Clarivate Plc

Good morning and welcome to Clarivate's first quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mark Donahue, Vice President of Investor Relations. Please go ahead.

Thank you, Andrew, and good morning, everyone. Thank you for joining us for the Clarivate First Quarter 2020 Earnings Conference Call. With me today are Jerry Stead, Executive Chairman and Chief Executive Officer, Richard Hanks, Chief Financial Officer, Mukhtar Ahmed, President, Science Group, and Jeff Roy, President, IP Group. All will be available to take your questions at the conclusion of prepared remarks. As a reminder, this conference call is being recorded and webcast and is copyrighted property of Clarivate Analytics. Any rebroadcast of this information in whole or in part without prior written consent of Clarivate is prohibited. This morning, Clarivate issued a press release announcing our financial results for the period ended March 31, 2020. The release, as well as an accompanying supplemental presentation, is available in the investor relations section of the company's website, Clarivate.com, under Events and Presentations. During our call, we may make certain forward-looking statements within the meaning of the 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 that 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, including adjusted revenue and adjusted EBITDA. Clarivate believes 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 an 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. After a few remarks, we'll open up the call to your questions. And with that, it's my pleasure to turn the call over to Jerry.

Thank you, Mark, and thanks to all of you for joining us this morning. I sincerely hope you and your families are healthy. We look forward to returning to some semblance of normalcy and will really welcome the day that we'll be able to meet with all of you again in person despite the many distractions of covet 19 we had a very solid first quarter adjusted revenue including the acquisitions of drg for one month and darts ip and excluding the divested mark monitor businesses increased by 10.5 percent to 243 million dollars of constant currency in addition to recent acquisitions In addition to recent acquisitions, revenue growth was driven by new business and price increases. Subscription revenue, excluding divestitures, increased 8.4%. As a result of temporary workstream disruptions experienced by a few of our customers arising from the virus, we did experience some delay in getting a few contracts renewed during the quarter. This prevented us from delivering even stronger subscription revenue growth. We expect these contracts to be renewed in Q2 and consider this a Q1, Q2 timing issue arising from the pandemic. Adjusted total company organic revenue growth at a constant currency was 2.2% and was affected by the timing of the contract renewals I just mentioned. Our efforts to improve our operational and financial performance are really delivering results as demonstrated by the 32% increase in adjusted EBITDA to $78 million. This drove an almost 700 basis point improvement in our first quarter margin to 32.2%. And we benefited from revenue growth, acquisitions, portfolio rationalization, and cost savings initiatives. Richard will cover the financials in detail in a few moments. During the first quarter, we continued to make enhancements to our product offerings across our portfolio. Within our science group, beyond the DRG integration work, we launched Cortellus Drug Discovery Intelligence as the successor platform to Integrity, which was very well received by the market. We also released Cortellus Generics Intelligence, the new version of Newport. Within the intellectual property group, we successfully launched the Derwent Patents database platform with a new user interface and a great experience. This was very well received by our customers, and we expect the improvement in user interface and workflow to lead us into new buying centers to drive further growth. The integration of SequenceBase, a third quarter 2019 tuck-in acquisition for the patent business, added new functionality capabilities and also integrated into Derwent. It's progressing well, and the integration will be completed by the end of the second quarter. We also completed the integration of Darts IP, a business we acquired last year's fourth quarter within the CompuMark product suite. We continue to drive product enhancements across the portfolio, and I'm pleased to report there's been no disruption of our product development roadmaps. This week, we will launch our first customer light and college engagement surveys for 2020. As you know, our colleagues' engagement and customer-to-life focus is the way I've always led companies to ever faster profitable growth. These surveys identify actions for us to take that we expect will make a significant difference in driving our performance and continuing to build a high-value company. We look forward to sharing those results with you on our second quarter earnings call. This past February, we closed the acquisition of DRG and immediately kicked off integration activities. While most of our company is currently in a work from home status due to the health pandemic, I'm so pleased that our team has not slowed down the integration work at all. They're working to ensure the capture and realization of cost and revenue synergies, as well as implementing rigorous controls to execute and track these synergies. The team is focusing on a seamless transition and protection of existing businesses and independent revenue and growth targets for Clarivate and DRG. We remain on track to meet our cost synergy target of $10 million in 2020 and to meet our $30 million run rate synergy target that we promised over the first 18 months of our ownership. On the revenue side, our sales teams are very excited about cross-selling initiatives to drive revenue synergies. We are enthusiastic that early pipeline and general interest from customers is very promising. Turning to the COVID-19 pandemic, I couldn't be prouder about how we as a company have responded during the crisis. The collaboration across Clarivate has been outstanding. During times of crisis, the company's commitment and values are tested, and I can attest that my colleagues are truly going above and beyond. We saw the early effects of pandemic in our business in China, which we highlighted on our last earnings call in late February. Since then, the pandemic quickly has swept across the world. We immediately took steps to ensure the health and safety of our colleagues by implementing social distancing, activating business continuity planning programs, and moving all of our colleagues to work from home status. Thanks to the WOW plan and very smooth transition, this team worldwide has managed to meet or exceed its productivity and service level agreements. Today, all of our colleagues are working from home other than those in China, where many of our colleagues are now back in their offices. We do have the capability to have 100% of our entire workforce operate seamlessly in a work-from-home, work-anywhere-anytime environment. We've developed a return-to-work plan and safety protocols for our colleagues and are really well prepared for when other regions begin to relax stay-at-home restrictions. We're very proud of the fact that during these unprecedented times, we've not missed a beat in collecting and processing content. Our colleagues were up and running, working from home with a few days. The content teams are processing a high volume of material across our business groups. We're seeing workflow increasing due to large amounts of information being received from numerous sources, including the Chinese Patent Office, press releases, and pharmaceutical pipeline data and financial deals. We're working very closely with our customers to meet their needs, and I'm delighted to report there's been no disruption of any service that we provide to them. With our industry leading portfolio products available online, they can be accessed by our customers from anywhere. We're also doing our part to assist the COVID research. This aligns with our purpose as a company and that we believe human ingenuity can transform the world and improve our future. While we regularly work with many large pharmaceutical companies and governments, our consultants and professional services teams are now also working with many of them on COVID-related projects. And we are also supporting researchers with our COVID-19 website, which makes research readily and freely available for not-for-profit researchers that want to reference the work that's already been done. Our Cortalis product is playing an important role with all COVID-related trials from all registry sources included in our databases. We have the most competitive information available on clinical trials with our content team placing priority on processing COVID-9 data. We delivered significant retrospective coverage in March for all available trials from all registries representing 969 trials. As we recover from the pandemic, we believe there'll be an increase in interest and requirements from around the world. from governments, organizations for all of our products, and organizations for all of our products, particularly life science as the world recovers from this pandemic. Lastly, we expect to see more new opportunities for our business than ever before and further position us to realize our company's vision of improving the way the world creates, protects, and advances innovation. This morning, we reaffirmed our 2020 outlook for adjusted EBITDA of 395 million to 420 million, of adjusted EPS of 53 cents to 59 cents, and adjusted free cash flow of $220 million to $240 million. We evaluated various scenarios based on what we currently know and how things could play out for the rest of the year. Our assumptions include that the COVID virus is brought under control late in the second quarter. that there's a gradual lifting of restrictions and the free movement of labor in the mid to late third quarter, and that we begin to see a pickup in economic activity early in the fourth quarter. We're optimistic that the health crisis will improve in the coming months. If, however, things do not improve or if they get worse, we are prepared to take additional actions as needed. But what we do know about our business is, We have numerous competitive advantages that help to insulate us and help us weather through the current environment. Our products and services are a must-have, not nice to have. They're focused on B2B markets with unique content. Our customers rely and trust us in our solutions. And our services are very, very useful, even more so in the times we're living through. We have more than 18,000 customers. We sell into durable markets. in markets, including government, research institutions, and life science companies. We are a highly resilient company with 80% of our revenue from recurring subscription and reoccurring revenue streams. We have a strong revenue retention rates, currently around 93%, and we have low levels of capital intensity and low cash taxes. While we maintained our outlook on key profitability metrics, We revised our revenue outlook down by 2.5% at the midpoint compared to our prior guidance. During the first quarter, we did grant our colleagues salary increases effective April 1st. We have not nor do we plan any layoffs other than previously announced redundancies. We also introduced our company-wide share owner program if we meet or exceed our customer delight goals. People are our only sustainable advantage, and we're blessed with truly great colleagues. To offset the revenue softness and maintain our EBITDA guidance, we've implemented approximately $30 million of new cost savings measured for 2020, $5 million of which we expect will be permanent. Savings include an iron freeze, a no-travel policy, and reducing certain non-critical SG&A expenses. These savings are in addition to the cost optimization program already underway to deliver $45 million event period savings in 2020 and $70 to $75 million on a run basis as we exit the first quarter of 2021. When combined with the DRG synergy savings of $30 million, we have delivered or expect to deliver approximately $110 million in permanent cost savings over a two-year period. Importantly, we're doing this without impacting the way we do business or our ability to continue our investment in R&D. With the steps we're taking, we believe we'll be within the EBITDA range we previously provided in late February. While the current environment presents many challenges, we will be even better positioned to achieve our long-term objectives. This includes driving towards our goals of exiting 2020 with 68% organic revenue growth and adjusted EBITDA margins of 37% to 40%. I'll now turn the call over to Richard.