Clarivate Plc

Good morning. Thank you for attending today's Clara Vate Q3 2022 earnings release call. My name is Foram and I will be your moderator for today's call. All lines will remain 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 1 on your telethon keypad. It is now my pleasure to pass the conference over to our host, Mark Donahue, Head of Investor Relations. Mr. Donahue, please proceed.

Thank you, and good morning, everyone. Thank you for joining us for the Clarity Third Quarter 2022 Earnings Conference Call. With me today are Jonathan Gere, Chief Executive Officer, Jonathan Collins, Chief Financial Officer, Gordon Sampson, Chief Product Officer, and Steve Mumholm-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 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. During our call, we may make certain follow-looking statements within the meaning of applicable security laws. Such follow-looking statements involve known and unknown risk. uncertainties, and other factors that may cause actual results. Performance or achievements of the business or developments in a clarity-based industry that differ materially from the anticipated results, performance achievements, or developments expressed or implied by such follow-up statements. Information about the factors that cause actual results to differ materially from anticipated results or performance can be found in clarity-based filings with the SEC and on the company's website. Our discussion will include non-GAAP measures or adjusted numbers, including organic 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 Supplement 2 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 on our earnings release supplemental presentation on our website. After our prepared remarks, we'll open the call for your questions. With that, it's a pleasure to turn the call over to Jonathan. Great.

Thank you, Mark. It's great to join my first call as CEO of Clarivate. I could not be more excited to be here. Since joining the company in early July, I've spent much of my time traveling around the world, meeting with thousands of my colleagues. The time I've spent with them has reinforced my view of the strengths of our people, the resilience and growth potential of our products, and the power of our customer relationships. There are many great things taking place at Clarivate, but we also have work to do to realize our full potential. While I look forward to covering this in great depth at our investor day in March 2023, I will touch upon some of my initial impressions and areas of focus in the next few minutes. First, I want to start with our third quarter financial highlights. It was a mixed quarter with us with both areas of great strength and pockets that did not perform as we had expected. Our key financial metrics of revenue, EBITDA, and EPS were all up year over year as we continued to grow and expand the business even in these challenging economic times. This growth speaks to the resiliency and criticality of our solutions. Focusing on revenue, we came in at $636 million, an increase of $5 million on an organic basis over the prior year period. This was 4 million below the bottom end of the rates we provided, and I will spend some time focused on this metric. Peeling back these numbers, well over 95% of our business, including our academia and government business, our IT business, and the subscription portion of our life science and healthcare business delivered as expected. In total, organic subscription revenues increased 4.3% in the quarter which is our best quarterly subscription performance this year. We are pleased with the trajectory of these businesses and the early progress we are seeing on sales initiatives we have put in place. While we delivered positive gains in the quarter in the vast majority of our business, our transactional revenues, specifically in life science and healthcare one-time transactions, came in light. This was primarily driven by a low conversion of our real-world data sales pipeline late in the quarter. Jonathan Collins will provide some additional context here, but I would like to share my view on this business. First, our life science and healthcare real-world data is a great business. We have critical assets with strong growth potential. We have seen some quarters with strong performance. For example, the first two quarters this year, our real-world data nearly doubled over the prior year. Similarly, the first half of 2021 experienced similar growth. So when this business performs well, the results are exceptional. But we have also had a couple of weak quarters, including last year's fourth quarter and now this year's third quarter, both of which were down significantly compared to the prior year. As I have dug into our performance closing out Q3, I've come to realize that it is a very difficult business to predict for a few reasons. First, there are a small number of very large deals that can have a material impact on a quarter. So the organic growth number can swing on less than a half dozen deals. Second, there's little we can do to speed up a close of these deals. It is all based on customer needs and the timing of those needs, which can move beyond our control. Additionally, they're often selling to data aggregators who are themselves dependent on end customers' decisions and the timing of those decisions. As a result, we are doing the following. First, we are addressing the structural volatility of this business by investing in new solutions designed to move our real-world data products up the value chain and provide greater predictability. I will cover details of these investments shortly. Second, for the foreseeable future, we will remove many of these larger binary deals from our guidance, which may result in better than expected performance in this area in certain quarters. On our operational highlights, there are six key areas that I would like to expand on, which I'll cover in the next few slides, starting with the leadership transition. I want to thank Jerry for the leadership and support he provided in creating the Clarivate of today. None of us would be here were it not for his leadership and foresight. As he moves into the role of Chair Emeritus, we wish him and Mary Joy all the best in the next chapter of their lives as they focus on their family and philanthropic efforts. Through my travels, I've had the opportunity to meet with thousands of our colleagues. The care and dedication they have to our customers and to the growth of Clarivate is inspirational. Our assets are mission critical to our more than 45,000 global customers, This leads to long-term, strong customer relationships with 90% plus retention rates. I had a chance to visit one of our IT customers a month ago, and hearing of the partnership in their own words was equally inspirational. These types of partnerships lead to a resilient business model and open opportunities for innovation-driven growth. We have work to do that I won't touch on, but our starting foundation is strong. My key priority remains focused on unlocking our growth potential. We will do this by continuing to drive scale internally, unlock efficiencies in investment dollars, and drive a culture of innovation across all areas of clarity. During the third quarter, we announced the divestiture of the Mark Monitor business, which we completed on October the 31st. This business was not a core offering of ours, and we can now allocate investments into our key product offerings with higher growth potential. We used the net proceeds to pay down some of the term loans, which helped to reduce our leverage. Jonathan Collins will speak on this subject in a few minutes. I would now like to share with you a new lens on how I look at the business. On the lower right side of slide eight, I think about our solution sets moving from left to right as first enriched data. This is our starting point and our key right to play in our markets. We aggregate enhanced public and private data to create proprietary enriched data sets. Analytics and insights. This is putting intelligence on top of our data. An example is our brand landscape analyzer, a tool which helps professionals assess the viability of new brands. Analytics and insights are further enhanced by driving workflow solutions. This is where we embed our software solutions into the daily workflow of our customers. For example, our all-med library management solution is a critical tool used by librarians to serve their communities. Finally, we wrap these with expert services including consulting and software implementation services. Our goal is to continually develop new solutions that move us from left to right, creating more value, expanding our playing field, and driving loyalty into our customers. Second on the top right, our regional presence with growth opportunities across all three regions. And finally, and critically, our segments. Starting this quarter, we will be reporting along three distinct segments. There's overlap and value shared between segments, including content, technology, and commercial channels. These segments are the prime way in which I look at our business and will be driving Clarivate going forward. With a second glance, let me share my view on how we are doing. This is an important slide for us, both internally and externally, and will form a key foundation for our investor day in March. And I'd like to draw your attention to a few key takeaways. Today, we deliver approximately $2.6 billion of revenue in a serviceable, addressable market approaching $25 billion. In the past, we have emphasized the total addressable market of more than $100 billion. However, in the near term, I will focus on how we are performing in the markets we serve. Currently, we are underperforming our market opportunities. This is driven by a small number of products. Much of these are from the legacy Thompson Solutions which while strong and often the gold standard, we're underinvested in for years. We are now pivoting and investing behind these and other opportunities. By making focus improvements to product, go to market, and a relentless focus on customer delight, we see a new baseline and clear path to market growth. This will be our main focus of the investor day as we share with you the path both the path and timing to a 6% organic growth baseline and beyond. All future initiatives will align to an expanded strategy based on strong business fundamentals. This expanded strategy is built on five priority pillars that underpin all our organic growth initiatives. As we have discussed previously, our first pillar is the execution of our industry-focused, customer-centric go-to-market model. Our second pillar is focused on bringing different content sets together. As an example, we combined our CopyMark and DARS-IP to create a new solution for performing trademark litigation analysis. Within pillar three, we add insights and predictive analytics on top of our core content. For example, we recently launched a proprietary United Nations SPG module on top of Web of Science. This allows universities to analyze and track their research with their sustainability goals. Moving to pillar four, we enable customers' business processes and decision support with our workflow solutions. For example, Rialto is our industry-leading library marketplace that is critical as libraries build and enhance their content collections. We wrap all the prior four pillars together in pillar five as we serve as a trusted partner by providing value-add services and strategic guidance to help our customers realize their full potential. I would like to share two new investments that also will address the volatility in our live science healthcare transaction revenue. Our real-world data solutions, despite quarterly volatility, are among our fastest-growing products and are positioned in a serviceable market of over $2 billion, growing annually in the low to mid-teens. Our life science customers already trust us to provide high-quality data. However, today we provide this in data fees that our customers must then integrate and analyze themselves. We are now investing in a web-based platform and a set of intuitive self-service analytics to convert our data into insights to drive decisions and actions faster. This new platform will provide the following benefits. First, it will move us up the value chain with our clients. Second, as it is productized, it will provide higher levels of recurring revenue. Third, it will expand our market reach with both existing customers and new logos. And finally, it serves as a scale platform to drive additional use case driven innovation and growth. Second, We have invested in a new farmer co-vigilance platform to create a new enhanced regulatory compliance workflow solution. Our life sciences customers are struggling to manage both rising regulatory compliance mandates and an ever-growing volume of data on potential drug safety events. This new solution will further automate these resource intensive activities. This will reduce costs and drive deeper insights into drug safety by leveraging our scientific content and real-world data. We plan to launch our first two products in the second half of 2023. We believe these two investments alone have the potential to increase our revenue growth rates by well over 100 basis points in the medium term. I look forward to sharing more on these and the other elements of our roadmap to growth at Investor Day. Before I turn it over to Jonathan, I want to reiterate once again how excited I am to be at Clarivate and leading this great company. It starts with our dedicated global team. We go above and beyond every day. I truly believe our future is bright and the best is ahead of us. I will now turn the call over to Jonathan Collins. Thank you, Jonathan.