Q1 2022 CLARIVATE PLC Earnings Call
Hello, and welcome to today's <unk> first quarter 2022 earnings Conference call. My name is Bailey and I will be your moderator for today's cool.
All lines will be muted during the presentation portion with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star followed by one on your telephone keypad.
I'd now like to pass the conference over to Mark Donohue head of Investor Relations Mark. Please go ahead.
Thank you Valerie and good morning, everyone. Thank you for joining us for declared a first quarter 2022 earnings conference call with me today are Jerry <unk> Executive Chair and Chief Executive Officer, Jonathan Collins, Chief Financial Officer.
Gordon Samson Chief product Officer, and scheme on halt Thompson Chief revenue Officer, all will be available to take your questions at the conclusion of our prepared remarks.
Remind you. This conference call is being recorded and webcast and is copyrighted property of clarity any rebroadcast of this information in whole or in part without prior written consent of clarity is prohibited.
And accompanying earnings presentation is available on the Investor Relations section of the company's website clarity 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 development to clarify its industry to differ materially from the anticipated results performance achievements or developments expressed or implied by such forward looking statements.
Information about the factors that could cause actual results to differ materially from anticipated results or performance County, and clarity filings with the SEC and the company's website.
Our discussion will include non-GAAP measures or adjusted numbers, including revenue and adjusted EBITDA.
Survey believes non-GAAP results are useful in order to enhance the 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.
A reconciliation of these measures to GAAP measures are available on our earnings release and supplemental presentation on our website. After our prepared remarks, we'll open the call up to your questions and with that it's a pleasure to turn the call to Gary. Thank you Mark and thanks to all of you for joining US today I'm very pleased to report that we're off to a good start in 2020.
Two we delivered improved first quarter performance is a result of the operational improvements we have put in place. We also benefited from acquisitions as we offer our customers a wider portfolio of products to meet their ever growing needs are moved to one clarity our strategy to be more custom.
<unk> centric and outside in focus is starting to deliver some early cross sell wins for the first quarter revenue of <unk> $662 million increased 58% at constant currency and was up four 4% on an organic basis, we delivered a very.
Strong profit conversion of 73% as we continued to benefit from cost synergies and operational improvements and the power of our business model is generating strong cash flow with adjusted free cash flow of 191 $191 million for the first quarter John .
I'll cover the results in more detail soon.
Our business represents a very compelling investment even more so in the current economic environment, almost 80% of our revenue is subscription and.
Recurring based with a renewal rate of more than 92%, we have the ability to raise prices to offset inflation.
And then an inflationary environment helps to offset cost increases and we have little or no exposure to rising raw material costs. These are just a few of the many reasons I am very excited about the growth potential with clarity.
For over a year our team has been working very hard on constructing the one <unk> strategy, one clarifying presents significant opportunities for us to sell more solutions to existing customers, while improving our renewal rates and generating more new business with a total addressable market of over.
We're $100 billion there is.
<unk> taken space for us to grow average customer spend and to add new names to our customer list I am very pleased with what my colleagues have accomplished in developing the strategy. It's Chuck.
Tremendous effort for this organization to build out the four customer verticals, our team identified gaps within our workflows and prioritized hiring to ensure we have the appropriate team in place. They also streamlined workflows to support the new organization structure and the go to market realigned.
Net.
This has resulted in improved pipeline management and information and performance reporting we officially deployed this go to market strategy in the first quarter and are now starting to enjoy the benefits one of the many benefits of the one clarity strategy is focusing on cross selling products into.
New customer verticals as we exited the first quarter, we saw signs that our strategy is beginning to work with deeper penetration of more than one product within the account base and a higher average spend as we sell bigger deal sizes.
We delivered some early cross sell wins in the first quarter. For example, our web of science platform, which has historically been sold within academia and government space was purchased by several companies, including Fortune 1000 organizations across the other three verticals, which are life Sciences and health.
Care consumer manufacturing and technology and professional services, we saw similar results across other verticals, including healthcare data sold outside of life Sciences into professional service companies and universities. We are just getting started with water one clarity strategy and <unk>.
Very much look forward to updating you on our progress.
Our portfolio includes many leading information service products across our customer verticals at our annual Investor Day last November .
Delighted the high scores, we received from customers for quality of products and services and information and insights in our semi annual customer delight survey, where you were.
Survey our.
Customers, starting tomorrow may 10th in our first customer delight survey of the year, including.
Those customers from all over our acquired companies, we look forward to sharing the results with you at our next quarterly earnings call.
To ensure we stay as a leader in our products in markets with significant amount of our annual capital spend is for new product development product enhancements and improved technology.
In 2021, we launched more than 90, new products and enhancements, which will contribute to our growth. This year in 2022, we expect to spend approximately $185 million on capex with about 75% of this on R&D projects and <unk>.
<unk> to internal R&D, one of the many benefits of acquisitions is the ability to enhance and create new product offerings recently, we launched a new offering which combines the power of <unk> life science data and DRG health care data to deliver unmatched deep insights into <unk>.
Market opportunity for new and existing drugs. This is just one example of how we're creating enhanced offerings for our customers and capitalizing on revenue synergy opportunities from acquisitions.
Turning to the integration of probe quest, we are quickly integrating and cash capturing cost synergies. If you recall, we completed the integration of DRG and CPA global several months ahead of our original schedule with additional cost savings. We are accelerating now the integration of probe quest in this.
Similar manner.
Within the next four months with the first four months since closing we have removed $33 million of the more than $100 million in targeted savings, which we expect to realize by the time, we exit the second quarter of 2023.
Our team has been working with colleagues at probe quest to swiftly integrate systems and workflows, we completed several product integrations to provide more value to our customers with cross product interoperability and enhanced data capabilities for the leading products and our combined portfolio for example.
Universities can better manage and assess their research and pro pro quest as floral with the integration of web science data and metrics for smart harvested by an application protocol interface very exciting this is expected to improve usage and value of the web.
Science data for research manage management, which will increase web of science retention and price realization. It will also increase value proposition and demand for S floral, which should help to accelerate new sales from University research offices. We also entered index the <unk>.
Tire web of science backfile data into the probe quest, settling and Primo Library discovery services, which benefit customers of these products.
This significantly increases the value of both of those products to the scholarly researchers with web of science indexing and links this is expected to improve renewal and price realization of all three of the products. This acquisition has proven timely considering the tight labor market.
Providing us with an experienced colleagues to fill open roles.
Our sales organization has been aligning to identify opportunities to leverage our offerings across the four customer verticals and to provide greater value and resources to our customers I look forward to sharing revenue synergy opportunities with you as we detail our combined portfolio across the global.
Customer base.
Sustainability is at the foundation of everything we do at clarity. It is woven throughout every aspect of our business strategy by adhering to the highest social environmental and ethical standards and embracing the power of human ingenuity, we will improve the future of our global.
City, while bringing financial rewards to our colleagues and to our shareholders.
We recently map the breadth and depth.
Clearly solutions across all 17, United Nations' sustainability development goals. We then identified those that are most relevant in terms of customer impact based on our current SPG alignment and a potential increase of SG SPG alignment.
This process provided us a clear view of our current state and we identified four key focus areas, where our solutions have the biggest impact. We also uncovered opportunities where we can continue to embed sustainability into our business strategy to broaden our impact.
<unk>.
The analysis showed that our products and solutions.
Very very high positive impact for example, 46% of our revenues are aligned with the SD Gs and 51% of the companies in the Dow Jones sustainability World Index work in partnership with Us more than 26000 public enacted.
Libraries rely on our solutions and 47 of the top 50 global R&D organizations work with us to accelerate progress.
Within the next couple of weeks, we will publish our second annual sustainability report, which will be available on our website. We encourage you to read the entire report to see how well we are making a difference as we strive to be one of the leading ESG companies in the world in closing as I said up front, we're off to a.
Good solid start I feel great about where we are today, we now have the leadership team in place to deliver ever improving performance as we achieved the targets we set for this year and for our mid range financial objectives.
This of course would not be possible without the everyday contribution from the more than 11500 colleagues, we have around the world I want to express to them all grateful I am for their continued dedication and delighting their customers I will now turn the call over to John .
Thank you Gerry good morning, everyone. Slide 12 is an overview of our 2022 first quarter results compared with the same period in 2021.
First quarter revenue reached $662 million, an increase of $234 million compared to the same period last year, driven primarily by inorganic growth from the toe quest acquisition as well as four 4% organic growth, which was slightly better than the 4% indication we provided in March.
Adjusted EBITDA for the quarter was $262 million, an increase of nearly $100 million compared to Q1 of 2021 for a profit margin that approached 40% and represented 140 basis points of margin expansion over the same period in the prior year.
Net income attributed to ordinary shares was $51 million in the quarter for growth of $107 million over the same period last year on higher income from operations.
Adjusted diluted EPS for Q1 was 21.
<unk> increase over Q1 of last year operating cash flow was $67 million in the quarter down $107 million over the same period last year. The decline is entirely attributed to a $150 million of payments out of restricted cash for the CPA Phantom share plan. This item as well as one time cost associated with the integration.
<unk> of acquisitions are excluded from adjusted free cash flow, which grew by 17% over the first quarter of last year. Please.
Please turn with me now to page 13 for a closer look at the adjusted revenue and adjusted EBITDA growth in the quarter.
First quarter top and bottom line growth over the same period last year was driven by four key factors.
First organic growth of four 4% added $19 million to the top line and $11 million to the bottom line for our profit conversion of 58%.
As you can see from the table on the lower left of the page the organic growth rate is in line with the 2021 full year growth rate has improved pricing in our subscription and reoccurring business and early traction in cross selling were offset by continued softness in transactional sales, it's worth noting that renewal rates were in line with last year as your attention.
Improvements for smaller customers stemming from our investment in the inside sales force were offset by the adverse effect of suspending our operations in Russia, which restrained the growth rate expansion by nearly 40 basis points. Despite this headwind organic ACD growth was in line with the organic growth rate in the first quarter.
Second inorganic growth contributed $228 million to the topline and $69 million to the bottom line for our profit conversion of 30% before the impact of cost synergies. This growth is primarily attributed to the pro Quest acquisition.
Third cost synergies net of certain operating expenses required to achieve them contributed $26 million of incremental profit bolstered by carryover savings completed last year associated with the CPA acquisition and a strong start to the <unk> cost actions. This early traction bodes well for outperforming the $50 million commitment implied in our full year.
Guidance and finally, the translation impact of subsidiaries denominated in foreign currencies deducted $13 million of revenue and $8 million profit as the dollar strengthened compared to a basket of other currencies.
Please turn with me now to page 14 to understand how the $262 million of profit converted to cash flow.
Adjusted free cash flow, which excludes the impact of onetime costs was $191 million in the first quarter, an increase of $28 million over the same period last year.
Growth in adjusted EBITDA was partially offset by higher working capital requirements compared to the prior year that were primarily associated with the timing of patent renewal payments in the servicing portion of the CPA business and the normal seasonality in working capital in the 12 quest business the.
The increase in onetime costs, which are the cause of the year over year declines in operating and free cash flow are entirely attributed to payments from the employee benefit trust to administer the CPA Phantom share plan payout and.
And finally as we indicated in March we initiated our share repurchase program. Shortly after we announced earnings and over the course of the past two months deployed $175 million of capital to reacquire nearly 11 million shares of stock at an average price of just over $16 per share. We continue to see this as the most attractive use of our capital in the near term.
Term given the current stock price please.
Please move with me now to slide 15 for a closer look at our full year guidance.
For this year.
Given our strong start to the year as evident in our first quarter performance, our full year guidance remains unchanged from what we provided in March we're carefully monitoring the macroeconomic climate as well as the geopolitical conflict in Eastern Europe , Yes, we remain sanguine on.
The prospects for accelerating growth as we move through the remainder of the year. As a result, we continue to expect revenue to grow nearly $1 billion to $2 $84 billion at the midpoint of the range fueled by the <unk> acquisition and organic growth of about six 5%.
We anticipate adjusted EBITDA will approach $1 2 billion towards the midpoint of the range for our profit margin in the range of 41% to 42% adjust.
Adjusted free cash flow is expected to reach $700 million at the midpoint of the range for our conversion approaching 60%.
Adjusted diluted earnings are expected at <unk> 90 per share at the midpoint of the range as a result of higher earnings and will benefit from the share repurchases we initiated in March.
Please turn with me now to page 16 for the major drivers of the expected revenue and profit growth for this year compared to last year.
As with the comparisons provided for the first quarter top and bottom line growth. We expect the full year will be driven by the same four factors first organic growth is expected to accelerate by 200 basis points to six 5% and deliver approximately $120 million of revenue growth and about $70 million of profit growth for our profit converge.
More than 55% and.
As you can see in the table on the lower left of the page. We expect this growth rate expansion to be driven nearly equal parts by four items, one improved pricing to higher renewal rates three significant cross selling of all our products across the four customer verticals and for improved transactional sales as Gerry highlighted just a few moments.
Ago. The one <unk> go to market strategy is up and running and we will deliver these improvements as we move through the remainder of the year.
Second inorganic growth is expected to contribute an additional $870 million of sales and $285 million of profit growth for our profit conversion and just over 30% as a result of the pro quest acquisition on a pre cost synergy basis.
Third cost synergies associated with the CPA in pub quest transactions net of certain operating expenses required to achieve them are expected to add $50 million to profit and finally, we expect the strong dollar trend to continue into this year, resulting in about a $30 million headwind to revenue and a 50 million flow through to profit.
Slide 17 illustrates the expected seasonality of our revenues for this year, which remains relatively consistent with last year's pro forma results and is essentially unchanged with the phasing we shared in March given the first quarter was in line with our expectations. As a reminder, the stack bars on the chart represent our actual reported and pro forma revenues.
For last year as you can see they improved sequentially from Q1 to Q2, then modestly abated in Q3 before improving again sequentially in Q4 the.
The combination of these bars represents the normal seasonality of our business. After the full effect of all the recent acquisitions.
The solid line on the top of the chart represents our expectations for this year's revenue phasing, which is generally in line with what we experienced last year on a pro forma basis as we expect our growth to accelerate as we move through the year.
Specifically in the second quarter, we expect the organic growth rate to increase sequentially between 100 to 150 basis points to approximately five 5% to 6% delivering sales of about 700 million, but could be as low as $690 million at the dollar maintained its current momentum against other major.
Foreign currencies please.
Please turn with me now to page 18 for more detail on how we expect the full year adjusted EBITDA of nearly $1 2 billion, we will convert the cash flows.
Our full year outlook for adjusted free cash flow remained at $700 million at the midpoint of the range and represents an increase of nearly a quarter billion dollars compared to last year.
We anticipate the profit growth of nearly $400 million will be partially offset by higher interest to service the debt used to fund the acquisitions higher cash taxes on the profit growth and modestly higher capital requirements has increased capital spending will be ameliorated by lower working capital needs.
This outlook anticipates, a nearly 200 basis point expansion of the cash flow conversion and nearly 60 at every dollar of incremental profit is expected to convert to adjusted cash flow.
Turn with me now to page 19, where I'll outline how our solid performance in the first quarter and our firm's full year guidance for the full year positions us to achieve the midterm financial targets, we outlined late last year.
In the upper left of the page you will see that with two consecutive years of organic growth in the 6% to 7% range, we will reach $3 billion in revenue, which represents a more than tripling of revenue over a five year period.
As our top line, reaching that level you can see in the upper right. We expect profit margins to expand meaningfully on the profit conversion from the organic growth and the realization of the <unk> cost synergies, implying an increase in profit margins of more than 12% in the five year term.
The profit growth and the anticipated impact of the share repurchase program will lead to continued growth in adjusted diluted earnings per share as illustrated in the lower left we continue to see repurchasing our own stock is the most attractive use of our capital in the near term and plan to continue our repurchase program in the second quarter.
And finally in the lower right, we expect adjusted free cash flow to grow by more than 100 million next year, leading to accumulative generation of more than one 5 billion between this year index.
Please turn with me now to page 20 for reminder of why this business is so remarkable particularly in the context of uncertain geopolitical and macroeconomic environments.
Our leading brands of products provide mission critical information and insight to our massive and global customer base located throughout the world and represent a small fraction of the total expansive addressable market estimated at well over 100 billion and the resiliency of the business, which is particularly valuable in the current environment is remark.
<unk> is about 80% of our revenue comes from subscription and reoccurring sales, what's even more impressive and demonstrates the critical nature of our products is the fact that our subscribers renew at greater than 90% each year positioning us as a compound or with the ability to offset inflation as we have virtually no exposure to rising raw.
<unk> costs.
All of the products and services, we provide deliver significant operating leverage as manifested in our high profit margins as we utilize that build it once sell it many times approach and our product development.
And as evidenced in the new product launch examples Jerry shared earlier, we continue to invest to provide enhanced value for our customers not only does this model deliver excellent profit margins, but our free cash flow generation is poised to lead our category as we integrate the <unk> acquisition and execute our plan to deliver more than 1 billion and a half between this year.
Finally, we now have the accomplished leadership team in place to execute the one clarity plan and deliver improved organic growth leading to enhanced returns for all of our stakeholders.
I'd like to thank all of you for listening in this morning, I will now turn the call back over to daily to take your questions and as a reminder, please limit yourself to one question and then return to the queue for any additional.
Aileen, Let's go ahead.
Thank you have you would like to ask a question. Please press star followed by one on your kind of phone keypad.
If you would like to remove that question. Please press star followed by two.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question today comes from Toni Kaplan from Morgan Stanley Tony. Please go ahead. Your line is now open.
Thanks, so much.
We really like the new breakdown of the organic growth drivers on the slides and I wanted to ask about about that too.
And first quarter pricing.
Mark.
Other three did in you mentioned Russia.
Russia.
Being an offset for the improvement on the small customers.
Makes sense.
That probably does continue through the rest of the year.
So just maybe talk about how the other three drivers start to accelerate to the 15 basis points.
For the full year and what you see as the biggest risks to hitting our full year organic growth target. Thank you.
Question, Tony Happy to start because we will keep that current future quarter, Jonathan you want to pick it up.
So to the point you made were it not for the cancellation or moving out of Russia, we would've been nearly there on renewal rates that is something that we see as being weighted towards the beginning of the year and is going to improve as we move through the balance of the year. So we're still quite confident we can get there on renewal rates given the line of sight, we have into the next three four months.
In particular cross sell was never intended to be at that level of growth early in the year, So Steve and the rest of the sales team has done a remarkable job and pivoting the organization to the four customer verticals a tremendous amount of work took place.
The mapping of all of the territories developing quotas for all the new reps and in particular training them on the solution selling for their respective sub markets to help drive that cost selling so we were really excited by the examples that we saw really in the month of March to Jerry shared and we think that one will really start to accelerate in the second quarter and beyond.
And then transaction all of that is coming off of a tough comp. This is.
We're still seeing some softness there, but as we repaid at the sales force to the far customer verticals, we get additional resources brought into the field and in particular have some exciting new data coming online and our HTS suite of products, we expect that to accelerate into the second and third quarter.
Just add one thing too and it's a great question.
If you just step back in 2019 and 20, we grew just under 2% organic last year 2021, and four 5%. So the 200 basis points that we've split up is what we'll report each quarter to everybody. So they can see our progress and I would say our <unk>.
<unk> team felt really good about where we were at the end of Q1 with much more to go. Thank you Tony next question.
Thank you.
Thank you.
The next question today comes from George Tong from Goldman Sachs. George. Please go ahead. Your line is now open.
Hi, Thanks, good morning.
Subscription organic revenue growth of two 8%.
It was somewhat muted in the quarter and decelerated from four 5% in <unk> you mentioned, Russia is certainly a factor, but can you describe some of the trends with subscription revenues that youre seeing both positive and negative and factors that may weigh on subscription revenue performance.
Yes, no. Good question George go ahead, Jonathan picked up on it yes. It's helpful to remember Q1 for US is a big renewal quarter. So it's a period, where we're obviously focused on bringing in those renewals getting them on time.
It's typical that our new subscription sales will start to accelerate as we move through the year. So there is the seasonality impact.
It's really just driving that sequential comparison when you go back and you look at the things that are going well for us obviously very encouraged on what we're seeing on pricing in our subscription file but also in our reoccurring business, we're getting really good yield there as well too. So we see that as a positive and then as Gerry highlighted we're really encouraged by the new sale.
We're seeing of products into different customer categories that we really saw towards the end of the quarter and we really think is going to be a driver moving into the balance of the year. So look for that area subscriptions to continue to accelerate as we move through the year based on those factors.
We could have.
Gordon and Steve can add to it but this is really now Q2 George is the first real quarter. We've had with all the reorganization, we went through et cetera, and I would say remember last year, we had an anomaly in the first quarter second quarter. So I think youll see particularly with.
The range Jonathan provided you for Q2, I think youll see the exact improvement.
Over Q2 last year that Jonathan talked about thank you. Your next question.
Thank you.
Next question today comes from Andrew Nicholas from William Blair. Andrew. Please go ahead. Your line is now open.
Thank you and good morning.
I just wanted to ask a question number no quest, obviously, it's been about <unk>.
Six months I believe.
We closed that deal.
If you could kind of speak to the major learnings and then maybe if you.
You could provide a number on on that growth in the quarter and maybe anything else you could say in terms of the seasonality of that revenue I apologize I realize that.
Multi partner, but I think pro questions.
So as well.
Well well have Jonathan start as a reminder to everybody Jonathan.
Six and half years ago was worth probe quest for four years prior to them. So he can give you a good view of that and then we will have Gordon and Steve both picked up because it's a great question yes.
Yes, really off to a great start with the pro Quest integration as Jerry mentioned, we highlighted the cost actions, where we are at about a third of the way there.
Which certainly we benefited from having quite a bit planning in advance, but I think the examples that Jerry shared in the prepared remarks on the product integration are the most exciting so a big part of the value proposition here is enhancing the value for our customers and being able to integrate not only.
The index.
Index for our discovery layers with web of science, but also starting to create some integrated feature functionality on both of those platforms is can be very exciting so great encouragement on the integration side.
Getting the cost synergies really pleased with where we are from a product perspective <unk> results came in generally in line with what we expected in the first quarter. So.
Jonathan Gardner, please pick up because you've put 11 with it.
Yeah, Thanks, Jerry it's Goldman here.
The two examples that Gerry and Jonathan commented on around the integration of that draw in research.
And highest value in research and discovery products are really important in combination with the web of science family owned portfolio.
I would add a couple of comments on pro question integration.
The leadership integration has gone extremely well.
<unk>.
Combined as a team so our portfolio is now seen across the client business and it's focused on the full verticals that Stephen driving into the marketplace. So what youll see is coming out with even more going forward.
Solution sets that drive value for customers that are specific to their physical and solve their needs. So really pleased the progress on that.
I would expect us to continue that progress on plan for the rest of the year.
Thanks card and let's go to the next question.
Thank you.
The next question today comes from Ashish <unk> from RBC capital markets. Please go ahead. Your line is now open.
Thanks for taking my question I, just wanted to drill down further on the revenue growth acceleration organic revenue growth acceleration from first quarter to second quarter.
Was wondering you might have already touched on this before but.
I was wondering if you could provide some more clarity around how should we think about the subscription via cutting and transaction pieces of the business improving from first to second quarter. Thanks.
Just one quick thing and then we'll have Jonathan pick up on that.
What I said in my.
Written remarks. This morning will approach as we go out of 2022 into 2023 closer than ever to the 80% being organic growth.
Total growth in both.
Subscription base repetitive, if you will and 20% in transactions of which a number of larger part will be with the.
Selling solutions, so pick up from there absolutely so pricing improvement I expect to be generally in line with the improvement we saw in Q1 renewal rates will get much closer to that 50 bps improvement as we lap some of these episodic items in Q1 cross sell will inch up by.
20, or 30 basis points is what we expect in Q2 as we start to see continued progress and get the benefit of.
A full quarter of work and then I would expect transactional to start to reach parity with last year in Q2, and then in the second half of the year turned positive to drive that full year improvement. So in particular I would just emphasize continued.
The improvement in pricing or consistency with what we saw and then a ratcheting up of.
Renewal rates and cross selling with transactional starting to get relatively flat.
Last year. Thank you next question.
Thank you.
Question today comes from <unk>, Missouri from Jefferies. Please go ahead. Your line is now open.
Good morning. Thank you. My question is just on capital allocation, you mentioned favoring the buyback in the near term and you talked about how much stock you bought back.
Looking at the balance of this year.
How much can you buyback or to your free cash flow and then just on M&A.
How much M&A do you need to hit your long term financial targets. So just kind of two parts on capital allocation. Thank you.
Happy to Jonathan Yes, just as a reminder of how we and the overall billion five cash we generate.
Next we will continue to service the preferred mandatory converts with cash we will use a portion of that.
Free cash flow to integrate the acquisitions and we will.
Leave ourselves a little bit of capacity to do some other things that are strategic but then for all intents and purposes will have about $1 billion available of that for share buybacks between this year and next.
With our improved our upsized the cash flow revolver, which we did in the first quarter, we can manage some of the seasonality within the year of cash flow to.
Address and take advantage of the stock price, where it is today. So we could do up to half of the overall program. This year and we'll be looking at that carefully as we move over the course of the next few months that will give you an update on where we progressed that when we're together again in July or August . Thank you next question. Please.
Thank you.
Remind you if you would like to ask a question. Please press star followed by one on your telephone keypad.
The next question today comes from Shlomo Rosenbaum from Stifel.
Please go ahead. Your line is now open.
Hi, Thank you good morning, just.
Question moderate a little bit about the Jay.
Good morning, just a geographic.
Kind of challenges between Russia, and some of the stuff, we're seeing in China with Lockdowns could you talk about why.
The Russia impact will dissipate or decline after the first quarter and whether the Russia impact will be excluded from organic revenue growth as you calculated and then given the lockdowns in China can you just talk about how much revenue is coming out of China for <unk>, and whether youre seeing any impact from.
The walk downs over there.
So Jonathan you start.
Gordon and Steve you may want to pick up on China, and a few workplace, but you start. Please yes. So just on the Russia side, obviously moving out of there in Q1, we're going to see a disproportionate impact on not just the subscription but any transactional sales that we were doing in the region occur earlier in the year. We also had some other.
Cancellations early last year and that will start to lap off. So that's the reason why we expect the subscription and renewal performance to improve as we move throughout the balance of the year to year.
Im not going to make any adjustments for that in organic growth. So just to be crystal clear that will just be a headwind for us and we see a path to being able to offset that through the balance of the year. So no change to the full year guide on the six 5% as it relates to the.
The region of Asia, China is quite small for us I'm not sure we put an exact number on it but not a very large market for us.
We're being very thoughtful and careful about what's happening in developing their with our teams on the ground, but yes ill, let Gordon add some commentary and just as a refresher thanks, Jonathan for everybody Gordon right now a year ago.
Starting to implement in the Asia region.
<unk>, that's where we did all the test drive so Gordon please.
Yeah sure. Thanks, Jerry Thanks, Jonathan a couple of things on China first and foremost we did not see any immediate impact from the various city or partial city walk downs and in fact, that's not a new thing so although it's continuing it has been that way for quite some time.
Reliance on physical presence in the same way that.
Sales and many other organizations where before so we don't anticipate that we'll have any near term impact. So we see the same continuing in terms of our ability to perform in China.
Final comment will be won't be all focused on in China is making sure that <unk>.
Subject to these very sudden lockdowns all itself.
Alex you actually is that given that there was minimal business impacts.
As you have seen anything to add.
Yes.
I would like to add is we do see some interesting growth opportunities in China in medium term as we look at the <unk> portfolio and how we bring that together with the legacy <unk> portfolio.
There is a very interesting growth opportunities exceeded rates goldcrest presence in China, and that's something we're working through right now to hopefully be able to exceed that in 2023 and beyond.
Thanks, Steve next question.
Thank you. The next question today comes from Pete Christiansen from Citi. Please go ahead. Your line is now open.
Sure.
Thank you good morning.
Jerry.
Or you talked about good morning.
I know last quarter, you talked about improving sales productivity, we're seeing in the quarter not allowing so much to occur.
In late in the quarter.
Just just any progress on that maybe that was just a fourth quarter kind of phenomenon and then.
If there was was there any slippage from <unk> into <unk>.
That benefited growth this quarter. Thank you.
Yes.
The last part of that patent and then Steve and I'll be happy to pick up the first part, yes about 3 million flowed through out of Q4 into Q1 more still in the pipeline. We said it when we announced Q4, we didn't lose any of those opportunities and they continue to flow through great.
Question, Steve Please pickup on productivity your favorite subject.
Absolutely and very relevant subject. These days so a couple of comments and as we improve how we run and how we execute the business under one survey, we get getting at very different level of insight and discipline around our pipeline and how we look at our business not only in current quarter, but also in <unk>.
Borders.
So we are able to predict the business much better as we continue to progress in 2022, we're also able to to navigate.
The key five key opportunities.
Since as well.
So that we can really allocate the resources that we can get the greatest return within our business as well and then lastly.
So adding sales capacity. So we are not only looking at sales productivity by our teams and individual contributors accurate on our number one priority right now is to add sales capacity into the business. So we can further scale the business and further grow the business and that is a number one priority that we have right now in the business. So.
Very focused on productivity, but even multiple because of an increase in sales capacity right now.
Thanks, Larry helps question.
You bet happy to next question, Steve Sorry next question.
Thanks, Steve Thank you.
Our next question is a follow up question from Shlomo Rosenbaum. Please go ahead. Your line is open.
Jerry I was just testing if youre going to let me back in.
No I'm just kidding.
Any time you have got a question.
How are you.
Okay.
A couple of just like a little bit of a housekeeping stuff just the transactional on slide 13, the bottom left his transactional revenue down seven 7%.
In the press release, we're talking about transactional revenue up two 8% is there a comparability item in other words over 2021 versus <unk> 21, maybe you could explain that and then also I don't.
See anywhere the organic growth rate of ACB in the quarter I think we used to give that quarterly.
That should have been out.
Consistent with the organic growth rate for the quarter, yeah, So you're outgrowing or for.
4% four 5% to be precise.
Yes about your question on transactional so the lower left hand corner of the page there is comparing how we're tracking to the acceleration of the growth rate. So transactional sales did grow over the prior year, but if we pair that compare that just under 3% to the growth rate that we saw for the full year last year at <unk>.
<unk> by about 70 basis points, so in order for us to get to that six 5% on a full year basis Thats got to swing positive and contributed equally to the 200 basis points of organic growth expansion or get to a positive 50%. So we're just highlighting there that transaction was still softer earlier in the year and we expect that momentum to pick up in the.
The balance of the year as we get further into the go to market implementation.
Thanks <unk>, okay. Thank you.
Youre welcome.
Next question.
There are no additional questions waiting at this time, so I'd like to pass the conference over to Jerry <unk> for closing remarks.
Thank you and thank you for joining us today as I said at the beginning.
Feel very good about where we're at with the progress I'm very thankful for what everybody has accomplished.
Good.
Each of you to focus on page 19 that we talked about today.
One thing to remember each of the big acquisitions, we made we said that we would be accretive.
Adjusted EPS all in at least 10% in year, one and mid points in year, two and we're spot on including all three of those I couldnt be happier with that because it's the only way to really measure when you use shares to make.
To pay a portion or all of the acquisition value. So the only way to measure it so that science on point and.
As we said today.
I lived through 2008, nine and 10 back NIH IHS days, and we did really well because of the kind of product offerings. We have as we run into the headwinds that we're seeing worldwide right now.
This company is blessed with the best total business model I've ever had even way back when <unk> was part of Thompson annoyed no nine they were flat or marginally up so everything we've done puts us on point to deliver what we said we'd do the thing I must say.
Proud of is the $283 million of adjusted EBITDA in 2019, and the midpoint guidance of $1 billion to to make it easy for 2022 with huge upside as we continue.
I would say today with all the work that's gone on.
With our sales organization and our product organization I feel better today than I've ever felt about our ability to hit what we said we would hit and how we do it in 2022 and 2023, so I am very proud of our team and very thankful. Thank you all.
That concludes the <unk> first quarter 2022 earnings conference call. Thank you for your participation you may now disconnect your lines.
Okay.
Yes.
Okay.