Clarivate(CLVT) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported Q2 revenue of $621 million, bringing the first half total to $1.2 billion, with changes attributed to the ScholarOne divestiture and business disposals, partially offset by organic growth and foreign exchange [23] - The second quarter net loss was $72 million, an improvement over the previous year due to the absence of a non-cash impairment charge recorded last year [24] - Adjusted diluted EPS was $0.18, with changes attributed to divestitures and disposals [24] - Free cash flow was strong at $50 million for Q2 and $161 million for the first half, driven by adjusted EBITDA despite higher one-time costs associated with the value creation plan [28][29] - The mix of organic recurring revenue to total revenue for the first half improved to 88%, an increase of 800 basis points compared to last year [21] Business Line Data and Key Metrics Changes - The A and G business delivered 2% organic ACV and subscription revenue growth, with a 96% renewal rate achieved [7][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 [15] - Life Science and Healthcare segment saw a return to organic ACV growth, supported by investments in the Cortellis suite of products [18][70] 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 [15] - The U.S. dollar weakened against foreign currencies, providing a foreign exchange translation tailwind on revenue and adjusted EBITDA [26][28] Company Strategy and Development Direction - The value creation plan (VCP) is on track, with measurable progress across key initiatives and KPIs, including AI-led product innovation and operational efficiency [5][8] - The company is transitioning away from transactional sales to increase recurring revenue, with A and G subscription revenue now constituting 93% of total segment revenue [10][11] - A strategic review is underway 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 subscription uptake despite macroeconomic challenges, highlighting the mission-critical nature of their products [61] - 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 [39] - Management noted that the strategic disposals are expected to lower revenue by approximately $125 million this year, but are part of optimizing the business model [35] Other Important Information - The company announced the appointment of Maroon Murad as President of the IP segment, effective September 8, 2025 [17] - The company has completed refinancing $500 million of its 2026 bonds, extending the maturity by five years [30] Q&A Session Summary Question: Rebound in the IP business and AI opportunities - Management noted that new patent filings take a few years to impact renewals, but the trend of increased AI-related patents is expected to benefit the business globally over the next few years [44][46] Question: Potential changes to the U.S. patent fee structure - Management stated that they are well-positioned to support any changes in the IP ecosystem due to their long-standing presence and collaboration with patent offices and law firms [51][52] Question: University funding cuts and renewal outlook - Management reported strong renewal rates and emphasized the critical nature of their products to universities, indicating confidence in continued renewals [61] Question: Sales momentum and new sales incentive plan - Management highlighted the focus on subscription and recurring revenue, noting positive sales momentum and excitement within the sales organization [66] Question: Market dynamics in Life Sciences and Healthcare - Management indicated stable R&D spending and improvements in the subscription business, attributing growth to investments in the Cortellis suite [71] Question: Delays in disposals - Management explained that one disposal is taking longer due to customer requests for more time to adjust to alternative offerings [76]