a very rich corpus of content around electronic patient records and claims data that have been enriched and curated in a way that our customers can help to make better investment decisions as they look to launch new drugs. So those would be some of the examples -- or an example that I would see with Life Sciences & Healthcare. Then within the IP, it's really bringing together the full end-to-end capabilities. So we've got our new IncoPat acquisition that we made within the last couple of years in China to participate in a higher growth market, bringing new feature functionality to that and enriching the global content that we receive from that is another great example of acquisition synergy that we would put into play to help catalyze growth in the IP space.

That's great. Clarivate is guiding to 41% to 42% EBITDA margins for full year in 2022. What are some of the factors contributing to margin contraction relative to 2021 when margins were above 42.5%?

Yes, pretty simply, it's ProQuest coming on, on a pre-cost synergy basis. So that business attritionally did around 30%, will approach about half of the cost synergy achievement this year with the balance of it coming on next year. That will put some wind in our sales from a margin expansion perspective, help us move closer to the mid-40s. And then as Jonathan mentioned a few moments ago, we're being very thoughtful about the level of reinvestment that we'll be able to make in the business to help move our growth rates in each of those 3 categories up as we innovate and bring further new products on the market.

Right. And what are some efficiency initiatives that can get and drive longer-term EBITDA margin expansion?

There's some -- so I will start with our systems. And Jonathan will kind of give you some numbers. So we mentioned 6 CRM systems, 20-plus ERP systems. I think the number is a dozen-plus order management systems, and I could go on and on and on. And these multiple systems are -- shouldn't be -- and the [ most ] scary numbers. They're not surprising. We've done a roll-up of a number of acquisitions in the last 30 months, each of them themselves have not been fully integrated. And in those is just inefficiency. It's cost inefficiency, it's process inefficiency. And so those are examples of things that we will certainly unlock.

Great. And to what extent are there potential investment requirements or data costs or competitive considerations that could prevent EBITDA margins like Clarivate from exceeding 50% over the long term?

So I think my view on this is we will get to 50%. There's no reason why the business model like we have right now that we will not get to 50%. When we come back in Investor Day, we'll talk about, based upon our assessment, the pace and how quickly we get there. And my view on how we will guide is very simple, without giving an exact number, is we will be very clear on what the revenue growth rate is. It gets back to the gentleman's question back there because that's a key driver of the organic growth rate. Then we'll talk about how much margin improvement I'm comfortable that we can commit to the Street every year. And then think about that, we'll invest back into the business. Now when we commit a margin expansion back to the Street, that will include implicitly investments back into the product to drive the innovation that we haven't -- that we know we need to do. That being said, I don't think there's a lot of risk in the formula. It's, again, the model we have, and if you look at our peer group, we're no different from the peers. The nature of the scalability of our business model lends itself towards increasing margins. The magic about 50% is you tend to slow down in the margin improvement growth rate at that point just because each incremental dollar is already contributing $0.50 to even kind of keep even. It gets hard to that point. But we'll lay out what that schedule is going to look like.

That's great. Clarivate has completed a number of strategic acquisitions. You've got DRG, CPA, ProQuest. What's your appetite for future M&A? And what's the sweet spot for transaction size? In which areas of the business would you want to focus your M&A on?

Okay. So right now, we are full. We are completely full. We can't take another bite, not even a wafer-thin bite right now. So -- and we need to do a couple of reasons. One is our leverage being where it is right now. But even if it wasn't, we need to integrate what we have right now. We have a great collection of assets that need to be fitted together to drive the organic growth rate, which is the ultimate driver of valuation in our space. So -- and I told my team, George, don't even talk to me about M&A right now. I don't want to hear it. If you aren't going to hang up the phone, pause on M&A. And that will be the case for the next 12 months or so as we integrate the great set of assets that we have right now. Now a year from now, we'll begin looking again. Now because I literally have said don't talk to me about it, I don't know the answer to your question. I don't know what we're going to focus on. I would expect us to be maybe a bit disproportionately focused on health care given the underlying growth and that opportunities. And in terms of scale and size, I don't have any particular limitation or minimum size at this point.

Okay. And then maybe turning to leverage. You mentioned you're hoping to get sub 4x leverage by the end of this year using proceeds from MarkMonitor to help accelerate that delevering. What's your longer-term target for leverage? Where would you like to see it?

So my view on this, and Jonathan commented on this also. He's looked at this a lot. I think the natural home for a business like us is just under 3 turns at its arrival point. And the magic about -- well, first, we're sitting right now on a net base of about 4.5 turns. I mean, to be clear, we have no issue. We have no concerns about coverage with our cash flow, anything like that at all. Our view right now is a poor handle on debt, given the economy is a scary number for some people who don't know our model. And so we're going to drive that down and focus right now is our top priority with our cash flow, including the proceeds from MarkMonitor to get it down to a 3-dot-something. At that point, you'll continue to see us, under Jonathan's leadership, both pay down debt as well as do buybacks. We think our stock is an extremely attractive level for buyback at the current stock price. We will do both. But when you get down to a 3 -- just 3.0, 2.9, somewhere at that level, that gives you a nice pace. So when I am willing to take those phone calls about M&A, we can lever up for an opportunity, not have to use stock and then pay down. And this same model, I'm used to, George, I think it's a very effective level to be at.

That's great. Any other questions from the audience? We've got one here.

[indiscernible] so my question is, what is the right time frame over which we should evaluate execution on these different elements? And at what point should we say, okay, we're here. I mean, we'll still be kind of a process from there, but we've done the integration. We've done the sales force work. We've done the changes on the executive side. Clarivate is now humming. Is that sort of 2 years out, 3 years out? I mean, just how do you think about the journey ahead?

Sure. It's a great, great question. Just to repeat because the mic wasn't there. The question was all these things in place. At what point are we humming? At what point is One Clarivate complete sales force and what's the timing on that piece? It does depend on the piece of the One Clarivate. Again, I do think what Steen has done, with the sales force to change there, we have it now in place, and we're going to see the results of that quarter-by-quarter, it's going to get markedly improved on the sales force execution. So that's had one piece. On look at the internal systems, I gave my laundry list of complaints about the number of systems we have. That is a multiyear path, multiyear being 3, 4, 5. But every year, we're going to see an improvement. Next year, we're going to go to 6 CRMs to something less than 6 substantial. We'll tackle ERP systems after that. And you kind of chip away it, and that's the way I find the most effective way to do it. And every year, you see a benefit on doing that. The focus on innovation and on product, that can take a little bit longer. And so we're doing a bit of it right now. I expect, again, based upon my experience, once you get the DNA and the muscle memory in place like this and accountability around that, start measuring people on that, we will see the investment and the activity around it. In terms of the impact on organic growth, that's going to be a little longer out to see it. But it is -- I mean, you said it right. It is a continuously improving process. But I think sales force comes first. You'll see its improvements on system second. And you'll see the improvements and the impact on revenue from innovation coming third.

Great. Well, Jonathan and Jonathan, thank you both for the incredible insights. Please join me in thanking the team.

Great. Thank you.