Clarivate Plc

Good morning. Thank you for attending today's Clarivate second quarter 2022 earnings conference. My name is Alexis and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Mark Donohue with Clarivate. You may proceed.

Thank you, Alexis, and good morning, everyone. Thank you for joining us for the Clarivate Second Quarter 2022 Earnings Conference Call. With me today are Jerry Stead, Executive Chair and Chief Executive Officer, Jonathan Gier, Chief Executive Officer-elect, Jonathan Collins, Chief Financial Officer, Gordon Sampson, Chief Product Officer, and Steve Mumholtz-Thompson, Chief Revenue Officer. 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 to the property of Clarivate. Any rebroadcast of this information in whole or in part without prior written consent of Clarivate is prohibited. An accompanying earnings call 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 follow-up statements within the meaning of applicable securities laws. Such forward-looking statements about 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 that 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 revenue and adjusted EBITDA. Clarity 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. Reconciliation of these measures to GAAP measures are available in our earnings release and supplemental presentation on our website. After our prepared remarks, we'll open the call up to your questions. And with that, the pleasure to turn it over to Jerry Scott.

Thank you, Mark, and thanks to all of you for joining us today. I'll start by welcoming Jonathan Gere to his first Clarivate conference call. He's been with us for four weeks, and we are very, very pleased to have him. Starting September 1st, he will become CEO following my decision to retire at the end of August. I'll have more to share on this topic in just a few moments. Turning to our second quarter results and highlights, We delivered a good quarter, including sequential improvement over this year's first quarter. Revenue of $687 million increased 60% at constant currency and was up 4.8% on an organic basis. Our growth was partially offset by our decision to cease commercial operations in Russia back in March. Our one clarivate strategy is driving improved cross-selling. we had a record quarter for real-world data sales in healthcare. Also, ProQuest outperformed our plan due to higher academic year-end transactional sales. However, the significant strengthening of the U.S. dollar to a major extent and the softening of the U.S. economy to a minor extent held us back from an even stronger quarter. Jonathan Collins will have more to say about this quarter shortly. During challenging economic times, our company is fortunate to have a very stable business model of almost 80% subscription and reoccurring revenue with retention rates of more than 91%. Our highly resilient model is held up well during stressful economic times as evidenced by the performance of our products during the last great recession in 2008 and 2009. whereby all of our legacy businesses remained flat or grew slightly. Today, we have the benefit of being far better positioned from a product and operational standpoint than any time in our history. We have much higher margins, and we're generating significant cash flow, which allows us to continue to invest in our business for the future, buy back shares, and fund our debt payments. These are just a few of the reasons why we believe Clarivate is a compelling investment. As we exited the first quarter, we saw early signs that the OneClarivate model was beginning to work with deeper penetration of more than one product within the account base and a higher average spend thanks to bigger deal sizes. We continued to see evidence of cross-sell throughout the second quarter with products such as the Web of Science being sold to customers in CMT, professional services, and life sciences and healthcare. The team also successfully sold life science products outside of LS and healthcare. With a global multi-billion dollar serviceable market, we have only scratched the surface of being able to offer a wider variety of products and services to our global customer base. The many improvements we've made are providing better line of sight to new opportunities and territorial visibility via a single sales process. The improvements will further accelerate execution and maximize our cross-sell and new business potential. While we're pleased with the early results, the current macro environment may impact the short-term acceleration of cross-selling. As we continue to implement OneClarivate, this represents a compelling growth opportunity for us. For the second quarter, our sales teams delivered record healthcare real-world data sales of more than $16 million. This represents a recovery of some of the softness we experienced and talked about late in the fourth quarter of 2021. The team also closed the largest ever real-world data sale with a total contract value of more than $12 million, spanning over several quarters. We're seeing the benefits of closely aligning our sales and product teams. The stronger alignment is creating customer platforms and acquiring new databases and solutions to meet market needs. We're now in a better position to also scale real worldwide data sales into cross segments of the market. While the overall transactional sales growth rate accelerated sequentially for the second quarter, revenue was tempered by recent macro economic pressures on trademark filings. Recently, we were honored to be awarded by the National Library Board of Singapore the contract to help them build their library in the future. This is the largest single contract CoQuest Innovative has ever signed in its 40 plus years of operation. This multi-year deal worth double digit millions of dollars in contract value extends our position as a global leader in library management software. And it's a real testament to the quality of products and services we provide to our customers, which our recent Customer Delight Survey results confirmed. In May, we completed our first colleague engagement in Customer Delight Surveys for 2022. In a time of great uncertainty and disruption, the confidence in our company from colleagues and customers continues to be very high. Our success always has and always will begin with great colleagues providing colleague engagement. We saw 85% of the colleagues responding to the survey with thousands of writing comments. We're committed to listening, learning, and acting on this feedback as we strive to make Clarivate an ever better place for every colleague to work and find success. We have an exceptional story to share And we want to ensure that every colleague is part of creating the bright future of ClaraVie. Over 18,000 customers responded globally to our May Customer Delight survey. I'm very pleased to share a score of 78, which is up three points from our updated 2021 baseline score and in line with our stretch goal for 2022. This is a testament to all of the focus our 11,700 plus colleagues provided delivering an exceptional customer experience. We've made meaningful progress as we continue to enhance our products, simplify our processes, and expand our capabilities around the world. This milestone brings us one step closer to achieving our annual goal, which is tied to our Customer Delight Equity Award Program. That rewards all eligible colleagues with Clarivate restricted share units to participate in our company's success moving forward. Our Customer Delight program is all about listening and learning from our customers and putting their feedback into action. Thirty percent of customers provided write-in comments with more positive feedback than opportunity areas. We've all personally read every single comment and listened and learned. The highest score question was quality of products and services at 87, a remarkable testament to our performance. Information and insights remain flat at 85, also a very high score. And we're happy, we're very happy to see that ProQuest results improved from 77 to 80. Our biggest opportunity remains the easy to do business with, which was at 57. Our product revenue, technology, and operations teams are working together to ensure that we're taking the most impactful actions possible to improve in this critical area. You've heard me talk a lot about our sustainability efforts and the important role that it plays across Clarivate. Since we published our first report last year, we've been moving at a great pace embedding sustainability as part of our global culture and improving our measurement and reporting capabilities. In May, we published our second annual report. This report reflects to the work we've been doing today and every day. We've made significant progress towards quantifying our contributions and mapping our solutions to the 17 United Nations Sustainability Development Goals by going through a materiality mapping exercise. This initiative provided a very clear view of our current state and we're in the process of identifying key focus areas where we and our customers can make bigger impact today. Some of our goals include achieving carbon neutrality by 2024 with our sights on achieving a net zero future as members of the Business Ambition Campaign. We've committed to setting a science-based target, which we will share later this year. Last month, I announced my decision to retire as CEO at the end of August. Several years ago, I made a promise to my wife, Mary Joy, of 60-plus years of marriage that as we approach 80 years of age, which we'll hit at the end of this year, I would begin to step back from full-time executive leadership so that the two of us could enjoy more time together pursuing our many passions, supporting our many nonprofit activities, and spending more time with our children and grandchildren. Just over three years ago, I stepped into the CEO role for Clarivate shortly after we went public. In doing so, I had a key goal to make this one of the very best publicly traded information services company in the world. And I had three other goals to help achieve that. Those goals are around people, processes, and platforms. It was important that we structured our company appropriately, that we put the right leaders in place, that we retained or hired the most talented colleagues in our industry, and that we equipped everyone with the right processes and systems to become one of the world's very best information and insight companies. Over the last three years, we've made great progress on operational improvements. We've completed several significant acquisitions. that has richly enhanced our portfolio for our customers. We've put in place an exciting strategic direction for the future and a values-based one Clarivate culture. We've drawn Clarivate from a company producing less than a billion dollars of annual revenue to a point where we have the assets and infrastructure in place to drive us to a $3 billion run rate. Our adjusted EBITDA margins have expanded by more well more than 1,000 basis points, and our free cash flow has and will continue to deliver significant increases each year. I'm very, very confident that we now have the foundation in place to grow faster and to be far more successful under the leadership of Jonathan. Jonathan and I started working together in March of 2005 at IHS when we hired him to be a key contributor as we successfully grew a world class business. He brings a deep understanding of our markets, business models, and the opportunities we have in front of us. He's an outstanding leader, an outstanding executive with a very solid track record in delivering consistent financial results. His energy and passion for the work of information and analytics companies, his understanding of how to lead a public company like ours, and his values and personality are important reasons as to why we believe and know that he's the perfect choice to become our next CEO. I want to thank all of my colleagues for the incredible work they've done to get us to where we're at today. We're better positioned now than at any time in our history. I also want to thank our customers who continue to value our products and services as evident by our high customer delight scores and our 91% ever-improving plus retention rates. Lastly, I also want to thank all of our shareholders for their continued support. While I'll be stepping away from the day-to-day activities, I will continue to be Clarivate's biggest cheerleaders for years to come. I now turn the call over to Jonathan Gere.