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 - Q1 revenue was $594 million, with a net loss of $104 million attributed to higher restructuring expenses related to the value creation plan [22][23] - Adjusted diluted EPS was $0.14, flat compared to the same period last year [23] - Adjusted EBITDA margin increased by more than one percentage point due to improved cost management [24] Business Line Data and Key Metrics Changes - Organic annual contract value (ACV) grew sequentially, with total organic revenue increasing for the first time in over a year, and recurring organic revenue grew nearly 1% [6][8] - In the IP Patent Annuity business, organic recurring revenue grew 5% due to higher volumes [12] - Subscription renewal rates in Life Science and Health improved to 90%, an increase of three percentage points over the prior year [13] Market Data and Key Metrics Changes - The mix of recurring revenue to total revenue is now 83%, an improvement of 200 basis points compared to the prior year [6] - The company noted that less than 3% of total revenue comes directly from the U.S. Federal government, indicating limited exposure to government funding cuts [10] Company Strategy and Development Direction - The company is focused on optimizing revenue, improving sales execution, and accelerating innovation through a subscription-centric model [5][8] - The value creation plan is on track, with a focus on business model optimization, sales execution, and accelerated product innovation [15][18] - The company is evaluating strategic alternatives to unlock value and maximize shareholder returns [19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future of research in academia despite potential government funding cuts, indicating minimal impact on business so far [39][40] - The company remains cautious about the macroeconomic environment but believes its products' recurring nature positions it well during uncertain times [34] Other Important Information - Free cash flow was strong at $110 million, with nearly half used for share repurchases [26][28] - The company expects annual contract value to accelerate by approximately 60 basis points to 1.5% at the midpoint of the range [29] Q&A Session Summary Question: Concerns about government funding exposure - Management indicated minimal impact from government actions and noted strong renewal rates in the A and G segment [39][42] Question: Inquiry about private equity interest in the IP segment - Management stated they are evaluating strategic options but had no specific comments on the private equity interest [47] Question: Drivers behind higher renewal volumes in IP - The primary driver for the increase in organic recurring revenues was a return to healthy growth in patent and trademark renewals [50][51] Question: Impact of funding cuts on large universities - Management confirmed that less than half of the A and G segment business is in the U.S., with a significant portion already renewed this year [55] Question: Expectations for transactional revenue growth - Management remains conservative about transactional revenue growth, focusing on improving recurring revenues [58] Question: Changes to the sales incentive model - Management highlighted upgrades in sales leadership and changes to the incentive model to reward subscription revenue growth [66] Question: Cyclical nature of patent renewals - Management acknowledged that while patent renewals can be cyclical, they expect the long-term trend to remain positive [70]

Financial Data and Key Metrics Changes - Q1 revenue was $594 million, with a net loss of $104 million attributed to higher restructuring expenses related to the value creation plan [23][24] - Adjusted diluted EPS was $0.14, flat compared to the same period last year [24] - Adjusted EBITDA margin increased by more than one percentage point due to internal cost efficiencies, with free cash flow of $110 million [9][28] Business Line Data and Key Metrics Changes - Organic annual contract value (ACV) grew sequentially, driven by improved subscription renewals and new business wins [7][10] - Organic recurring revenue grew nearly 1%, with renewal rates across the subscription base improving by one percentage point [8][9] - In the IP Patent Annuity business, organic recurring revenue grew 5% due to higher volumes, with a double-digit increase in search volume for the Derwent innovation platform [13][19] Market Data and Key Metrics Changes - The mix of recurring revenue to total revenue is now 83%, an improvement of 200 basis points compared to last year [8][18] - Subscription renewal rates in the Life Science and Health segment improved to 90%, an increase of three percentage points over the prior year [14] Company Strategy and Development Direction - The company is focused on optimizing revenue, improving sales execution, and accelerating innovation through a subscription-centric model [6][10] - The value creation plan is on track despite a volatile macro environment, with a focus on business model optimization and increasing the subscription revenue mix [10][17] - The company is evaluating strategic alternatives to unlock value and maximize shareholder returns [20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future of research in academia despite potential government funding cuts, indicating minimal impact on business so far [11][40] - The company remains cautious against a challenging macroeconomic environment but believes its products' recurring nature positions it well [35] Other Important Information - The company has engaged with advisors to analyze options for maximizing shareholder value and will provide updates when appropriate [20] - The company launched new subscription platforms and AI-powered features, enhancing competitive advantage and customer engagement [19][20] Q&A Session Summary Question: Concerns about government funding exposure - Management indicated minimal impact from government actions in Q1 and noted that half of government contracts have already been renewed [40][41] Question: Inquiry about private equity interest in the IP segment - Management stated they are evaluating strategic options but had no specific comments on the private equity interest [48][49] Question: Drivers behind higher renewal volumes in IP - The primary driver for the increase in organic recurring revenues was a return to healthy growth in patent and trademark renewals [52][55] Question: Impact of U.S. government funding on revenue - Less than half of the A and G segment business is in the U.S., with a meaningful portion already renewed this year, indicating confidence in guidance range [59][60] Question: Expectations for transactional revenue growth - Management expects transactional revenue to remain soft in the current macro environment, focusing on improving recurring revenues [62][63] Question: Changes to the sales incentive model - Management highlighted upgrades in sales leadership and changes to the customer success organization, which have contributed to improved renewal rates [67][68] Question: Cyclical nature of patent renewals - Management acknowledged that while patent renewals can fluctuate, the long-term trend is expected to head back in a healthy direction [72][73]