Clarivate (CLVT) FY Conference Summary Company Overview - **Company**: Clarivate (CLVT) - **Industry**: Information services, workflow solutions, particularly in university, pharmaceutical, and legal sectors Key Points and Arguments Divestiture Plans - Clarivate is evaluating options to sell its IP business segment and expects to communicate the outcome by year-end results in February [3][5] - Maroon Murad will join as president of the IP segment effective September 8, indicating a commitment to innovation and growth in this area [4] Value Creation Plan (VCP) - The VCP launched in 2024 is on track, with measurable progress across key initiatives [7] - Annual Contract Value (ACV) and renewal rates are increasing, with 88% of revenue now from subscription and recurring sources, up from 80% last year [8][12] - Major operational changes in the sales organization have been completed, enhancing customer engagement and retention [9][10] Financial Metrics - Organic recurring revenue mix is currently at 88%, expected to stabilize at 84% for the full year due to disposals [12][14] - The company aims for mid-single-digit organic growth in the long term, with expectations of returning to a 3-4% growth rate in the A and G segment [29][68] AI Integration and Innovation - Clarivate has launched 10 AI-powered products and is aggressively introducing new AI capabilities across its segments [10][11] - The company has established an AI innovation center of excellence, with 4,800 academic institutions currently using its AI solutions [52][58] - AI is seen as a significant growth driver, particularly in the IP business, as more inventions seek patent protection [39][41] Segment Performance - **A and G Segment**: 93% of the A and G business is recurring with a 96% renewal rate. The introduction of subscription-based products is expected to drive growth [20][21][23] - **IP Business**: Experienced 1.5% growth in the first half of the year, with expectations of mid-single-digit growth in the long term [36][38] - **Life Sciences and Healthcare (LS and H)**: Stability in R&D spending and improved renewal rates for the Cortella suite of products. New product launches are anticipated to drive growth [47][50] Capital Allocation Strategy - Clarivate expects to generate mid-$300 million in free cash flow, focusing on share repurchases and debt repayment rather than M&A in the near term [65][66] - The company aims to reduce leverage over time while capitalizing on attractive stock value [66][67] Long-term Growth Outlook - Clarivate anticipates organic growth rates to align with industry growth rates, with a focus on increasing the proportion of subscription revenue [68][70] Additional Important Insights - The company is optimistic about growth opportunities in both developed and developing markets, fueled by continuous innovation and AI advancements [27][28][30] - Clarivate's strategic focus on enhancing its product offerings and customer engagement is expected to yield positive results in the coming years [11][19][50]

Financial Data and Key Metrics Changes - Q2 2025 revenue was $682 million, with core sales increasing by 5.6% year-over-year, aided by customer buying ahead of expected price increases [8][16] - Adjusted EBITDA margin was 12.4%, up 240 basis points from the previous year, supported by G&A productivity improvements [9][16] - Adjusted EPS for Q2 was $0.26, an increase of $0.15 compared to the same quarter last year [16][18] - Free cash flow for Q2 was $76 million, down from the previous year due to higher working capital [26] Business Line Data and Key Metrics Changes - Equipment and consumables revenue grew approximately 7%, while specialty products increased just shy of 5% [9][22] - Specialty Products and Technology segment saw core revenue growth of 7.2%, with adjusted operating margin improving to 13.5% [22] - Equipment and Consumables segment reported a 7.3% increase in core sales, with diagnostics showing mid-single-digit growth in North America [24] Market Data and Key Metrics Changes - Double-digit growth was observed in Latin America, Indo-Pacific, and Middle East and Africa regions [14] - The dental market remains stable, with no significant improvement or deterioration expected in the second half of 2025 [28][32] Company Strategy and Development Direction - The company is focused on a value creation plan that includes accessing untapped growth in core markets, new product innovation, and strategic acquisitions [11][12] - Plans to expand manufacturing in China to support local demand, with a new site in Suzhou [14][15] - Continued investment in R&D, with a 14% increase in the first half of 2025, leading to several new product launches [13] Management's Comments on Operating Environment and Future Outlook - Management noted that macroeconomic conditions have improved slightly, with low unemployment and rising consumer confidence [36][39] - The company anticipates a stable dental market and expects to offset tariff impacts through supply chain actions and cost reductions [29][30] - Future guidance was updated to reflect core revenue growth of 3% to 4% and adjusted EPS of $1.5 to $1.15 [10][27] Other Important Information - The company repurchased $82 million worth of shares in Q2, continuing a $250 million two-year repurchase authorization [27] - The adjusted tax rate for the year is now forecasted at 33%, improved due to strong U.S. profits [30] Q&A Session Summary Question: Was the strength seen across the portfolio surprising? - Management noted that Q2 macro conditions were incrementally better than Q1, with strong growth in orthodontics and consumables [36][38] Question: What drove the outsized growth in brackets and wires? - Increased investment in sales and marketing and a potential shift from clear aligners to brackets and wires contributed to growth [42] Question: How is the China market performing ahead of VBP? - The brackets and wires business in China was down 20-30% year-over-year in the first half, but robust growth is expected in Q4 post-VBP [51] Question: What is the outlook for Spark's profitability? - The company expects Spark to turn EBIT positive in the second half of 2025, with consistent unit cost reductions [59] Question: How are dental practices responding to price increases? - Price increases have been modest and well-received, with a delay in equipment purchases noted across the market [90][91] Question: What is the impact of tariffs on margins? - Tariff costs in Q2 diluted margins by approximately 60 basis points, with expectations of $15 million to $20 million in tariff costs in the second half [80]

Financial Data and Key Metrics Changes - The company reported Q2 revenue of $621 million, bringing the first half total to $1.2 billion, with a net loss of $72 million, an improvement attributed to the absence of a non-cash impairment charge from the previous year [22][23] - Adjusted diluted EPS was $0.18, with operating cash flow of $116 million in the quarter [23][27] - Free cash flow for Q2 was $50 million, totaling $161 million for the first half of the year [27][28] - The mix of organic recurring revenue to total revenue for the first half improved to 88%, an increase of 800 basis points compared to the previous year [21] Business Line Data and Key Metrics Changes - The A and G business achieved 2% organic ACV and subscription revenue growth, with a 96% renewal rate [8][11] - The IP segment returned to organic growth in patent annuities, with recurring revenue rising by about 1.5% in the first half of 2025 [13][14] - Life Science and Healthcare segment saw a return to organic ACV growth, supported by a long-term multimillion-dollar agreement with a top pharmaceutical company [18][19] Market Data and Key Metrics Changes - The company noted a market-wide surge in AI innovation, which is expected to drive growth in the patent renewal business [14][15] - The U.S. dollar weakened against foreign currencies, providing a favorable foreign exchange translation impact on revenue [26][34] Company Strategy and Development Direction - The company is focused on a value creation plan (VCP) launched in 2024, emphasizing AI-led product innovation, improved sales execution, and operational efficiency [6][8] - A shift away from transactional sales towards subscription models is expected to enhance recurring revenue growth [10][11] - The company is undertaking a strategic review to assess alternatives across the business, with results expected to be communicated in February 2026 [19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the renewal rates and the resilience of their products amid funding pressures in the U.S. market [54] - The company anticipates continued organic growth in the second half of the year, driven by improvements in the A and G and Life Sciences segments [36][37] - Management highlighted the importance of their products being mission-critical for universities, which supports renewal confidence [54] Other Important Information - The company has launched 10 AI-powered products since the launch of the VCP plan [9] - A new sales incentive plan has been initiated to refocus on subscription and recurring revenue, contributing to improved sales momentum [58][60] Q&A Session Summary Question: IP business rebound and AI opportunities - Management noted that the rebound in the IP annuity market is expected to benefit from increased patent filings related to AI, particularly in Asia and China [40][41][42] Question: Potential changes in U.S. patent filing fee structure - Management indicated that they are well-positioned to adapt to any changes in the IP ecosystem due to their long-standing presence and collaboration with patent offices and law firms [46][47][48] Question: University funding cuts and renewal outlook - Management reported strong renewal rates and emphasized the critical nature of their products for universities, which supports confidence in future renewals [53][54] Question: Sales momentum and subscription focus - Management expressed optimism about the sales momentum driven by the new sales incentive plan, focusing on subscription and recurring revenue [58][60] Question: Life Sciences and Healthcare market dynamics - Management highlighted stable R&D spending and improvements in the subscription business within Life Sciences and Healthcare, attributing this to investments in the Cortellis suite of products [64][66] Question: Delays in disposals - Management explained that one disposal is taking longer due to customer requests for more time to transition to alternative offerings [69][71]