Clarivate Plc (CLVT) Earnings Call Transcript & Summary

All right. Our next session is with Clarivate. Thank you, everyone, for joining this section. For those of you who don't know me, my name is Owen Lau. I cover information services, exchanges and digital assets at Oppenheimer. Clarivate, it's a global information and workflow solutions company, serving customers in university, life science and legal area. Today, we are excited to have CEO, Jonathan Gear; and also CFO, Jonathan Collins, joining us today. So thank you for spending some time with us today both, Jonathan.

Thanks for having us. Great to be with you.

For the people who are listening to the webcast, please feel free to submit your questions online. We'll do our best to address your questions. So without further delay, I think the Clarivate story could still be new to some investors. Maybe both, Jonathan, could you please briefly talk about what Clarivate does and your value proposition?

Sure, we'll do, Owen. And so I'll go ahead and kick it off. So we play in the space of business information and business analytics. The nature of that space is highly predictable, is a SaaS-like revenue and profit model, so highly predictable, highly scalable, great cash flow, low CapEx and great cash flow coming out of it. Owen, as you kicked it off, saying we play in 3 very specific segments, which are both separate and also led together to support each other. But half of our business is in Academia & Government, and all Academia & Government is primarily academia. So we serve the largest research universities in the world. And we do it through 3 different product types. We provide a great product called Web of Science that, Owen, with your great academic pedigree, you know very well. But it is a leading arbitrator of research integrity in the world and is sold to all universities in the world. The second product is around SaaS-based workflow solutions. So both university and public library, their entire systems run on our SaaS software solutions. And the third is we're a provider of content, both journals, publications and books, again, selling into universities. So A&G represents about half of our business. About 1/3 of our business, 30%, is our Intellectual Property segment. And there, we're providing really 2 types of content. One is around the patent workflow all the way from patent search. If you have an idea or a company has an idea, doing research, is it patentable, all the way through to docketing, registering that patent. And then protecting that patent to its 20-year life through continue to fill that patent. And we had the same on trademarks as well. And our third business is our smallest business, a little under 20% of revenue, but the long term has the most potential secular growth trends behind it is where we serve life science and health care. And there, we're primarily serving large pharmaceutical companies and large biotech companies, provided with critical content and tools around 3 different workflows: one, around the research and development workflow; the second, around regulatory clinical trial workflow; and the third, around the commercialization workflow. And what ties all of these 3 segments together, very, very heavily tied around innovation, investment in R&D. And that's the core of what Clarivate -- what we do.

Got it. So we bought earnings last week and lowered some of your guidance, like 2023 guidance. You highlighted 3 areas of weakness in the second quarter: annuity, Real World Data and consulting. What makes you confident that you're not losing shares to your competitors?

So yes, let me walk through all three pieces, Owen. And by the way, I will be transparent. There are some elements of our business we have been losing share, and we're getting it back right now. So first, the profile on the business overall, 60% of our revenue is subscription, so recurring absent the definition of recurring. 20% is, Owen, as a used term annuities. We also see the term reoccurring revenue for this. This is our patent renewal business, where we help our clients renew existing patents, such as 20% of our revenue. And the remaining 20% of our revenue is transaction-based, so one-off series of either data pools or consulting, so not recurring in nature. So 80% recurring or subscription; 20%, transaction. What we saw and we pulled down our forecast in our call last week, and we're very disappointed with the outlook for the year, but it comes in really 2 specific areas. It comes within the transactional business within Life Science & Healthcare. And there are 2 product areas: one, our consulting business, where we sell and we assist pharma companies and big biotech with their go-to-market and commercialization; the second element, also assessing in commercialization is we're one of the largest providers of what the industry calls real world data. This is an incredibly useful set of assets to the industry uses to help know where to target market opportunities for their therapeutical outcomes. And there are two issues there. One is there is a short macro challenge in the industry as some pharma companies have -- the industry has pulled back on their commercial spend, we're seeing it. Other players in the space where the direct competitors or just other players in the space have called out on their call also. So we're seeing a little bit of reduction there. And the second piece, we are particularly with our RWD or Real World Data assets, we're in the midst of a transition from what has been historically for us primarily a transaction-based revenue to convert that into a platform and what will become a product and subscription-based product for us, much more predictable, much more scalable and a much better outcome both for our clients and for our investors, but we are in the midst of that transition. On the annuities business, which was the other pull-down, that once again is in our Intellectual Property segment. And again, as a reminder, that's how we're renewing patents on behalf of our clients. It's roughly about a $400 million annual business for us and is split within 2 different channels. One is where we go direct and support corporations. And these are large IT-intensive corporations, so think pharma, high-tech, manufacturing companies which are trading or maintaining many, many patents, support online patterns. So that's one type of our business. The other trend is where we serve the longer tail of small- and medium-sized businesses. And we do those through our law firm customers, our law firm distribution partners. These are -- can be large regional or global patent attorney firms who support their clients and the journey around patent protection. And so where we saw weaknesses in that latter channel serving law firm customers and to be specific, serving a law firm and their customers, their end users. It came late in the quarter. And your question, Owen, was are we losing share. We're very confident we're not. And we were surprised by the slowdown in volumes. It's an absolute reduction in the volumes, especially being sent to us for renewals. We dug into it, and it's really 2 geographic areas of weakness is in Asia Pacific. And a couple of key drivers there, which I'm happy to walk through if you like, but some very specific macro issues. And then also in Europe, again, driven by 2 very specific issues there. And as we went and tested, there's no global registrar of the number of quantity of patents. But as we tested with individual country-level PTO offices, we found they're also seeing reduction as well. So the reduction we're seeing is really driven by a couple of these macro trends.

So would you be able to talk about the performance of these 3 areas in July or maybe in early August so far? Did it track in line with your expectation? Any color you can give us to us?

It's a little early for us to show that color, Owen, so we'll be coming back at the end of the quarter. But what I will say is this, as Jonathan Collins and I -- when we saw the weakness in the quarter and had a view of certainly missed expectations, including our internal expectations for the quarter, we went through a very rigorous look at the out mark for the rest of the year, particularly where we can have swings in revenue. Again, recognizing that the vast majority of our revenue is extremely predictable. And where we were hurt on these kind of more on the outline views. And so Jonathan and I went through and basically took the significant amount of the variables out of the forecast for the rest of the year, particularly around Real World Data, consulting and annuities. So there should be very little variability based upon the forecast that we gave.

Got it. So how about the rest of the business? I think we just focused too much on that 3 weakness or these 3 area. How about the rest of the business?

Well, it's interesting. At our Investor Day back in March, Owen, we talked about -- this is a set of assets -- we have a great set of assets. We also have a great customer base, some of the best customer base in the sectors that we serve that the people dream about having. Yet we have been underperforming the market in each one of those three segments of Academia & Government, IP and Life Science & Healthcare. And when we peeled it back and what Jonathan Collins and I shared at Investor Day, within those, it's really one specific product area in each one of those three, which is holding down the total. So first, I go to our largest segment of Academia & Government, and the product line that was -- even though it was a great goal standard product, our Web of Science product had historically been essentially flat growth and underperforming the marketplace. Still the market leader, but losing market share to competitors, most notably Scopus, which is owned by Elsevier. We started making investments in that platform starting early last year, went through that classic build, launches in the marketplace. And I'd tell you, I wish we had kind of kept it, the before-and-after look to share with investors because investors could see how remarkably different the new product is. But the results -- we really began seeing the market embrace this in Q1 of this year. Retention rate going up, new business going up in a very heavy renewal cycle in Q1, continue to see new business climb in Q2. So we feel very good that A&G segment was part of our growth mechanism is to take it from a historical 2% grower to 4%. We feel well on our path to get there. So we can kind of put a checkmark by that piece. Within IP, and there's been a lot of noise in the quarter understandably about our annuities business, but we feel very strongly that's a temporary macro-driven. And even with the macro, I mean this -- we can absorb any one of a number of bad news. It's the stacking up of kind of 4 macro events, which we couldn't absorb in the short term. We feel strongly and based upon historical evidence, that should bounce back to normal growth. Within IP, once again, there's one specific product we need to fix. That is the Derwent product, which is the product that our customers use during the search element of a patent. There's -- and so at the very front end of the patent, we've been following the same road map. We did Web of Science last year of investing in this year. We hired a new product leadership team tail end of last year. They brought to Jonathan Collins and myself and a business case, which we got behind and are investing heavily behind. We're going through a heavy, very heavy involvement with our customers there to make sure we're doing exactly what we need to capture back share there and expect to get that to kind of beta plus classified side of next year. So I expect next year -- in the first half of next year to see the same positive green shoots for Derwent that we saw with the Web of Science this year. When we get that fixed, we then fix the IP segment. That's a segment that should be growing 5% to 6%. Historically, it's been growing about 4%, the last couple of years CAGR. So that 2% lift will come from lifting Derwent and the related tool set there. That brings us to our final third piece, which is Life Science & Healthcare. And again, we've taken the hit this year on the transaction piece of the business. But the real growth -- that is our smallest piece of our business, Owen, as you know, about 18% of our revenue. It should be based upon the market that we serve and what our competitors are doing. And the quality of the proprietary content that we have, that should be our fastest-growing segment. And while it has been, it's still been growing less than the market rate. So we've been very heavily focused on the Real World Data platform, building that out, doing the same thing we're doing with Derwent is to build Europe for us right now. We expect to kind of brute force launch a couple of therapeutic new product areas at the tail end of this year the product in place to have that to be a vehicle a very predictable, scalable growth starting in 2024 and beyond.

Got it. That's very helpful. So let's dive into each segment like one by one. So let's start with academia. So Jonathan, you talked about you made some investments in the past. You saw some good growth and renewal rate in the first and second quarter. So it looks like that investment paid off. Do you have any plan to implement and not a major upgrade? What is the time line of this upgrade, if there's any? And what is the logical next step to add more functionalities?

Sure. And maybe I'll help that question. I'll break the business into 3 specific pieces. There is -- you'll see the Investor Day, you can call it research and analytics. That is primarily Web of Science, and I've spoken about that. That's when we had to lift. And I mean we feel we have turned the corner on that one. There is still additional work we can be doing, additional functionality we put in into that product. But if it maintains the subspoke with [indiscernible] current growth rate, we kind of solved that one and is performing at market rate. The next element is around our workflow solutions, our SaaS solutions, which, as I mentioned in our introduction, that is the system on which universities run and in both the university libraries as well as public libraries. If you walk into it and they're using one of our programs, it's like the SAP or the Oracle. They're running on it. That should and could be a passive growing segment for us. I recently -- as I resegmented and created these new segments, our recently hired Head of A&G, Bar Veinstein. Bar actually was the original person who brand that segment under process 4 years ago. And so he's coming as part of the leadership team we have right there. We think there's more innovation and growth we can drive out of that segments -- out of that subsegment. So we'll see some more opportunity there really driven by innovation. The third element of our portfolio is where we aggregate and pull together content for our library customers. This includes physical books, e-books, journals, publications. That's going to grow at a lower growth rate, and it's going to be kind of a low single-digit growth rate, but it will be tuck upwards -- the second will be [ tucked upwards ] by these other 2 areas. But just in summary, Owen, that not the case track Web of Science, we [ tracked ] it, and we will continue to invest behind that in all 3 subsegments.

Got it. So for this kind of upgrade, how should we think about the pace of investment? Do you have to make such like so-called a large investment -- initial investment upfront? Or this kind of investment, it's pretty stable over time? How should we think about that?

Well, these -- appreciate the question. I will say that a couple of the products, including Web of Science, including Derwent and a couple of products Life Science & Healthcare had been underinvested in for a very long time, 10-plus years. They kind of came from the original Boston Scientific business, which was the kind of origin, if you will, of Clarivate. And so we made a decision, Jonathan Collins and I made the decision entering last year and -- exiting last year, entering this year, what we had to put some more investment dollars behind it. We're doing it through elevating our CapEx budget. And so we decided to increase our CapEx budget by about 200 basis points this year, '24 and probably bleeding a bit into '25. We'll see when we get a bit closer. That's kind of the surge we're using to kind of lift to a onetime lift of investments. Once we get past that, we feel very comfortable that our existing model will support the ongoing investments required.

Got it. And how about AI? So I think you recently made an announcement that you partnered with a company called AI21 Lab to integrate AI functionalities into Clarivate. Could you please unpack for us what this company, this lab does and what you offer? And how does Clarivate can differentiate from other AI companies?

Sure, will do. And let me make a general comment about AI, especially generative AI, which has kind of captured our imagine so much this year. Clarivate, we've been working with advanced AI tools for decades, literally for decades, machine learning, large language models and the like. And I think you'll find if you speak with other business information companies, pure companies where their competitors or just peers, we're all. I mean we would exist without the use of advanced analytics. It helps unlock the content, the value and the content both structured and not structured that we provide. Now the explosion, if you will, of generative AI, in particular, which I think captured the fantasy of the population when ChatGPT kind of went public, we've been working with these tools ourselves for over 12 months in certain areas. So it's very much part of our normal BAU, our normal innovation. We have these tools, we've been embracing them, and we will be embracing multiple tool providers. AI21 happens to be one. I met with them when I was in our office in Jerusalem earlier this year, partnering with them initially on our Academia & Government space but see opportunities across multiple spaces. There -- I think what you'll find is there are several large players. So all the large tech players are investing heavily in this area. Then there are companies like AI21, which are doing the same. But at Clarivate, we expect to partner with a number of them. And so we're in discussions, in partnership with a number of providers of gen AI and other advanced AI tools. And it's really twofold. They're a way where we can greatly drive internal efficiency around our content production, around our software production to kind of create additional investment dollars. It's why we won't need to raise our investment dollar spend. And they're also a great way where we can drop into our product to make our product accessible and the underlying content even more accessible to our end users. So we expect to see a lot more announcements from us on products forthcoming, but this is -- we see as a key enabler of growth for us going forward.

Got it. So maybe let's move on to Intellectual Property, IP. You had some step back you just talked about. But on your last earnings call, last week, you also mentioned that you signed a large patent annuities deal, which will commence next year in 2024. Can you please talk about like how did you win that deal?

Sure. So this is great, Owen, and actually goes back to the conversation we just had, Owen, business targeting the law firm channel of our annuities package. And these -- this is -- I mean, actually origin of CPA came out of a coalition created by law firms. That's how CPA Global, which was our -- this portion of our board business came from. And it's a fairly stable market, but we work very hard to partner and try to find new channels and work with law firm partners. This is one we worked on for a number of quarters. We haven't announced the name and that we won't. But it was a very large global patent attorney firm that I think the announcement I made on the call. I can't say it's the biggest new business sale ever in the history because we've been around for 40 years, but it's certainly the biggest new business sale that this leadership team, including the leadership team in CPA Global being there 8-plus years has ever seen. So what that will mean, we'll begin onboarding their clients against the same model. This law firm is our customer, but we're serving their clients. People begin migrating their clients as they go through their renewal process from their existing provider on to us starting early next year.

Got it. So Jonathan, you also mentioned that I think you're going to roll out some like new functionalities in the IP space later this year, and you expect maybe some revenue uplift in 2024. I mean, can you please talk more about like what functionalities you expect to add? And what makes you confident that you can -- just like what you did with Web of Science, you can repeat that in IP?

Well, the biggest turn I'm going to get is around Derwent. And maybe a quick comment on Derwent. So again, Derwent is our software tool. It came from the original Boston Scientific. That's kind of where it's birthed from, if you will. And this is one of those products, which I would put, Owen, in the category it had been under-invested in for years. And the remarkable thing about Derwent -- I'll give a little example. I was visiting and the IT department of a large pharmaceutical company 2 months ago. Remember them with the conference room, there are dozen or so people around the table and myself talk to them about their IPs, great, great customer of ours ask about Derwent. So what do you think about Derwent? And the people on the table is at the corporate shared service for doing the patents for this company said, "We love Derwent. Couldn't live without Derwent." This one person, one of our users there, clients there being there for 30-plus years. "I use Derwent every day. I couldn't do my job without it." Now I have to know within that client, our revenue for Derwent has declined over the last 10 years. So what has happened? We haven't lost the client. In general, we generally have not lost a core client because Derwent for a power user is the must-have tool, number one. Number two, the underlying proprietary content that we have this tool is hitting is viewed universally as the best content in the world when it comes to understanding patents and patent search and patent intelligence. So we have the best underlying content. What we have done over the last 10 years is, shame on us, is we have seen a lot of the activity, which used to be centralized has now been pushed out into product teams and our various clients. And they're not using Derwent every day or they're using it incidentally. Derwent is really built for the power user. And so we've allowed competitors to kind of come up through the cracks and the floor and capture the much easier to use user base not as good, but the trade-off has been made. So what I feel really good is, first of all, we have the best underlying content and data, which I keep coming back to. Whoever owns the data wins -- should win. They should win. You might mess it up, but whoever owns the data wins, number one. Number two, we still have -- we saw the customer relationships. We generally haven't lost them. And so we -- and they're generally very, very positive relationships. So we see the build of functionality and the ease of use that protects the power users, which we will protect for them because they've told us we want to maintain this highly tuned engine but create the tool around it that serves the incidental user and then allow them to tap into our underlying leading content. That's how we're going to win.

Got it. So I don't want to get myself ahead too much, but after this upgrade later this year or maybe earlier this year, do you have any plan to have more upgrades on IP? Or it's too early to say?

Well, in terms of the products themselves, Owen, you're referring to...

Yes, in terms of product IP, yes, functionalities, exactly.

It's an ongoing path. And I think this is what we're catching up with a little bit is that innovation has stopped. I've been in the CEO chair a little less than a year. One of the things which is -- I'm just passionate about is measuring how much of our revenue growth is coming from innovation. And there's no hard and SEC rule of how to measure innovation. But my back the envelope is tell me how much rev comes from products we've launched in the last 3 years. And so Mr. Collins here, he and his team are kind of look analysis about first baseline and where that comes from. But that -- and once we get it right, and there's a certain art and science is something that we'll certainly share with the investment community in one of those key metrics we shared with you as we do internally with the Board, this is a long-term sustainable growth. And that comes, Owen, from constantly innovating in the products, find new ways, moving left and right into the workflow with our customers, leveraging ongoing our proprietary content. So this theme of innovation and growth of innovation is one you're going to hear from me a lot going forward.

So I have one question online. I think it's related to Derwent and Jonathan, a comment you just made, which is about the data. So I think there are some questions about whether the data from Derwent -- it's publicly available. I think at the end of the day, I think the key question it's how do you differentiate yourself? Or how do you differentiate Derwent from your competitor?

Sure. So the question -- actually right. The patent information is publicly available from every PTO office all around the world. It's publicly available. It is, however, messy. It is messy because if you're writing a patent -- if you think about the world of intellectual property in the corporate, you have trademarks, you've got patents. You also have your own company trade seekers, and that never sees the light of day. And when you're writing a patent, you're doing your best to provide enough information to get protection but not enough that's going to reveal your own trade secrets and the likes. And so if you bought a patent, they have to look at it -- and I'd encourage you all to look at a whole bunch of physical patents. They're not spreadsheets. They're not highly structured documents. They are documents out there that are written verbally in the -- often it's own language, written in a very, very precise format by a patent attorney to get the maximum protection. Their handwritten diagrams on this page is incredibly unstructured. Now the Derwent database that we have built over multiple decades has taken that unstructured document, have experts interpret those, that publicly available information including having IEEE experts interpret the ones for high-tech, having chemists, biologists interpret the ones coming out of pharma. So true expertise to build our database on top of it, which is the proprietary Derwent summary of all these databases. That is a multi, multi-decade build. And I'll give one example in China. So China today, they are creating half -- over half of the new patents of the year is coming out of China. So China has been a contributor to new IP now for a decade-plus. We have a team -- we bought a company called IncoPat based in China as we focus information. We had those same experts who are experts, not only in the patents but in Mandarin because, of course, the patents in China are obviously in Mandarin, to build the summaries in English and build that proprietary content around it. It is incredibly hard to replicate, incredibly hard, incredibly hard, expensive and takes time. And that's kind of the secret sauce that we built on top of what is otherwise publicly available information.

Got it. That's very helpful. So let's move on to your last segment, which is the Life Science & Healthcare. I think you plan to roll out some new functionalities later this year and maybe some next year. So again, like what makes you confident that you can -- it can help you grow your organic revenue down the road? And also, would that be 2024 or 2025? How should we think about that?

Yes. There's a couple of things to go into that play, Owen. First, as an end market, it is the -- has the most positive secular trends for any one of the [indiscernible] end markets. And you know this, Owen, but we've guided that the end markets that we serve within A&G grow about 4%; within IP, growing about 5% to 6%; within Life Science & Healthcare, again, the relevant addressable markets that we serve, growing high single digit, low double digits. So it's the most positive trend in terms of money being spent in a world that continues to age, continues to need new therapeutic drugs to address health issues. So there's significant market trends behind it. Number two is we do have incredibly strong, again, proprietary content. In some cases, we're head-to-head. In some cases, we have unique content that no one else has. And we serve, again, as I mentioned in my introduction, Owen, the R&D, regulatory and trials and commercialization. I encourage investors to think about in terms of those 3 blocks. Now the area we're most focused on investing right now in innovation is in that last block, which is commercialization. And there, one of the core assets that we have and own is Real World Data. And with that, we -- it came with an acquisition we made a few years ago called DRG. And in Real World Data, we acquired a lot of content from the source and that we create our unique data set. For those of you who don't know, Real World Data is what the industry calls longitudinal health information. And what that means is we have in there, I'll use myself as an example, a completely anonymized view of patient 123456, maybe that's me, over my life cycle, which says, "Okay, here are the illness that I had, here are the drugs, here are the reactions that I have, so on and so forth." So bills at a very granular level the impact on drugs on a certain type of individual. That micro -- ultra micro market information is gold dust to pharmaceutical companies and to large biotech companies as they go to market with their drug information. And we're one of the top 3 or 4 providers in the -- primarily North America product, one a top-tier provider in the world who have this product. Now we have historically sold this. We collect this information and we cleansed. And we have this great data set, and we have historically sold this as a data dump to other companies. And that is frankly a mistake. So we pivot the strategy entering -- exiting last year is one of the major investments that, again, Jonathan Collins and I greenlit. We brought in a great new leader externally, Henry Levy, who came in from Veeva Systems, who lead in the space, previous work CRO also at Accenture Healthcare, greatly in the space. And he's doubled down on this. But we're going to productize that platform. And so what that means, Owen, is that -- and this is going to be a flywheel innovation machine. We're building a -- turn that data set into a data platform on top of which we can build specific therapies, and therapy might be around oncology. So the oncology stream right on top of that. It might be hypertension, it might be business issues or whatnot. And then we can take that analytical solution and sell it to every pharma and drug company that's in the oncology market, for example. It is a very, very large space. We're moving up the value chain, and we're moving into a product set with [indiscernible] investor lens much more subscription-based, much more scalable, much more predictable. Because one thing that has really hurt us this year in terms of our guidance is the unpredictability of selling these data deals. They could be -- they are 7-figure dollar deals, very [indiscernible] as to where they come in, when they come in, and it's been very difficult for Jonathan and I to predict -- to be predictive on this. So it's a very important pivot. It's something that, frankly Owen, should have happened years ago. But we're doing it now, and it's going to be a much better business coming out of it.

Got it. So I got an interesting question online. Maybe you can address that. The question is, is that too much for the company to try to turn around 3 to 4 businesses at the same time? I mean I do have a different view because you do like to implement it in like different phases. But that's the question. Are you better off to just focus on maybe 1 or 2 segments and go all in into that and turn around? I mean I want to give you some time to maybe clarify that, what you're doing.

Sure, sure. Reasonable question. I think it's a reasonable question and debate to have. But I'll tell you this, so entering this year and, Owen, you'll know this, I restructured Clarivate. Clarivate used to be global sales, global product, global tech. And I would argue that the best structure would have been very hard. I now have 3 very distinct segments: A&G led by Bar Veinstein, a hire who we brought back in, yes, he used to be with ProQuest years ago. So zero learning curve, driving a lot of change there; Gordon Samson, the former Chief Operating Officer of CPA Global, which was the acquisition we made in the IP space, absolute industry veteran, industry leader, driving the change there; and then Henry Levy, who I mentioned I brought in from outside, driving the same Life Science & Healthcare. Each of them need to fix one thing. Each of them need to fix one thing. We don't need them to fix all things. I need Bar to fix Web of Science and actually fix, right? So he actually absorbed fix. Now he just needs to kind of build the acceleration there. I need Gordon to fix Derwent, and I need Henry to fix our Real World Data platform. So it's not multiple problems. There's 3 specific problems, and we have one well underway.

Got it. So adding everything together, we have to go back to your long-term target, which is 6% organic growth in 2025 and 50 basis point margin expansion per year. I mean, does it change your view at this point? Or you still want to stick with that plan?

[indiscernible] We have rolled out and I think quarters that estate extended to do. However, areas are not interest in company both the platforms is in that we're seeing the progress being made there accurate. In fact, actions to derate year. So again, I don't have any updated LRP but in actual [indiscernible].

Okay. Got it. So -- and then another popular question is in terms of free cash flow generation, I think you expected to increase the free cash flow conversion from 27% in 2022 to 44% this year. And in 2025, it can be over 50%. But I think in the first half, the conversion rate, it's already like 51% or so based on our math. I mean, is there anything we should be aware that your cash conversion may be lower in the second half compared to the first half? Or you just want to be conservative?

And Jonathan Collins, why don't I have you take this question, please?

Sure. Thanks for that, Owen. So the only difference between the first half and the second half will be some seasonality of working capital that we think is likely going to have the conversion to be slightly lower. But you pointed out correctly, all of the dollar year-over-year improvement in free cash flow has been delivered in the first half of the year, principally on 2 things. Number one, we have a meaningfully lower onetime costs associated with acquiring and integrating the businesses. Most of this year's onetime costs are spent to complete the ProQuest acquisition. Those cost synergy benefits that we're going to see are largely have been recognized in the first half of this year on a year-over-year basis. And then the second item is slightly improved working capital efficiency. So we had some investment in working capital last year and a little bit the year before. This year, we expect that to taper off and be relatively flat. Those 2 things are where they're really delivering improvement. And as we accelerate our growth, as Jonathan just highlighted, and modestly expand our margins. And as we delever over time, we expect to be able to continue to tip up that mid-40s cash flow conversion on adjusted EBITDA up to above 50% over the next couple of years.

Got it. So I got some feedback that, Jonathan Gear, your answer about the long-term target wasn't super clear. Can you like say it again one more time? You're not going to change anything right now, right? Sorry about that.

That's correct. The impact we've seen this year on our guide has not been on the growth levers that are required to hit our LRP. So I don't have any update or change to the long-range guide at this point.

Got it. So final question. We have 1 minute left, your leverage. I think your leverage was at 2 -- 4x in the second quarter. I think you guided to 4x leverage in 2023 and then 3x in 2025. So now you're at your -- kind of like very close to your target already. Does it -- like given where your stock is trading at, does it change your decision or any thinking about allocating some capital to buy back this year or we have to think about next year?

Sure. I'll comment really briefly and then, Jonathan, I'll ask you to add some more color here. The short answer is yes. So it's entering this year. So we entered this year at a leverage ratio well north of 4x. Given our cash flow nature of our business, there's never an issue of servicing the debt, but we do recognize the part of our peer group that's at a high level and on the back of a large ProQuest acquisition. So I came in the year very focused on getting the leverage down along with Mr. Collins here, getting it down to well under 4x by the end of the year. We're still confident on that path. However, given where our share price is right now and certainly myself and the Board see the ROI on buybacks as being a significantly positive tool for shareholders. And so we have signaled, and Jonathan has hit on the last call about this. But Jonathan, do you want to add some more color on our view right now of use of cash?

I think you summed it up great. We're in a position in the second half of this year where we can start being more balanced, and we suggested that on the earnings call last week. So more to come on that in the coming months.

Sounds great. I think we're running out of time. Thank you, both, Jonathan, for your time again, and thank you all for joining us today. Thanks a lot.

Owen, thank you so much for the time today. It's great to have a chance to join you again. So thank you so much.

Thank you. Have a good day. Bye-bye.