Q1 2021 CLARIVATE PLC Earnings Call
Hello, and welcome to the perfect Q1, 2021 earnings release conference call all participants will be in listen only mode.
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After todays presentation and there'll be an opportunity to ask questions.
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Thank you Keith and good morning, everyone. Thank you for joining us for the declared a first quarter 2021 and earnings conference call.
With me today are Jerry Stead, Executive Chairman and Chief Executive Officer, Richard Hanks, Chief Financial Officer, Mukhtar Ahmed President Science Group, Jeff Boyd President of IP Group, and Gordon Samson head of APAC strategy and growth all will be and that will take your questions of the conclusion of the prepared remarks.
As a reminder of this conference call is being recorded and webcast and is copyrighted property of clarity.
Any rebroadcast of this information and halt or and part without prior written consent of claret is prohibited.
This morning Clare of it issued a press release announcing our financial results for the period ended March 31 2021 the.
And the release as well as and accompanying supplemental presentation is available and the Investor Relations section of the company's website Clare of a dot com under events and presentations.
During our call we may make certain forward looking statements within the meaning of the applicable securities laws such forward looking statements involve known and unknown risks uncertainties and other factors that may cause the actual results performance or achievements of the business or developments and clarity and your street to differ materially from the anticipated results performance achievements or developments expressed.
The implied by such forward looking statements.
Information about the factors that cause actual results to differ materially from anticipated results of performance can be found and clearly its part of the center of the company's website.
Our discussion will include non-GAAP measures or adjusted numbers, including adjusted revenue and adjusted EBITDA clarity. Please non-GAAP results of useful in order to enhance and understanding of our ongoing operating performance, but they are a supplement to and should not be considered in isolation from or a substitute for GAAP financial measures reconcile.
Reconciliations of these measures to GAAP measures are available earnings release and supplemental presentation on our website.
After our prepared remarks, we'll open the call for your questions and with that it's a pleasure to turn the call for Gerry.
Thank you Mark and thanks to all of you for joining US. This morning, we're off to a very very good start in 2020 one as the expected.
Organic revenue growth is improving all of last year's challenges due to the and.
We're also benefiting from the many operational enhancements that we've been implementing across Florida and of our acquired companies and the last two of your.
We reported adjusted revenue for the first quarter of $432 million and increase of 75% organic constant currency basis, driven by the acquisition of DRG and CPA global adjusted organic revenue in constant currency grew 7% with the.
Scripts and revenue increase of 6% and transactional revenue up 10%. This represents our best of our organic growth quarter since going public two years ago.
While we do expect some time of tax timing impacts on our quarterly organic revenue growth for sure of first quarter results demonstrate that we are absolutely on the pathway to achieving 6% to 8% organic growth exiting 2021.
Adjusted EBITDA was $165 million up 111% and our adjusted EBITDA margin improved by 600 basis points. The 38 per cent compared the last year's first quarter the.
Day, we issued a form 8-K and discussed in our earnings release, the recent FCC position on the accounting for warrants.
And the unfortunate timing of of that's made it impractical to finalize our full set of financial statements. The meet our April 'twenty earnings.
We expect to issue our first quarter financial statements and file our form 10-Q by May channel, which will show the non cash impact of the FCC's position on one and importantly, and very very importantly, the changes have no impact on our quarterly revenues adjusted EBITDA.
Our cash flow and this year's first quarter or of any prior period.
I'm very proud of the significant progress our team has made on the many operational improvement initiatives. The initiatives that are underway for had been completed for.
Sample, we're well ahead of our schedule the integrate DRG, which is now complete we're running for months ahead of plan with the more complex CPA global integration the access.
Salary and the progress has allowed us to capture cost synergies quicker and to get a jumpstart on mapping our revenue synergy opportunities as we can as we begin to realize the sooner than originally expected.
Our ability to accomplish such work all of our move to of connected workplace buoyed by our colleagues are largely working remotely gives me great confidence that.
And that we have the internal resources and place the continued to pursue small and large scale M&A opportunities.
Last year, we made the decision to permanently mode of large percentage of our colleagues.
Next the workplace following the success, we experience working in the virtual world with the smooth comes cost savings, but also of environmental benefits that we cover and our recently.
We have covered and our recently released sustainability report.
Connected workplace initiative has already led to the closing of downsizing of 35 per cent of our global real estate credit out of our total target reduction of 60%.
The opening of our three global business centers. The commercial teams have been successfully moving customers from inside sales and.
Our goal is to migrate 80% of the customers that generate approximately 20% of our revenue into the three seven of this frees up our outside sales team to focus their attention on the larger customers who are the engine for our future growth as we increase our penetration in those accounts.
We're on target to meet 20% of our revenues ended the three centers by the end of the second quarter.
The change to our commercial operations will make it easier to do business with us right.
The answers and help us the lighthouse customers buy.
Simple filing processes and approvals were even more efficient quicker to respond to the customer needs.
And clarity we're building a world leading the organization centered around that for purpose that is we believe human ingenuity and transform the world.
Alright essential products and services play, a very big and very important role and helping our customers discover protect and commercialized and innovation the world's innovators need us like never before and accelerating ideas and innovation is not just our opportunity, but its our responsibility of it.
We will meet this responsibility when we bring all of our resources Cowen and co.
Together as one part of the.
We recently launched one corner of the critical shifts and our strategy, we're transforming and building a collection of distinct market, leading products and services to be key.
Coming of a key partner to our customers by delivering the clinical data insight and workflow solutions, coupled with deep deep domain expertise that the.
The need to drive the other innovations and the businesses to help their customers.
This new approach means we're changing from Onyx centric organization to a customer centric organization, starting with our commercial growth.
We will the industry.
The product focus and approach leads the industry from the outside of that we're now focusing our customer facing activities and five global industries our customers.
Life Science, and health care professional services academic and government manufacturing and technology consumer products and we look forward to share more information with you as we take the next step and building the world's leading information services company, serving these very attractive and.
Mark.
And 2020 and we made great progress on the proving how customers view us and we've received actionable feedback.
Excuse me of our customer the light score and 'twenty one and.
Two weeks, we will be launching our first customer the light survey of 2021 and.
The survey is being sent the 50% of our customer contact.
Which includes both end users and decision makers as part of our progress towards one clarity we are including all of the acquisitions and this survey for the very first time.
Customer delight goal for this year of 70 sub.
And we're very much looking forward to sharing the results of this year of surveys with you and future earnings call.
Two weeks ago, we issued our first name of sustainability report and I'm very pleased with the work of art.
Team did this was the significant undertaking and our team produced and the extensive report on our 2020 progress and our 2020, one and future goal.
And the report you'll find information publicly what we've done what we are doing what we will do for our environment government governance colleagues and community.
We hope you'll take the time, the visiting the website and read the report.
And staying ability is at the very center of our goals, we look forward to sharing that part of industrial and the <unk>.
Yeah.
Now turning to our 2021 outlook, we are tightening our revenue and adjusted EBITDA guidance because of all of our strong start.
Adjusted revenue guidance is now $1.79 billion, the 1.84 billion and adjusted EBITDA is now $790 million to $825 million. There's no change to adjusted free cash flow of 450 of millions of 500 billions of dollars.
Once we file our form 10-Q for the first quarter, we will reissue of our adjusted EBITDA or EPS.
EPS guidance for 2020, one I'll now turn the call over to Richard.
Thank you Jerry we are very pleased to see the economic recovery playing out as evidenced by our strong first quarter.
Al will review many of the key financial metrics, but won't cover net income earnings per share of debt ratios of Standalone adjusted EBITDA as I would normally do so it was the result of the pending non cash adjustments relating to the accounting for warrants, which as Jerry mentioned earlier has no impact on the operational performance of the company.
For the first quarter of 2021, adjusted revenues were $432 million and increase of $189 million or 75% of constant currency compared to last year's same period.
Excluding Tech Street, which we divested in early November 2020, adjusted revenue increased 81% at constant currency.
The drivers of the growth with last year's acquisitions of DRG, and CPA Goupil, and an increase and organic revenue, partially offset by the Tech Street disposal.
The foreign exchange impact from first quarter revenue was a positive three 3% due to dollar weakness compared to last year's first quarter.
And as Jerry mentioned, the strong starts of the yeah. It's allowed us to bring up the low end of both our 2021 revenue outlook by $10 million and our adjusted EBITDA outlook by $5 million.
Adjusted organic revenue growth was 7% at constant currency.
Subscription.
Revenue was $275 million and increase of 19% of constant currency driven by acquisitions and organic growth, partially offset by divested products.
Organic subscription revenue growth was 6% or $12 million of constant currency future of favorable subscription that you're right pricing and timing benefits from tighter operating procedures, enabling us to reduce some of what your renewals by 85 per cent compared to last year's first quarter.
The subscription revenue renewal rate at the end of the first quarter was 19, 3% in line with the 93 per cent for the prior year period, but importantly, we have renewed a large percentage of the book at the end of this year's first quarter as compared to prior year.
Transactional revenue was $84 million and increase of 68% year on year of constant currency, primarily driven by acquisitions and organic rice.
Organic and transactional revenues increased by $6 million for 10% at constant currency due to strength in our professional services businesses, including strong performances from Dr. Qi and and increase in trademark search volumes and Comping Mark we continue to see a nice recovery in the segment of our business.
Following the impact from COVID-19 and last year.
Reoccurring revenue, which is derived from the CPA global patent renewals business was $112 million and the first quarter with no figure out of the comparison period.
[noise] subscription plus reoccurring revenue accounted for 80% of adjusted revenues and the first quarter, demonstrating our highly predictable revenue model.
ACD growth at constant currency was 11% for the first quarter as compared to the same prior year period, which includes acquisitions.
Living divestitures ACB growth was up 16%, while on an ongoing basis ACP increased by 6% period to period consistent with the 6% growth in organic subscription revenue growth on a constant currency basis.
Turning to the business segments organic revenue growth and the science group increased by 10% driven by new business growth of DRG, which annualized into organic growth from March 2021, and talked to operating procedures, resulting in lower LPG renewals, which added to organic subscription revenue growth.
The IP group organic revenue increased by 2% on a constant currency basis, primarily due to an increase of subscription revenue driven by content upgrades and better price realization as well as growth and transactional revenue due to improved transactional volumes.
Geographically organic revenue growth was 7% of constant currency across each individual region, the Americas, EMEA and Asia Pacific. This reflects nicely the balanced recovery of our businesses following the challenges in 2020.
We delivered strong adjusted EBITDA growth from the first quarter, increasing by $87 million to 165 million more than doubling as compared to the prior year period.
This was driven by contributions from acquisitions and organic top line growth.
The margin flow through.
And the benefits of the cost savings initiatives.
Adjusted EBITDA margin improved by 600 basis points to 38% from the same the same period prior year.
Per our 2021 outlook, we expect to see a sequential improvement and our margins throughout the year as we progress towards a 44% to 45% full year margin for 2021.
Cash taxes, and the first quarter of $3 million compared to $5 million and the prior year period.
Capital expenditures and the first quarter with $33 million and increase of $14 million over the last years first quarter, primarily due to the addition of DRG and CPA global.
For the first quarter adjusted free cash flow was $163 million and increase of $85 million more than doubling as compared to the prior year period, driven by the strong operating results and and improvements in working capital.
We ended the March 31st Q1, 2021 period with $399 million in cash and cash equivalents and increase of $141 million from the year end 2020. This was due to contributions from earnings and other types of working capital management.
Our total debt is $3 $5 billion and decreased by $7 million from year end 2020.
With that I'll now turn the call back to Jerry.
Thanks, very much Richard before we open up the line for questions I want to thank all of our colleagues around the world and continue the.
Go above and beyond every day the co.
And that makes it still from what we continue to monitor all of our colleagues and locations around the world.
Colleagues and India have been experiencing a strong the resurgence of the virus and we're supporting them and always possible for.
And now ready to take your questions.
The reminder, please limit yourself to one question and then return to the queue.
Operator.
Yes. Thank you well begin the question and answer session. The rest of your question you May Press Star then one on your Touchtone phone if he always Yang of Speakerphone. Please pick up your handset before pressing the keys to try your question. Please press Star then two at this time, we will pause momentarily to assemble the roster.
And the first question comes from George Tong with Goldman Sachs.
Hi, Thanks, good morning, or getting the constant currency revenue growth Hi, Jerry.
The organic constant currency revenue growth accelerated to 7% and the quarter from two 4% and for Q can you elaborate on what drove the significant acceleration of growth and if there were any unusual onetime benefits the organic growth.
No I'd be happy to Great question, George I'll start Richard will pick up.
As I said in my script, the we're enjoying.
The results of an enormous amount of hard work across the board. What's our teams. When we went public two years ago, we had tons of effects of much of that has been fixed with more to come.
We focused on cost savings and.
In fact, we've taken out almost $200 million from horrible, you'll wear out and including our acquisition. So we got that if you just go back and look up significantly.
And EBITDA standpoint, and that will continue as Richard said.
As we go through 2020, one closing at 44, 45%.
Total adjusted EBITDA and.
2021 at the same time.
The building everything.
And just a quick reminder, oh.
Early 2019 was the first time, we put the teams sales teams together inside of the two businesses.
But Jeff and book charges, such a great job of leaving we also started in 2020 and what I talked about of the move to inside sales with much more of that to come.
In the the years months and years of it.
We went out there and the enormous amount of things we changed commission programs. We did an enormous amount of training, we refocused our field sales organization would help those not performing well to find positions elsewhere and we're we've been working on pricing realization.
So it's a combination of a lot of.
Great work and a lot of that process improvement is in place and will continue to be and the 2021 Richard just pick up on the piece was there any one time.
The simple answer please.
Yeah, and nothing one time, we executed very well and the first quarter, particularly with subscription renewals.
And 93% renewal rate, but we renewed more of the book as compared to as I said in my script last year and transactional growth 10% in Q1.
As compared to 6% and Q4 last year. So we're seeing sequential quarterly improvements and transactional volumes and I think that bodes that bodes well for the rest of the air for for Q2, and Q3 and Q4 rest of year.
I'd just add one more thing.
It's so important that we do a good job of communicating this as we flow through the year and important to look at our organic growth first half second half.
As I said in my script.
Script that we expect the high degree of confidence to exit the with organic growth and the 6% to 8%, which will include our acquisitions and the fourth quarter and have a high degree of confidence of that happening.
At the same time as we look through first half second half the.
The the guidance on our last call of about 48% revenue first half, 52% second and so I just couldn't feel better about where we're at.
The things we've laid out we're executing them of the things that we laid out and the two slides saying.
There are actually available now on our website that says here's all the things we're going to do the become much more productive and much better on the EBITDA and free cash flow standpoint, and then we said here's all the things the.
For the right, which is how we're going to get to the organic growth and told the revenue, but feel really good about it.
Thanks for the question George next question. Please yes, thank you and that accounts from Toni Kaplan with Morgan Stanley.
Thanks, so much.
And wanted to ask of out if you could give us an update on how fast the Archie and C. P. A grew in the quarter I know the T. R. A T with all of that later last year. So wanted to understand if it's making progress towards the low double digit that you're expecting for this year.
And and just how that was that was are coming now.
No great question and Tony Richard pick it up separate the RG and also CPA I'll just preface it with Tony that the facts are.
Exactly where we expected the two both of them and Q1.
The only one one march of.
Q1.
What's included for organic growth with DRG, but just couldn't be happier with both Richard.
Yes in terms of the DRG acquisition and the February last year, we were frankly delighted.
With the performance of the business and the first quarter, but more importantly, the outlook for the rest of the year. The market is growing at 12% per annum and you have all.
And our expectations all of that we will grow.
Double digit rates this year, which the company delivered in 2019 pre acquisition. Obviously, there was some impacts from COVID-19 lost share, but the business is performing very well and importantly, our optics into the rest of the year of favorable.
And the case of CPA.
Of forming in accordance with plan.
As we have set and previous disclosures this business will grow 6% to 7% per annum due to natural tail winds from patent renewal book increases and we're delighted with the launch it with the integration of the business into into current eights. We're ahead of plan on our cost savings program and.
The business is tracking well thank you.
Thanks for the next question sorry.
Thank you and that comes from a matter of fact nayak from Barclays.
Hey, Good morning, let me ask the first question a different way of you know the 10% growth and signs you know the scaly above what the part and I think what you had guided us to so you know maybe one time is not the right way to ask the question. The perhaps it's timing and if you could just help US you know what the cadence for the drill it and the next quarter.
And it should be it the way you know like I don't think we should be bonding 10 per cent for the rest of the year. So maybe you can just help us back.
I'll start with that and then I'll have mukhtar pick up on the great question that off of and then Richard and I'll close off on it.
And when I said that we.
We would think about organic growth first half second half that's.
Weighted to think about it.
I'm delighted with what.
Tar and team has done.
And Mukhtar, just give him color and then Richard and I'll close it off because its a very appropriate question just as a reminder.
And we do six six and a 5% all in organic for all of 2021, we're a bit ahead of that that's why we raised the guidance from the bottom of bet on revenue, but pick it up please.
Yes of course, Jerry and.
And you know when you're in.
And suddenly we've executed on all of our product plans.
And you know.
Net of precision around and.
And our commercial focus and go to market and and those of the reasons by the way.
We've enjoyed the growth that we reported today and the bulk of that is in the subscription subscription and reoccurring revenue and we very much expect that to continue.
Okay, Thanks, and Richard close and soft because it's of critical question.
Yes.
Gary said.
And what's really important is the revenue profile of 48% H, one and 52% age too. So I think that's what in terms of the models. That's what you should be using and in terms of.
Subscription revenues firstly.
Definitely yeah, great execution, and the first quarter of should we need to book and most importantly, IPG renewals with.
And with ground down significantly and the first quarter compared to last year last year was definitely affected by COVID-19 and we just couldnt get some contract side of the line and Rev. Rec and Q1, we picked us up and Q2 last year, so business is tracking well transactional.
Gross as of Sept sequential quarterly improvements Q4 coming into Q1 and.
And when we look across the different transactional revenue streams, whether that's professional services, particularly and the Sciences group and IP search volumes and ingest and Jeff segment.
Our prognosis is that.
The markets continue to store and improve and.
We're competent and execution rest of year.
And I'd just add two quick thanks man and I. Thank you and as we said 93%.
The 2% increase and retention with more to come particularly as we see.
US executing on inside sales and the quarters ahead.
And then the price realization as a reminder to everybody just over 50% of our annual subscription base.
Comes up and Q1, and another 20% plus and the Q2, so stay tuned with us, but a great start as Richard said, the apples to apples first half you'll see.
The pieces that we didn't get done and Q1 last year shows up for Q2, and so on and off and some great question and I wish I could tell everybody that will continue to grow at 10%.
Organic and.
And science and Mcdonald, who is best to do that but think about it as part of and all in 6% to six of the half organic growth for the year and that's wrong.
And the exit Q4, which will be the first quarter and then.
He is all for organic at the six 8%. Thanks next question, Thank you and that.
It comes from Andrew Nicholas from William Blair.
Hi, good morning, Thanks for taking my question.
Just wanted to ask you know of higher level question on the sales environment and the pipeline broadly obviously last year presented a unique challenge some I'm wondering how you'd characterize clients receptiveness to the product lineup right now appetite for upsell client budgets things of that nature.
Sure and.
And compare that to pre pandemic levels to the extent that's possible I mean are we back to a more normalized environment and your view and and if not how are you thinking about the recovery timeline and.
And that sense I know Richard and in response to one of the earlier questions you mentioned, a little bit of of thawing of the end market. So any more color there would be really helpful. Thanks, Yeah, great I'll start Jeff will pick up and then month chart.
And we're moving towards the normal more normal, making great progress and the world markets.
And certainly life Science as an example of and Richard said the.
Growing it from 12% to 13% worldwide.
So I think we're closer by far than we were even at the end of Q4.
Most of the Q3 for.
Assuming no new surprises and the pandemic and.
Increased to an even more importantly, global market the pickup Jeff and then move to our on the backlog yet and.
And the question the etcetera and really good one.
Yeah sure. Thanks, Jerry I think the sales.
The the appetite for upsell and and the budget constraints from customers really hasnt been there I mean, I think we've put together a compelling packages since bringing these businesses together last year.
And customers have reacted incredibly well to that I mean, we've always planned for recovery and the IP market you really start to show up later in the second half. So we feel like we're on track and.
And the market is performing exactly the way we expected.
Thanks Luke.
Yeah.
Maybe just to start with.
With the perspective of quality.
And the industry.
And if we look at and if we look at and the industries, we operate and post pandemic.
And it's it's it's probably true to say that the rate of.
And you know the rate of digitized information.
The impact that.
Information has to research and particularly I mean, the demand we expect that to growth and we really have very long standing relationships with and without costumers and naturally what we were trying to do last year was to deliver on those commitments and we will continue to do so and and that allows us to enjoy long term relationships with.
And our existing customer spend.
And is that post pandemic.
You know world and.
Those are the industries that way do you pay and I think we're really strongly poised to Seth and just by virtue of.
Wonderful assets and the evolution of our products to meet the needs of our customers and also to just to engage and our customers and the you know and you know in and in a different way with the with high touch through our flow.
Our inside sales.
And I think I think all about well wound and well you know 72.
And just two two to Sydney.
All growth and growth plans.
Thanks, Gordon and I'm going to ask you the just add a little color on the Asia Pacific region, which is historically, our fastest growing and.
Particular focus on the China.
Japan and Korea.
Sure. Thanks, Jerry just a couple of quick comments to add suggests that book shelves summary.
I think we've had an opportunity to look at the white space that exists across the product portfolio and a deep waste and screen CPA and and obviously, Dr. Qi just before the into the family and.
What we're seeing is that's to Jeff's point the.
And if it's like the cross and upsell and the ability to explain solutions for customers.
And taking that customer centric approach is beginning to demonstrate that the reason appetite and the markets.
One final comment we also see.
And China and in South Korea.
Industry being focused on sort of governments and institutions not promoting innovation, but the very specific the round, which industry verticals and which sub segments in those theyre, putting the dollars behind which plays nicely into our move into the one candidate industry of political model. So, let's we're seeing the opportunity coming forward.
And stay tuned for more of that to come. Thanks team next question. Please. Thank you and that comes from Hamzah Mazar from Jefferies.
Hi, This is Mario port of La <unk> filling in for Hamzah.
My question is around your 2023 targets.
Aside from some of the tuck in and that Youre going to do and also contemplates two chunkier deals I just wanted to know what your line of sight as to the larger deals. This year next year and then are you the buyer of choice for these companies.
Great question and what we've always tried to do is the patience persistence and preferred.
I would say that the line of sight to larger acquisitions is pretty clear.
And again patience and persistence.
And I mentioned in my script, how good I feel.
The whole team does about our ability to execute integration, we get better with that every day and including the internal integration that would continue to operate from.
From a process standpoint, so that feels good tuck ins are there and we'll continue to work on those and we will stay as I said patient and persistent but when we get to 2023 with the two $8 billion to $3 billion personal goal I laid out and the appropriate the E.
EBITDA and free cash flow that would complement that and we'll be able to look back I think and say, yes, we are.
We were preferred we did the lever and those goals from a reality thanks for the question.
Thank you.
And the last question comes from Ashwin share of a car from Citi.
Thank you good to hear from you all it's a good quarter wishes expectations I wanted to ask if I can about <unk>.
Expenses and cash flow.
Which also day did.
And when could you provide the framework.
Is the is the same first half second half framework of good winter.
The following quarter for expenses and cash flow and then the phasing in of expense normalization coming out of the COVID-19 if he kid.
Provide what the assumption is for the non permanent savings and.
Anyone yes.
Yeah, Yeah, no Richard you picked this up and just the second couple of comments on it as I said I'm really pleased with the effort underway that continues to execute well ahead of plan and both DRG and C. P. E will exit 2021 with something over 200 million.
And savings.
As we go into 2020, two we'll realize all of that as the because of what we're doing in 2020, one, but it's a great question and the enormous amount of operational improvement everyplace, including and the tightening the way we operate.
With our customers on cash collection Richard please.
So what you should expect what you will see and the remaining quarters of the year is the benefit from the.
Continued integration of CPA global into Clair of eight and the cost removal whereby.
We gave the commitment at the time of their transaction to execute $75 million of savings on a run rate basis by the end of this year that you'll start to see the benefits of those programs coming through our actual expenses.
The quarter over quarter, so youll see.
<unk> good expense management.
Q2 true Q4.
In terms of cash flow.
I would.
I would say they start bifurcate the business between the legacy <unk> business, including DRG and the CPA global business with respect to the format of the legacy car of eights and DRG business, we do have.
Our cash flow tends to be a cash flow historically has been stronger and Q1.
And strongest in Q4, with Q2, and Q3 being a bit lighter than Q1 and.
And the case of CPA, it's the more even distribution of cash flow quarter to quarter, and particularly the H, one and two H two.
So yeah.
$163 million of adjusted free cash flow and Q1 enjoying receipts from the book from the renewal of the books during Q1.
And then we see that pick up in the fourth quarter as well associated with renewals. So.
That's the general the general pattern, but were nicely on track to executing and delivering against the guidance of 450 million to $500 million to $500 million of just free cash flow for the year.
Thank you next question, please yes and I can.
And the final Rosenbaum of Stifel.
Hi, Good morning, Thank you for taking my question.
Jerry if you don't mind and I want to ask your question and then ask it kind of the guidance clarification. So I'm going to ask you to let me squeeze and two even though it is against the rules.
Yeah.
First of all and so.
Okay.
The.
Of course, I have really is I'm looking at like 10 per cent.
Transactional growth year over year, and organic basis, which is really strong I, usually think of the transactional growth for coming more in the IP segment.
And the IP really grew you know.
The more at the low single digits, the strong strength and the science segment. I was just wondering if you can just kind of explain what drove the transactional business is there any change in how that's coming about and how we should think about it and then afterwards I would like to just go for a clarification for everyone's benefit in terms of the guidance happy too.
And we'll start with Jeff and then move chart actually Theres, a lot of growth going on and professional services and the science group.
Area that is of course.
Of transactional and some of Drg's rapidly growing businesses, there too, but start with Jeff because you'll see the best leading indicator of the impact.
And now I think worldwide the sum of Jeff's guidance.
Actual business.
Yes, Thanks, Jerry Hey, Shlomo I would say that on the IP services side, which is where the transactional revenue sits within IPG.
And we've seen pretty solid growth, particularly around trademark and patent and searching on the.
Similarly across the Globe I would say in North America on a year over year basis. The had a really strong quarter in 2020, and so on a year over year basis, and you don't see the same growth that we've seen in the Asia Pac and in.
And the European region that was offset a little bit by European patent validation volumes and what you have to understand is.
There was a backlog with the EPL from roughly 2016 through the end of 2020 of this isn't the CPA business.
And that is normalizing right now in Q1, and we changed the normalized Q2, so that does.
The impact of number, but the strength and services with the X tremendous theres been a and uptake across the board like I said and patents and trademarks and our analytics business. So we're very encouraged by what we expect the rest of the year to look like.
Yeah look tired.
Yeah.
Yes, so so starting next week with them.
And on consulting and professional services, we did see some tremendous growth there in the in Q1.
Which of which are certainly contributed to the numbers you see.
One thing I do I do want to point in time, so with with our consulting services and remember they're positioned ultimately to pull through our products and our solutions at the time. So you know, there's a cause and effect of where eventually over time, we drive more traction and India.
Accounts that we operate in and ultimate Costumers, and then consume more of our products and.
And the data solution so yeah.
That's how we position our consulting services and and and we've seen really really good traction day.
And the second area is really around some of the products that we launched the last year, what we're starting to see signs of.
A greater range of customer adoption and product adoption and the markets that we operating that's starting to come through right across.
And you know right across all of our product lines and in particular within you know within the idea on GE business.
Moving to our just couldnt be better some day I'll have you get the.
Moving to our year history of what you do do over time with pull through of subscription base and protect the life science.
But part one and I wouldn't be small mall. Please.
Yeah. So thank you just with the strong growth in organic growth and some of the commentary about <unk> 20, a there was some slippage in terms of renewals debt went to <unk> 'twenty.
Is it fair to assume that we should see the organic growth take a step down from a tougher comp and <unk>.
And just if you can help us with kind of of the cadence of how to think about debt.
Yeah.
Hello Hello.
Sorry.
And you hear me.
Okay, Great Great question, Richard pick it out because it's a great questions flow might just say again.
The the lighting the leading light for our future is what Richard said debt.
And the what what we reported with the 6% increase but.
Richard Please.
Great.
Sure so.
Youre right flow might do it definitely some lift in the first quarter compared to prior year comps because as I said earlier the worst some contracts that we just weren't able to carry of the line at the end of Q1 last year, because we're in the teeth of carrier of it and everybody was adapting to this changing environment and those who picks up and Q2, so we will be up against the salt each other on subscription.
Revenue.
In the second quarter I'll tell you what is key the average looking at the half year. Our overall subscription growth I think that will give a more normalized number. So all of the C will be concentrating on facts in our Q2 earnings call on transactional organic growth.
And I said, 6% growth Q4 last year, a recovery from Q2, and Q3, where we saw 13% and 16% organic declines because of COVID-19, 10% growth and Q1 and.
As we sort of demonstrating the market's authority and we're seeing improvements across the across the product lines, whether its professional services trademark search volumes IP professional services all within organic growth custom data sales so.
That will obviously help us and our overall organic growth number for Q2.
Yeah, and I think great questions Slo-mo. Thank you next question, Thank you and it.
Comes from Zach Cummins with B Riley of Securities.
Yeah, Hi, good morning, Thanks for taking my questions and Jerry can you talk about the migration and that is currently undergoing with your customer accounts of your inside sales teams and I'm, just wondering how you're tracking versus your internal expectations and if that could potentially have any kind of positive impact and retention rates and.
This year or is that more of a 2022 initiative.
Yeah, No it's great question.
We're on track to the at the end of Q2.
At least 20% of our total revenue, which would include the DRG and clearer of they.
And as well the CPA on the inside sales and feel good about that.
Early indications of their it's not a trend yet because it's too early but the renewal.
Renewals after the transfer of the smaller companies.
Customers today and inside sales is very positive so I feel good about debt.
What I did it's of great question, because what I'd be thinking about as we do expect to see.
Particularly in the fourth quarter of pickup because of that because of lot of the transfers.
Transfers of those customers with annual subscription base and smaller ones will be coming up due in Q1, So we will see pretty good.
That's the thing with the Q for inside sales, we've been really pleased with the pellets.
We've hired and the training that's going on so feel really good about it despite the pandemic and we look forward to it.
Going into 2020 two with.
And even more of our total of customers on inside sales. So thanks, Great question and next question. Please.
Yes, Thank you and once again to ask a question. Please press Star then one on your Touchtone phone and.
And the next question comes from Pete Christiansen with Citi.
Thank you good morning, and thanks.
Thanks for the question Gerry the it might be a little early to ask this question but.
After after closing with CPA.
Last quarter.
The Corp for.
But is there any sense that at.
And at least on the IP side.
And that.
The competitive the competitive win rate is improving.
Any sense of market share gains now that.
You've built a much larger IP solution set.
That's a great question and I'll start thanks, Jeff I'll pick up the.
Answer is we went after scale. We now have scale. We're about a 1 billion dollar of business next closest competitor is about 250 million I will say there is more activity going on with competitors trying to figure out of the partner with the of what.
With each other to compete with us.
Which is about what we expected and fact, Jeff and I talked about that way back when but give some color visits of great question.
Yeah. Thanks, Jerry Thanks, Pete.
So we're feeling pretty good debt, we've been able to integrate the business very very quickly both on the on the product side and on the sales organization and they've come together very very nicely. What we are seeing and the market is pretty wide acceptance to the broader based solution set that we have we spent the first quarter of the year here of really work.
And on creating packages and like I said before a very compelling for our customers they've reacted very well to those.
Have a hybrid cloud solution that we're leveraging to protect the customers' investments that they've made previously and some of the software solutions that they bought from CPA and this is enabling us to more quickly bring data and applications and even some of our services together into an integrated offering and what that's allowing us to do which no one else can do and the market is really allow customers to start to.
You're able to configure their lifecycle of their innovation lifecycle of the way that works for their business within their market segments. So we've seen really good market acceptance.
I don't have the numbers that I'd be willing to talk about here, but I mean really nice market acceptance overall, and we feel pretty good about the year and what's coming into this year and next.
And Jeff just given the tiny preview of some of the new opportunities, we see and expanding our existing market and some of the work youre doing and that as we close.
Yeah, Thanks, Jerry and some of the things we've been working on last year, we talked a little bit about you containerized and some of the data that was locked up within the legacy platforms within the clarity. We've spent the last year really decoupling the content from those legacy applications and this has created what we call internally IP cloud and this gives us.
And the ability to bring data together to help our customers find the answers to questions much more quickly without having to walk through some of the platforms, we're focusing on to sort of the areas.
Some areas around bringing solutions and data lakes around specific technologies like <unk>.
And we're also focusing on specific industries and roles like polymer chemistry. For example, we can get the answers to our questions much much faster by bringing more data together and a more integrated fashion with the.
Asking non traditional users to leverage and application that was designed for and IP practitioner. So we feel really good about what we're doing I'd loved always love it to go faster than it has been.
But the Gerry's point data solutions that we're putting together and the ability to allow our customers to access our solutions more seamlessly the two focus areas for the IP group this year.
Thanks, Jeff and I haven't done it.
Just thinking everybody if you think about what.
<unk> was the levering last year and Q3, 18, 19, new products Jeff's doing the same plus some.
Just couldn't be happier couldnt be more proud of our more pleased of our team.
And we're on track to do what we've said we were going to do and we look forward to doing our best to.
Provide great returns.
And to our shareholders for years to come. Thank you all very much.
And with that operator were done alright. Thank you and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Yeah.
And then show team it was a good mix of question and the banks.
Yes.