Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Clarivate Q4 and Full Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mark Donohue, VP of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for the Clarivate fourth quarter and full year 2024 earnings conference call. As a reminder, this conference call is being recorded and webcast and is copyrighted property of Clarivate. Any rebroadcast of this information in whole or in part without prior written consent of Clarivate is prohibited, and the accompanying earnings call presentation is available on the Investor Relations section of the company's website. 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 Clarivate's 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 can be found in Clarivate's filings with the SEC and on the company's website. Our discussion will include non-GAAP measures or adjusted numbers. However, we believe non-GAAP results are useful in order to enhance 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. Reconciliations of these measures to GAAP measures are available in our earnings release and supplemental presentation on our website. With me today are Matti Shem Tov, Chief Executive Officer, and Jonathan Collins, Chief Financial Officer. After our prepared remarks, we'll open up the call to your questions. And with that, it's a pleasure to turn the call over to Matti.

Good morning, everyone. Thank you for joining us. On this call this morning, we are going to provide additional details on our 2024 results and our 2025 financial outlook. Our results demonstrate we have a strong foundation of products and assets and workload solutions. They also show that we have work to do to deliver healthy organic growth and a bright future. We are underway to return to organic growth. We have already started to implement our VCP, which we presented to you in November. Today, I will provide more details on this plan, including some of the things we have already completed and will be doing in 2025. We also announced that we have retained financial advisors to help us in evaluating strategic alternatives to unlock value. This may include divesting business units or an entire segment. There are no guarantees that anything actionable will arise from this process. We will provide updates when appropriate. I'm confident this is the right plan to deliver shareholder value and return Clarivate to healthy organic growth. Turning to slide seven, let me give you a reminder of our value creation plan. Our VCP is focused on improving execution and accelerating revenue growth. The first three pillars include revenue optimization, improving sales execution, and accelerating innovation. These initiatives will improve our business performance, drive better revenue flexibility, and improve financial and operational efficiency. Our fourth pillar, portfolio rationalization, addresses opportunities to streamline our solutions portfolio through divestitures. Now let's talk about what was accomplished in the last three months in executing our plan and what lies ahead for the remainder of 2025. Improving the predictability of our revenue and driving core subscription and recurring sales is a key priority of the plan. In academia and government, we recently announced that we are moving…

Thank you, Matti. Slide fourteen is an overview of our fourth quarter and full year financial results compared with the same periods from the prior year. Q4 revenue was $663 million, bringing the full year to $2.56 billion. The fourth quarter change was largely inorganic as a result of the ScholarOne and Valleypad divestitures as the rate of organic decline improved from 1.5% September year-to-date to 0.7% in the fourth quarter. The fourth quarter net loss was $192 million, an improvement of $671 million compared to the same quarter in 2023, and the full year net loss also improved by $319 million, both due to considerably lower non-cash asset impairment charges related to goodwill and other. Adjusted diluted EPS, which excludes the impact of one-time items like the impairments, was $0.21 in Q4, bringing the full year to $0.73, which was within the original guidance range we provided nearly a year ago. Operating cash flow was $141 million in the quarter, taking the full year to $647 million. The change compared to last year is almost entirely driven by lower adjusted EBITDA and higher working capital. Please turn with me now to page fifteen for a closer look at the drivers of the fourth quarter top and bottom line changes from the prior year. At the end of the third quarter, our business had declined organically by 1.5% year-to-date. However, we paired the rate of decline by 80 basis points to 0.7% in the fourth quarter on increased transactional sales, which grew just over half a percent largely due to improved performance in our A and G segment. The transactional growth was offset by a 1% decline in our recurring revenue type subscription and recurring combined, which was largely driven by the timing of year-end patent renewals compared to the…

At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Manav Patnaik with Barclays. Please go ahead.

Yeah. Thank you. I guess you know, I had a broader question just around your overall government exposure. You know, a lot of questions around that. I was hoping you could help us frame you know, what your direct exposures to the federal and state government are. And also, I guess, indirectly, if they all get there, you know, the academic and government solutions, especially if they get their funding platinum other areas, how you think you can manage that as well?

So hi. Hey, Manav. I'm gonna answer this one. Thank you for the questions. So I've been in the academia business for almost over twenty years. I've seen the academia business going through a lot of different cycles, and I, you know, remain optimistic that academia will prevail and will continue to grow in a certain low single-digit to mid-single-digit over time. Yes, we do have a percentage of our income coming from the US government spending, it's pretty small. We do acknowledge the fact that if the federal fund will go down, we will be exposed to those if the cuts are significant, we will be exposed. But as I mentioned in my call, I'm optimistic about the trajectory and the, you know, the future of this industry. I've been there for twenty years, gone through several cycles, I'm optimistic and positive about the future of the business.

Thank you. Next question, please.

Your next question comes from the line of Andrew Nicholas with William Blair. Please go ahead.

Hi. Thank you for taking my questions. Wanted to focus on the incentive model changes for the sales force. Can you maybe spend some time talking about the evolution of those comp structures and maybe more specifically, how you expect it to change execution and success on that front?

Without systematically going into too much detail, the models were tailored over years with a certain focus on one-time versus subscription. They were focused in a certain way with certain percentages on, you know, one-time retention and new business. So in all of the three segments, we have used a portion of the incentive which goes into one-time retention and new business, and we changed the model. We fine-tuned this model to align our salespeople with our concept that we go strongly after subscription and recurring. So the salespeople should be compensated accordingly and incentivized accordingly. Retaining, making sure that we are growing the retention rate and making sure we are selling more subscriptions as opposed to one-time business. That's what we're doing in all three segments.

Thank you, Andrew. Next question, please.

Your next question comes from the line of George Tong with Goldman Sachs. Please go ahead.

Hi. Thanks. Good morning. Recurring revenue in the quarter fell about 5% because of lower IP patent renewal volumes. You talked a little bit about timing at year-end, but can you discuss initiatives under the value plan that can help improve recurring patent revenue trends?

Sure, George. Yeah. So the first part of your question, the primary driver of the decline in Q4 on the recurring order type were patent renewal volumes. They were lower due to the comparison with the prior year. We expected more of those to be renewed in Q4. Earlier in the year, and some of those now are happening in the first quarter. So that's the primary driver of the fourth quarter change. To your point on the go forward, it piggybacks a little bit on Matti's last comment, which is our sales incentive and focus for 2024 is more geared now towards the recurring order types. So by winding down some of these transactional businesses and shifting the pay mix towards the recurring revenue types, we expect to help build the book of business, not only in subscriptions but also on our patent and trademark renewal business within the IP segment.

Got it. Very helpful. Thanks for the question.

Again, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. Your next question comes from the line of Owen Lau with Oppenheimer. Please go ahead.

Hi. Good morning. Thank you for taking my question. So first of all, thank you for the detail on the VCP and 2025 guidance. And I do have a broader question on this. So there's a trade-off for your VCP revenue and free cash flow would be down in 2025 because of inorganic disposal and also divestitures. But you can drive high organic ACV and recurring revenue mix. Why do you think this is the right trade-off? And can we turn the company back to revenue growth trajectory in 2026? Thanks.

I think this is Matti. Maybe Jonathan can add later. So when I came in, I've done my study. I met a lot of sales organization. I met the managers. I met customers. And the notion that I go through this and some of my prior knowledge of A and G, you know, I've run ProQuest before, the amount of energy and effort and attention and the drain we got from those one-time deals. Like this? Tiles business, and also understand that the real-world data is kind of the same. It's a lot of effort to do one-time deals, and it's a distraction. Add to this the low margin of the ebooks business, very low margin of the ebook business. It was kind of a very intuitive decision when we discussed the VCP with the management. It's a drain. This is just taking over time, and we have a great engineering and product capabilities within the company, we have some very great products. And we were also smart about transitioning the three, and maybe we haven't spent enough time on this one. Three businesses, we're actually winding down, we didn't really wind them down. We actually are transitioning them towards subscription. The ProQuest ebooks offering, which is subscription-based, the largest in the industry. The ProQuest data collection, we are, you know, this is almost the only vendor that provides those kinds of services. The real-world data products offering, this is all transitioning the business as opposed to just purely disposing of the business. I came here, there was some mumbling about, maybe we can serve this business, maybe we cannot sell this business. The notion that we actually moved those businesses and over time, have a high degree of conviction that we believe where we can transition this one-time business, maybe not one to one, but over time, transition into more subscription recurring subscription base. This is what we do. A big portion of our business is going subscription. I mentioned we are moving from 80% to 87% subscription recurring. After these disposals, and I believe we can go even higher.

Thank you. Next question, please.

Your next question comes from the line of Shlomo Rosenbaum with Stifel. Please go ahead.

Hi. Thank you for taking my question. I have a question in terms of the rate of investment in terms of new product innovation. Like, the key value driver of the company is really gonna be moving the organic revenue growth up. And you know, the capital spending in 2025 is going down. You're keeping the margins relatively flat despite dropping $200 million out of revenue. I'm just wondering, is there enough investment going on into the company to drive a sustainable long-term organic growth rate that is gonna be respectable?

Yeah. Thank you for the question, Shlomo. It's Jonathan. Just to point out a couple of items. Our ability to maintain margins is directly correlated with the strategic disposals. So the way that we are thinking about this is we are continuing to invest in the core products. If it weren't for this, we would see some margin pressure because, as you know, we firmly believe we need to continue to invest in product innovation and the go-to-market motion to return to healthy organic growth. So our ability to maintain margins and the ability to maintain our cash flow are a result of the strategic disposals that Matti highlighted that will help us to focus on the core business and have good execution on those investments. Thank you.

I believe this is Matti. We have the right profile of investment into our business, and let's not forget, you know, Gear and his team before me, they were focusing on innovation as well, and they've introduced some very great products. If you look at academic AI, it was introduced in the AMG segment, is empowering most of the AMG products. Most of the product lines are Web of Science, premium, ebook center ebooks, business. We are using this repurposing the same framework and technology. And one of the other things that I've introduced when coming in, I'd say, why don't we just take whatever was developed, the infrastructure and technology within AMG, and implement it in other segments, and what we're doing today is actually implementing the academic AI infrastructure capabilities and know-how in two other segments, and the first one is obviously life science. We are gonna implement academic AI infrastructure and know-how technology into Cortellis, trying to expedite some of the improvements we need to do within Cortellis. We are pretty optimistic about this one. We did sign or we are signing up some development process for these changes that we are doing in Cortellis. More to come.

Thank you.

Your next question comes from the line of Surinder Thind with Jefferies. Please go ahead.

Thank you. Just following up on the earlier question. Why not take margins down further at this point to kind of maybe speed up investment at this point? And then as you talk about, you know, taking technologies from one segment to another or, you know, moving things across, does that make the divestiture process a bit more complex? Or how do we take those things into consideration as you do some of that stuff?

First of all, maybe to talk to the divestitures, I think there is a lot of logic to have these three segments together. There's a lot of advantages, synergies, of course. But those three segments can also operate on a standalone basis. Yes, there will be some exercise of separation if need be. I don't think, and yeah, when we make a decision to implement some of the technologies from AMG and others, yeah, we take into consideration that maybe in the future, those segments will not be together. I don't think this is a big issue going forward. I think we have the right level of investment. I'm not suggesting we take the margin down. For me, when I came in, that was... I would tend to do fewer projects or new products but be laser-focused. And that's my claim to fame. It is something we've done in previous life. I work with the customers. So we sign up, I mentioned that we are signing up a partnership for Cortellis. The implementation of AI with Cortellis, I find that we simply are doing too many small things as opposed to going more aggressive on certain initiatives. This is where I'm taking the company. I don't feel I'm pressured by the level of R&D or innovation investment. I think we are in the right place.

Thank you. Next question, please.

Your next question comes from the line of Peter Christiansen with Citi. Please go ahead.

Thank you. Good morning. I was curious, you know, you've reviewed the business. You had a lot more time to look at it. And just thinking in the context of keeping all the three business lines together or potentially separating them, how should we think about the revenue synergy potential between these businesses? Are you more confident, less confident in the ability to drive those additions? And then just curious how you think about new products. Are they value-added pricing kind of opportunities or a TAM extension? Thank you.

So they're both TAM extensions and also additional products, and I can speak on the three different segments. But if that's what I feel good about where we are in the value creation plan. You know, winding down those one-time is gonna give us a lot of freedom to focus on the new products. So new products expanding the TAM in some cases, and some of them are just improving the product. So, for example, we take a web of science. In web of science, we do ongoing involvement investment, but we also introducing, and we haven't talked about it today. It's like the level of science research intelligence. Global science returns intelligence is, like, AI enablement. It's, like, an advanced version of insights. Which basically this is after expanding the TAM. We're gonna offer new services to our new product to our existing customer base. On IP, for example, we also doing some new innovation, a product called IPCH. Which we are already sitting with a lot of law firms and all of corporate. This is the new product that we will be working on. We have Nestle as a customer. We wanna expand it and go to the market with additional products, one specifically called IPCA, the IP communication hub. More to it. More on this area will come, but we are looking into customer base with also expanding the wallet share within the customers as well.

Thanks, Pete. Our last question comes from the line of Ashish Sabadra with RBC Capital Markets. Please go ahead.

Thanks for taking my question. So on the organic ACV inflection in 2025, how much of that is really coming from transitioning some of those transaction revenue more to subscription base versus an improved pipeline and demand? And so I was wondering if you could comment on the pipeline and the demand environment and what you're seeing on that front. And then if I can just sneak in a question on the strategic review. I was just wondering if you could provide any kind of high-level color on what are the key strategic or financial criteria that you will use as part of the strategic review. Thanks.

Sure. Ashish, maybe we can start with the latter question. So as we indicated in the script, what we'll explore is the opportunity to unlock value through potentially monetizing more valuable assets that, you know, aren't commanding that value based on where the company is valued today. So that's gonna be a key criteria. And as Matti highlighted, you know, we do believe that there are parts of our business, including entire segments, that are separable and can survive and thrive, you know, separate from Clarivate. So that's how we're thinking about it in the criteria. As it relates to ACV, it's gonna be a combination of factors. As you know, there will be some conversion associated with some of these new products. But the bigger benefit we expect to see are the investments in products that we've made over the last couple of years. So we've talked a lot about in each of our segments continued investments we've made in the web of science and our research solution products within A and G. We think about the investments we've made in Cortellis in the life sciences group and the investments we've made in Derwent with the new AI-powered search just launching here in the last few months. So a combination of those with some potential benefit with the conversion to subscription products related to the VCP strategic disposals. That's what we believe will help to improve us into that one to two percent range on ACV. Thanks for the question, Ashish.

Thank you all for joining us today. That will conclude our call. We look forward to updating you in the future on our VCP plans.

Thank you.