Q2 2022 Clarivate PLC Earnings Call
Okay.
Good morning. Thank you for attending today's <unk> second quarter 2022 earnings Conference. My name is Elizabeth and I will be your moderator for today's call.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
We'd like to ask a question. Please press star one on your telephone keypad.
I would now like to pass the conference over to our host Mark Donohue with clarity you May proceed.
Thank you Olaf and good morning, everyone. Thank you for joining us for declared a second quarter 2022 earnings Conference call with me today are Gary Stead Executive Chair and Chief Executive Officer, Jonathan Gear, Chief Executive Officer of lacked Jonathan Collins, Chief Financial Officer, Gordon Samson Chief product Officer, Steve.
Thomson Chief revenue officer, all will be available to take your questions at the conclusion of the prepared remarks.
As a reminder, this conference call is being recorded and webcast and is copyrighted property of clarity.
Any rebroadcast of this information in whole or part without prior written consent of clarity it is prohibited.
Accompanying earnings call presentation is available in 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 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 in clothing industry could differ materially from the anticipated results performance achievements or developments expressed or implied.
Such forward looking statements information about the factors that could cause actual results to differ materially from anticipated results or performance can be found in clarified bonds with the FTC and on the company's website.
Our discussion will include non-GAAP measures or adjusted numbers, including revenue and adjusted EBITDA correctly non-GAAP results are useful in order to enhance an understanding of our ongoing operating performance, but they are a supplement to and should not be considered in isolation from or as a substitute for GAAP financial measures reconciliation of these measures to GAAP measures are available in our.
Earnings release, and supplemental presentation on our website.
After our prepared remarks.
We will open the call up to your questions and if I had the pleasure to turn the call over to Jerry Scott. Thank you Mark and thanks to all of you for joining US today I'll start by welcoming Jonathan gear to this first part of the conference call.
Been with us for four weeks and we are very very pleased to have him starting September 1st he will become CEO . Following my decision to retire at the end of August we'll have more to share on this topic in just a few moments.
Turning to our second quarter results and highlights we delivered a good quarter, including six.
One show the improvement over this year's first quarter revenue of $687 million increased 60% at constant currency and was up four 8% on an organic basis, our growth was partially offset by our decision to cease commercial operations in Russia back in March.
March.
Our one clarified strategy is driving improved cross selling we had a record quarter for real world data sales in health care also progressed outperformed our plan due to higher academic year and transactional sales.
However, the significant strengthening of the U S dollar as a major to a major extent and the softening of the U S economy to a minor extent held us back from an even stronger quarter, Jonathan Collins will have more to say about this quarter shortly during challenging economic times are.
Company is fortunate to have a very stable business model of almost 80% subscription and reoccurring revenue with retention rates of more than 91%.
Our highly resilient model has held up well during stressful economic times as evidenced by the performance of our products. During the last great recession in 2008, nine whereby all of our legacy businesses remain flat arent grew slightly.
Today, we have the benefit of being far better positioned from a product and operational standpoint than any time in our history, we have much higher margins and we're generating significant cash flow, which allows us to continue to invest in our business for the future buyback shares and fund our debt payments.
These are just a few of the reasons why we believe clarity is a compelling investment.
As we exited the first quarter, we saw early signs that the one clarifying model is beginning to work with deeper penetration to more than one product within the account base and a higher average spend thanks to bigger deal sizes. We continued to see evidence of cross sell throughout the second quarter with products such as.
The web of science being sold the customers and C T professional.
Services and life Sciences, and healthcare. The team also successfully sold life science products outside of L. S. In health care with a global multi billion dollar serviceable market, we have only scratched the surface of being able to offer a wider variety of products and services.
As to our global customer base.
The many improvements we've made are providing better line of sight to new opportunities and territorial visibility by a single sales process improvements will further accelerate execution and maximize our cross sell and new business potential.
We're pleased with the early results the current macro environment may impact the short term acceleration of cross selling as we continue to implement one clarity this represents a compelling growth opportunity for us.
For the second quarter.
Sales teams delivered record healthcare real world data sales of more than $16 million. This represents a recovery of some of the softness we experienced and talked about late in the fourth quarter of 2021. The team also closed the largest ever real world data sale with a total car.
Contract value of more than $12 million spanning over several quarters, we're seeing the benefits of closely aligning our sales and product teams. The stronger alignment is creating customer platforms and acquiring new databases and solutions to meet market needs. We're now in a better position to also.
Scale real worldwide data sales into cross segments of the market well.
Well the overall transactional sales growth rate accelerated sequentially from the second quarter revenue was tempered by recent macro economic pressures on trademarks. Alex recently, we were honored to be awarded by the National Library Board of Singapore, the contract to help them build their lives.
Or in the future. This is the largest single contract pro quest innovative as ever signed and it's 40 plus years of operation. This multi year deal worth double digit millions of dollars in contract value extends our position as a global leader in Library management software.
And it's a real testament to the quality of products and services, we provide to our customers, which are recent customer delight survey results confirmed in May we completed our first colleague engagement and customer delight surveys for 2022 and at time of Green on uncertainty and disruption.
Confidence in our company from colleagues and customers continues to be very high our success always has and always will begin with great colleagues, providing colleague engagement, we saw 85% of the colleagues responding to the survey with thousands of write in comments we're committed to.
Listening learning and acting on this feedback as we strive to make clearer than ever better place for every colleague to work and find success. We have an exceptional story to share and we want to ensure that every calling as part of creating the bright future of clarity over.
Over 18000 customers responded globally to our main customer delight survey I'm very pleased to share a score of 78, which is up from us.
Up three points from our updated 2021 baseline score and in line with our stretch goal for 2022. This is a testament to all of the focus our 11700 plus colleagues provided provided delivering an exceptional customer experience.
Made meaningful progress as we continue to enhance our products simplify our processes and expand our capabilities around the world.
This milestone brings us one step closer to achieving our annual goal, which is tied to our customer delight equity award program that rewards all eligible colleagues with Sinclair update.
With clarity restricted share units to participate in our company's success moving forward. Our customers are light program is all about listening and learning from our customers and putting their feedback into action.
30% of customers provided write in comments with more positive feedback then opportunity areas. We are all personally read every single economy and listen and learn the highest score question was quality of products and services at 87, a remarkable testament to our performance.
Information and insights remained flat at 85 also a very high score and we're happy we're very happy to see that pro quest results improved from 77 to eight.
Our biggest opportunity remains the easy to do business with which was at 57.
Our product revenue technology and operations teams are working together to ensure that we're taking the most impactful actions possible to improve in this critical area.
You've heard me talk a lot about our sustainability efforts and the important role that it plays across clearly.
Since we published our first report last year, we've been moving at a great pace embedding sustainability as part of our global culture, and improving our measurement and reporting capabilities in May we published our second annual report. This report reflects to the work we've been doing today and everyday we've made.
<unk> progress towards quantifying our contributions and mapping our solutions to the 17, United Nations sustainability development goals by going through a materiality mapping exercise listen this initiative provided a very clear view of our current state and in the process.
And we're in the process and identified key focus areas, where we and our customers can make bigger impact today. Some of our goals include achieving carbon neutrality by 2024 with our sights on achieving a net zero future as members of the business ambition campaign.
We've committed to setting our science based targets, which we will share later this year.
Last month, I announced my decision to retire as CEO at the end of August several years ago I made a promise to my wife, Mary Joy of 60, plus years of marriage that as we approached 80 years of age which will hit at the end of this year I would begin to step back from full time executive leadership.
So the two of US go to enjoy more time together pursuing are many passion supporting our many nonprofit activities and spending more time with our children and grandchildren just.
Just over three years ago I stepped into the CEO role for clarity. Shortly after we went public in doing so I had a key goal to make this one of the very best publicly traded information services company in the World and I had three other goals to help achieve that those goals are around people processes and platform.
It was important that we structured our company appropriately that we've put the right leaders in place.
That we retained our hired the most talented colleagues in our industry and that we equipped everyone with the right processes and systems to become one of the world's very best information inside companies.
Over the last three years, we've made great progress on operational improvements. We've completed several significant acquisitions that is richly enhanced our portfolio for our customers. We've put in place an exciting strategic direction for the future and a values based one clarity culture.
We've grown our clarity from a company producing less than $1 billion of annual revenue to a point, where we have the assets and infrastructure in place to drive us to a $3 billion run rate or adjusted EBITDA margins have expanded by more well more than a thousand basis points and our free cash flow.
Has and will continue to deliver significant increases each year.
I am very very confident that we now have the foundation in place to grow faster and to be far more successful under the leadership with Jonathan Jonathan and I started working together in March of 2005 at IHS. When we hired him to be a key contributor as we successfully grew our world class busy.
He brings a deep understanding of our markets business models and the opportunities we have in front of us He's an outstanding leader an outstanding executive with a very solid track record in delivering consistent financial results.
Energy and passion for the work of information and analytics companies his understanding of how to lead a public company like ours and as values and personality are important reasons as to why we believe and know that he is the perfect choice to become our next CEO I want to thank.
All of my colleagues for the incredible work they've done to get us to where we're at today, we're better positioned now than at any time in our history. I also want to thank our customers, who continue to value our products and services as evidenced by our high customer delight scores and our 91 ever improving plus retention rates.
Lastly, I also want to thank all of our shareholders for their continued support while I'll be stepping away from the day to day activities I will continue to be clear of AIDS biggest cheerleaders for years to come I now turn the call over to Jonathan gear.
Thank you so much Jerry I am honored and thrilled to be a part of clever abate Gary has been a mentor and friend to me since 2005, when I started work for working for him at IHS and I cannot thank him and our board enough for this opportunity to lead one of the great companies in the world.
Having spent many years in the information services space clearer abated very familiar to me and it's like IHS. Many many ways. In fact in 2012 I was closely involved in IHS was trying to acquire therapy at the time.
It is a wonderful business with terrific assets, we have the best products and solutions and the science and IP space with a business model, consisting primarily of subscription and reoccurring revenue and a strong cash flow.
Since joining the company in July I have spent time traveling to several of our locations meeting with our executive leadership team and many many of our colleagues.
By the time I assumed the CEO role in September will have had the opportunity to meet in person with almost half of our Caribbean colleagues globally.
It has been a one it's been wonderful to see the excitement purpose and passion behind one terabyte and a focus on delivering continued innovation to our customers.
I have been impressed with what this company has delivered over the last two years. Despite the incredible change that's underdone, coupled with the travel and social restrictions caused by Covid.
Our jobs around integration and further unlocking the value of one clarified are becoming much easier as the world opens.
We have the talent products and culture to scale pervade to much greater heights and achieve our long term growth potential it's back to our leadership team to be laser focused on completing the integration required to realize its potential including for example, unlocking new value for our clients through product innovation further supporting our commercial teams.
Improved go to market programs and processes.
Removing internal barriers through integrated business systems and supporting all of this by building one single team, which will unlock the one pair of eight valued.
In the coming months I intend to dive deeper into our businesses and products and I look forward to chair my observations with you during our Investor Day later this year.
Over the last few weeks I've spent a lot of time with Jonathan seen Gordon and our commercial teams reviewing performance to date and second half outlook like.
Like many global companies. We are currently dealing with a negative impact of a strong U S dollar and a deteriorating economic environment. The impact of these two macro events, particularly the impact of FX will temper, our full year 2022 performance lets Jonathan Collins will cover in this section.
Despite these short term headwinds I could not be more excited to be a pervade Jerry and the team did a great set of assets, which serves as the foundation of our future potential and look forward to many many future calls as we described yet vacation results of our one pair of APAC.
With that I'll now turn the call over to Jonathan Collins.
Thank you Jonathan Good morning, everyone. Slide 13 is an overview of our 2022 second quarter and first half results compared with the same periods in 2000.
Second quarter revenue was $687 million, an increase of $241 million compared to the same period last year, driven primarily by inorganic growth from the <unk> acquisition as well as four 8% organic growth both of which were partially offset by a substantial foreign exchange headwind as the U S dollar strengthened dramatically.
<unk> against the basket of foreign currencies. This brings first half revenue to 135 billion for an increase of $475 million or 54%.
EBIT was $135 million in the second quarter for an increase of $220 million over the prior year and was $281 million in the first half for an increase of $384 million as a result of our solid profit conversion on the revenue growth as well as mark to market gains on the private warrants.
Net income attributable to ordinary shares was $44 million in the quarter for growth of 176 million over the same period last year and was $95 million in the first half an increase of $282 million over the prior year as higher EBIT was partially offset by higher interest and income tax expenses adjusted diluted.
EPS for Q2 was 22.
<unk> increase over Q2 of last year, bringing H one to 43 eight.
A 12% increase over age one of last year.
Operating cash flow was 97 million in the quarter, an increase of $9 million over the same period last year, bringing it to 165 million for the first half, which is a decline of $97 million from last year. The decline is due to the $150 million of payments out of restricted cash for the CPA equity plan as well as higher working capital requirements due to the.
Normal seasonality of the <unk> business.
Please turn with me now to page 14 for a closer look at the drivers of the second quarter top and bottom line growth over the same period last year.
When we reported first quarter results in early May we indicated that second quarter revenue would be between $690 million and $700 million, depending on the relative strength of the U S. Dollar at an Investor Conference in early June we highlighted that we would be at the low end of the range as a result of foreign currency as the dollar remains strong.
During the month of June the dollar strengthened further against the pound and the Euro accounting for the 3 million shortfall to the indication we provided.
While organic growth was about 70 bps light of the low end of our expectations. This is only an impact of $3 million and was offset by a slightly stronger performance in the <unk> business.
When we look at the second quarter top and bottom line growth compared to the same period last year was driven by four key factors.
Organic growth was four 8% and represented the second consecutive quarter of delivering 40 bps of sequential improvement.
<unk> added $22 million to the top line and $10 million to the bottom line for our profit conversion of 45%.
Inorganic growth contributed $245 million to the topline and $74 million to the bottom line for our profit conversion of 30% on a pre cost synergy basis. This growth is primarily attributed to the pro quest acquisition, which modestly exceeded our expectations.
Third cost synergies net of certain operating expenses required to achieve them contributed $22 million of incremental profit from carryover savings completed last year associated with the CPA acquisition and continued momentum on the probe quest cost actions.
Finally, the translation of subsidiaries denominated in foreign currencies had a substantial impact in the quarter, reducing revenue by $26 million in profit by $21 million.
Profit conversion is higher than normal as the translation impact was compounded by transaction losses.
Please turn with me now to page 15 for the same look at the first half of the year.
First half top and bottom line growth over last year was a result of the same four factors first organic growth of four 6% added a cumulative $41 million to the top line and $21 million to the bottom line for our profit conversion of just over 50% as you see in 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 recurring business and continued traction in cross selling were offset by transactional sales growth that continues to lag last year as Gerry explained earlier.
It's worth noting that renewal rates were in line with last year as retention improvements were offset by the adverse effect of suspending our operations in Russia, which restrain the growth rate expansion by nearly 40 basis points.
Second inorganic growth contributed a combined $473 million to the top line and $143 million to the bottom line for our profit conversion of 30% on a pre cost synergy basis. This growth is primarily attributed to the quest acquisition.
Third cost synergies contributed $47 million of incremental profit in the first half bolstered by carryover savings with the CPA acquisition and continued progress on the <unk> cost actions. This early traction is driving a $15 million outperformance of the $50 million commitment implied in our initial full year guidance, which I'll touch on in a few moments final.
The translation impact of subsidiaries denominated in foreign currencies deducted $39 million of revenue and $28 million of profit, including transaction losses as the dollar strengthened significantly.
Please turn with me now to page 16, you can see how the second quarter and first half profit converted to cash flow.
Adjusted free cash flow, which excludes the impact of one time cost was $67 million in the second quarter, a decrease of $29 million over the same period last year and $258 million in the first half, which was essentially flat compared to 2021.
Growth in adjusted EBITDA was partially offset by higher working capital requirements compared to the prior year that were primarily associated with the normal seasonality of the quest business and timing of patent renewal payments and the servicing portion of our IP business.
The increase in one time cost in the first half which are the cause of the year over year declines in operating and free cash flow are entirely attributed to the payments from the employee benefits trust to administer the CPA equity planned payout.
Please move with me now to slide 17 for a look at our revised full year guidance.
As a result of the material strengthening of the dollar and the deteriorating macroeconomic backdrop, we've revised our outlook for the second half of this year, we are lowering the midpoint of our revenue guidance by $110 million and the majority of this about $70 million is due to foreign exchange the balanced nearly $40 million assumes the continued traction we.
See from implementing one clarity that was to yield accelerated organic growth on a full year basis compared to last year will be offset by the following factors that have a roughly equal impact one our inability to offset the headwind from our decision to suspend operations in Russia to lower brand and trademark registrations three software.
Consulting services and for uncertainty around new subscriptions and other transactional sales in the second half.
We now expect our organic growth rate to be essentially flat compared to last year and the first half of this year at about four 5% and revenue of $2 73 billion at the midpoint of the ranges.
Through strong cost discipline in the remainder of the year, we expect to maintain our original profit margin guidance of between 41, and 42% yielding an adjusted EBITDA of approximately 114 billion at the midpoint of the range.
Adjusted free cash flow is expected to be $625 million at the midpoint of the range for a conversion of approximately 55%.
The $75 million decrease compared to the prior guidance is attributed two thirds to lower profit and one third to higher interest costs due to base rate increases slightly higher capital requirements.
Adjusted diluted earnings are now expected at <unk> 85 per share at the midpoint of the range.
Please turn with me now to page 18 for the major drivers of the expected revenue and profit growth for this year compared to last.
As with the comparisons provided for the second quarter and first half top and bottom line growth. We expect the full year will be driven by the same factors.
First organic growth is expected to deliver approximately $85 million of revenue growth and about $45 million of profit growth for our profit conversion of more than 50%.
Second inorganic growth is expected to contribute an additional $870 million of sales and $285 million of profit for our profit conversion of just over 30% as a result of the <unk> acquisition on a pre cost synergy basis third cost synergies associated with the CPA and <unk> transactions are expected to add $65 million to profit.
And finally, we expect the U S dollar to remain strong for the remainder of the year, resulting in about 100 million headwind to revenue and a 55 million flow through to profit.
Slide 19 provides the expected seasonality of our revenues for the remainder of the year, which remains in line with last year's pro forma results. While we've not provided this quarterly top line indication in prior years and May not give it again in the future. We think it's particularly helpful. This year given the large acquisition.
As a reminder, the stack bars on the chart represents 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 combination of these bars represents the normal seasonality of our business. After the full effect of the recent acquisitions, but at actual rather than constant currency rates for.
The Black line on the top of the chart represents our expectation for this year's revenue facing.
The midpoint of our guidance range contemplates an organic growth rate pictured in grey that is essentially flat with the first half of the year and based on the current foreign exchange rates would yield revenue in the range of $650 to $660 million and $720 million to $730 million in the third and fourth quarters, respectively.
<unk>.
The high end of your organic growth guidance range contemplates a continued sequential growth rate improvement of 40 bps through the remainder of the year as illustrated by the dotted Green line and would yield full year growth of 5% or nearly five 5% excluding the impact of the decision to suspend our operations in Russia.
The components of this growth rate expansion are illustrated in the lower left of the page as pricing and cross selling would be modestly offset by transactional sales were at the midpoint of the range transactional sales would be a more significant headwind as a result of the macroeconomic climate.
Please turn with me now to page 20 for more detail on how we expect the full year adjusted EBITDA of nearly $1. One 4 billion will convert to free cash flow.
Our full year outlook for adjusted free cash flow is now $625 million at the midpoint of the range and represents an increase of $165 million compared to last year.
We anticipate the profit growth of approximately $340 million will be partially offset by higher interest to service the debt used to fund the acquisition 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 contemplates that nearly 50.
Every dollar of profit growth will convert to cash.
Turning now to page 21 for a reminder of how we've progressed over the past few years and the trajectory this implies for the future.
Given the current strength of the U S dollar and the volatility of the macroeconomic backdrop, we're not in a position to dimension our outlook for 2023 as we have more certainty around the second half of this year, we will crystallize our guidance for next year. However, we remain confident that the top line will grow profit margins and EPS will expand.
And free cash flow will improve significantly on higher profit and lower onetime cost the business remains poised to nearly triple in revenue deliver profit margins in the mid Forty's and approach a dollar of adjusted diluted earnings and free cash flow per share.
Please turn with me now to page 22 for reminder of why we believe this business will continue to grow even during a recession.
We have leading brands of products that provide mission critical information and insights to a broad and global customer base.
Our revenues represent a small fraction of the expansive total addressable market estimated at well over 100 billion, providing ample room for continued growth.
Because our products are mission critical our subscribers renew at greater than 90% each year, even during an economic downturn positioning us as a compound or with the ability to grow through the cycle and these renewal rates are so meaningful is about 80% of our revenue comes from subscription and reoccurring sales, providing a strong and stable base for <unk>.
Growth all of the products and services, we provide deliver significant operating leverage as manifested in our high profit margins as we utilize the build it once sell it many times approach and our product development. The new software win in Asia from our innovative business that Jerry shared earlier is an excellent proof point of leveraging this model not only does this.
Drive higher profit margins, but our free cash flow generation is poised to improve substantially as we complete the integration of the <unk> acquisition.
Finally after building an accomplished leadership team here has appointed in information services veteran his successor and Jonathan to execute the one clear of eight plan and deliver profitable growth leading to enhanced returns for all of our stakeholders.
Thank you all for listening in this morning, I'll now turn the call back over to Alexis to take your questions and as a reminder, please limit yourself to one question and then return to the queue for any additional <unk>.
<unk>. Please go ahead.
Absolutely if you would like to ask a question press star followed by one on your telephone keypad.
A question. Please press star followed by team.
You had said before asking your question.
Most upcs questions Okay interesting.
The first question comes from the line of Manav Patnaik with Barclays. You May proceed.
Thank you.
Just wanted to know the it will be in fact, PUC IP business, the <unk> business and I think for the <unk>.
I can ask you just made some assumption that maybe there'll be some weakness from the slowdown.
Can you just elaborate on those because a lot of the other companies aren't seeing anything in the quarter and it sounds like you already so maybe just what the differences there.
That's great.
Jonathan see you start and will have Gordon pick up a bit too, yes, we highlighted the second quarter came in.
Largely as expected we were a few million dollars short on the inorganic the only one that we started to see softness in was branding trademark within the quarter. So that drove a portion of that as we look to the second half of the year, it's largely based on our expectation. So the items that we highlighted.
And a higher level of uncertainty than normal in the second half are just causing us to be more cautious on those other areas that consulting services, where we've done a really nice job of rebuilding the capability there in our head count we may see some softness and then really new subscriptions and transactional so very.
A very small impact in the quarter more of a conservative outlook in the second half given the backdrop.
Do you want to pick up on the product question.
Yeah, absolutely thanks, Jonathan just to Echo Jonathan's comments around the.
Brand trademark transactional performance and of course, we have experience of that from previous economic changes that there is a bit of softness in the patent search area. It's partly a discretionary spend partly non discretionary but that will be at a much lower comps and I think in consulting terms, it's timing and project scope that.
We see in the outlook rather than absolute change.
Thanks next question please.
Absolutely.
Your next question comes from the line of George Tong with Goldman Sachs.
Hi, Thanks, good morning.
In your updated.
Organic revenue.
Hi.
Your updated 2022 organic revenue growth guidance of four 5% appears like a relatively big update from your prior expectations of six 5% organic growth can you just help bridge the gap, which parts of the business represented the biggest surprise or downward revision for you in terms of how youre approaching.
Organic growth and how should we think about organic growth.
Beyond just the second half of this year.
Yeah, great questions, George I'll have Jonathan <unk> start.
And our.
Our soon to be CEO pick up from there just so you know the position we're working on as I am supporting their decisions going forward, because theyre going to be reporting to you guys and gals attendant Q3 at the Investor Day, and then into Q4, so it's them.
That will be carrying this forward Jonathan you start and then Jonathan gear you pick up yes, we will start with the item that we know has been on the table for a while that we said we were looking for ways to offset and that's the decision to suspend our operations in Russia, so that accommodates or that accounts for about a quarter of the reduction or almost 50 bps.
On a full year basis. The other three items that we highlighted was the one we just talked about the softening that we just started to see in the second quarter on the trademark.
And brand new registrations, so as Gordon highlighted we have good history with that business and when the cycle starts to turn down and that's really the only area of our business that starts to see a direct impact pretty quickly.
And that has a comparable impact to the Russia cancellation of the Russian suspension. The last two consulting services team has done a remarkable job building that practice back up in the first half of the year and but we also know from experience in a softer environment. That's a place that we will see smaller project sizes utilization rates will come down a little bit.
Discretionary spending.
Is constrained and then the final item is just the expected conversion on new subscriptions and other transactional if the environment is a little tougher so given the uncertainty we want to be a little bit conservative there, but that's an area that will obviously still be shooting to drive towards the higher end of the range and we'll watch how that unfolds in the third and fourth quarter. Thanks.
Jonathan Jonathan Gear, Sheryl I'll, maybe just just emphasize.
Emphasize some of the points that Jonathan Collins, that's made the Georgia think about in terms of those four buckets, so because they're almost four equal buckets, which gets even the six 5% to 655 to five to four and a half the person's Russia as John says that about 50 bps. Then the trademark business again about the same size and very typical what we see in a downturn.
That takes you combine down about a point and then the five and a half in four and a half is really just the cloudiness, we're seeing seeing the future given the macro environment.
The majority of it not lived this before I've seen what happens when downturns happen on the consultant side. We've seen this as my previous employer. So I think it's just prudent to kind of take a view there and same with the transactions, which again can be pushed off they can be.
More discretionary in nature, so it's getting that cloudiness. It seems like the right thing to do to take that take that down and the one thing I'll say is the Russia has its own unique situation you have the three the trademark business transactional and consulting are tied towards the economy is tied towards discretionary spend and decisions or potentially push out spending and as we come out of that macro environment.
I would expect those to come back to their normal rates.
Thanks, George next question please.
Absolutely. The next question comes from the line of Hamzah <unk> with Jefferies. You May proceed.
Hi, This is Hans Hoffman filling in for Hamzah. Thanks for taking my question.
Could you just talk about what Youre seeing your legacy life Science business.
Now the courthouse product is performing maybe relative to your expectations.
Yeah, let's start with Gordon Steen, and then both Jonathan's quick because it's a great question Gordon.
Sure. Thanks, Jerry I think if the question.
We're seeing our lifestyle and health care businesses, performing well, it's performing to expectation and <unk>.
Do you need to see strong growth within a number of areas and across the whole business.
Certainly you've heard about the success of our real world data performance.
Performance in Q2 and that builds on the work we put in last year and early this year to develop more products and solutions for our datasets and a highly curated and specialized data. We seek hotel is performing well we would describe it as one of our most advanced platforms and products. So you know.
From a technology perspective, and from a deployment perspective very much at the leading edge. It's one of our flagship products in the pools.
The job is to keep that highly currency all the time to make sure that we maintain that clean air between ourselves and the competition. So.
That'd be my observations on your question and I think I'll hand, it back to Jerry will sustain.
<unk> place.
No Frank just a couple of additional comments are we are still seeing very solid demand in the life science and healthcare business are evidenced by the record sales we had on health care data in second quarter.
And I do want to call out that one of the exciting trends we saw in our health care data is.
In fact, we've done our biggest deal ever and many of these deals are multiyear deals that gave those deferred revenue profiles in the coming quarters in the coming years she'll be we're still seeing healthy demand in the lifetime of the health care business and that obviously also huge Chinese as well back to you Jamie.
Thank you, Jonathan and see yes, I'd just emphasize the importance of schemes final comment there, which is the nature of these transactions the size in the future delivery of data positions us really well to continue to reduce the volatility in our transaction business. So we acknowledge there is some cloudiness as Jonathan put it just a few more.
That's ago, but certainly getting these deals over the finish line. We're excited about how the quarter performed but really encouraged by what it bodes for the future quarters with with deals that are effectively locked up and Jonathan first four weeks because this is a new business for you is certainly that's the one I'm extremely excited about it's been one of the pillars of growth long term for therapy.
Around innovation and investing in innovation and creating new products as we bring these different assets together and I think the portela has had some early examples of that in Q1, I think we talked about earlier in the last call about the some of the competitive intelligence databases that we add to that the disease landscape forecast added cartelist drug pipeline is into that that was in Q1 as new and innovate.
In Q2, we continued that innovation focus on deep analytics again, leveraging the quartile us data and to me. These are just examples of what would we do across the patch as we continue to bring different datasets together move up move up the value change it to analytics and create long term value. So great. Great question expect more good news in this area.
Next question please.
The next question comes from the line of Ashish the backdrop with RBC you May proceed.
Thanks for taking my question I, just wanted to drill down further on the the organic growth at the midpoint.
The.
Based on the chart. It seems like you are expecting organic growth to improve from third quarter to fourth quarter and given fourth quarter is a seasonally strong transaction revenue and just given the macro pressure I just wanted to see how much visibility do you have.
What that going into the fourth quarter and then how does that set up for 2023 is that the right exit rate as we get into 2023 text.
Great question, Jonathan see start Jonathan.
Yeah, It's just a.
Important to remember that we're coming off of a pretty soft comp from the fourth quarter of last year given the performance in the.
The Miss we had in transactional so we've got a softer base off of that when we look at the pipeline. It continues to build obviously the record quarter. We had an HTS in Q2 was very encouraging and as Steve mentioned some of those transactions will move into the second half. So we will deliver additional data in subsequent quarters that will.
I'll build towards that but we believe with being recalibrated at the four and a half at the midpoint the probability of.
Delivering there is is quite high even though we'll see some improved sequential growth in the third to the fourth quarter, yeah, well I'll touch on that and I'll just add repeat myself a little bit earlier question I think that this just beats the cloudiness, we're seeing right now.
And because they are by the macroeconomic environment. So I simply cannot wait to get to November when we talk about our 'twenty three plan with some of the background behind us about hopefully getting to some of the macroeconomic pressures and then talked about that being the loss of patent in 'twenty three.
Thank you your next question.
Absolutely. The next question comes from the line of engine Nicholas.
You May proceed.
Hi, Good morning. This is actually Trevor Romeo in for Andrew Thanks for taking the questions and I just wanted to say congrats to Gerry and Jonathan on recent leadership announcements.
Question.
It seems like there's kind of some some positive momentum for pro quest in the quarter with the large deal in Asia and revenue coming in a bit above expectations could you kind of just comment on what pro quest organic kind of apples to apples growth was in the quarter and what your growth expectations for that part of the business would be moving forward from here. Thank you.
Yeah, Great question. Thanks, Jonathan start, yes, Youll recall, when we were together last we highlighted that the second quarter is very important transaction for the academic business and with pro quest coming on.
Not just the web of science now, but all of the <unk> products from full text aggregation to E books to software that have the opportunities to sell transactional in the in the quarter. So we saw really strong performance. It's the academic calendar yearend. So our digital collections did very well had some great EBIT deals and we're very encouraged by what we saw there so they get a few.
Better than we were expecting the organic growth in the quarter was over 4%.
So we were encouraged and we will continue to see how that unfolds in the second half of the year as that team has built a really strong pipeline for <unk> for the third and fourth quarters and I think the square Jonathan I'm going I think Jonathan. Thank you great question feel just looking backwards at that acquisition I Couldnt feel better about it.
You saw we talked about it today, we announced Monday the largest software.
With innovative but we've had combination.
Great business Youll see in the years to come as we grow market share and cross sell other products into the academic and grow the government business is one of our top priorities, you'll see that as a great contributor to good organic growth in the future. Thanks next question.
The next question comes from the line of Toni Kaplan with Morgan Stanley You May proceed.
Thank you I wanted to go to my favorite Slide Slide 16.
Transactional side and just since that's more macro sensitive and you already talked about it so on the renewal rate and cross sell you've had a number of initiatives you've done to try to improve those but they're really not moving that much at this point, so I guess, what's holding.
You know retention and cross sell back and do.
Do you need to and best extra and new product development. For example, or are you at a good investment level right now just what what extra can you do to try to drive those two areas. Thanks.
We'll have Jonathan Collins start and then Gordon and then Steve pick up yes.
Yes, just as a reminder, the primary thing holding us back on the renewal rate is Russia. So that cancellation of that business, we would be quite close to where we expected it to be if it werent for that deal.
Investment that we made in the inside our digital sales team and the focus and attention and that can give all of our field sales reps.
Delivering those strong renewals has really helped and started to pay off but its just muted by the suspension of our business in Russia from a cross selling perspective as Gerry highlighted very encourage the sales that we're seeing a web of science outside of AMG and life Sciences, and healthcare products outside of that vertical we always expected that that would ramp up.
Through the year and Steve I'll, probably want to touch on some of the great traction that we're seeing there, but the change management really has been happening early in the year and we expect better outcomes and improved success there towards the second half.
Okay, Let's do garden, and then Steve because this is a critical question for us.
Sure Yeah. Thanks Gerry.
As Jonathan has just confirmed the CMT sales web of science are a great example of that.
There are many other examples that maybe old visible yet, but if you think about some of the integrations we've done already.
With web of science to cross sell about pro quest products, including things like books rest works smart harvest of product and importantly seems like pivots in explorer, which take us into the research and the protest office in the academic world.
So those combinations are game changing because.
There are things, which are competitors simply don't have the assets to combine so you'll see more of those activities bearing fruit in terms of execution at age two and just one. Other example, maybe straight from our customer visit which is always a good way of bringing this to life.
A couple of our customers we spoken to last week, we're talking about how search business. So part of the old <unk> business, but how much richer the search business results were by using data and assets from the pro Quest acquisition. So these are known IP.
Non <unk> data sources, adding business data and information of value to create even better insight for search results. So I think we're just beginning to see the momentum build in those areas of potential cross sell.
Thanks, and Steve who just recently celebrated its first anniversary picked up as you and I talked yesterday.
Couldn't be more pleased with the one clarifying effort that's underway, but you picked up steam employees.
Thanks, Jerry and just as a reminder, we basically put one terabyte in place second half last year, we went through a accelerated implementation coming into 2022 and I would categorize the phase we're in now as a pure execution face and we see the first evidence of success.
Already in the second quarter and I think as we progressed in the second half we will only go from strength to strength on cross sell.
We have to remember as well that we just put in a lot of account managers that are building, new customer relationships and reaching out to new personas that they'd normally not been reaching.
Reaching out to and had relationship with them in the past, but we are really begin to see those benefits as well. So we saw some great proof points in the second quarter and cross sell and we will continue to see that in a far more systematic way <unk> progress in the second half and it will be for sure a path for growth as we get into 'twenty.
Three no doubt about that back to you Jeremy.
Thank you. Thank you, Tony and with that well close I got up at my usual time actually a little earlier about 230. This morning and realize this was my last ever.
In fact, my wife reminds me of that every day my last ever quarterly and annual call and I would tell you I've never felt better about our company.
Ever felt better about their organization the leadership that people in the company, nor what we provide to our customers. So I look forward as I said earlier.
The greatest cheerleader that clarify it's ever had this is a great team and a great company and I'd just tell you all thanks very much for your patience and what we'll do for years to come. Thank you into story operator.
That concludes the conference call. Thank you for your participation you may now disconnect your line.
Yeah.