Clarivate Plc

Hello all and welcome to Clarivate's fourth quarter and fall year 2023 earnings call. My name is Lydia and I'll be your operator today. If you'd like to ask a question during the Q&A session, you can do so by pressing star followed by one on your telephone keypad. We kindly ask you to ask one question and return to the queue if you have any follow-ups. I'll now hand you over to Mark Donoghue, Head of Investor Relations, to begin.

Thank you, Lydia. Good morning, everyone. Thank you for joining us. for the Clarivate fourth quarter and full year 2023 earnings conference call. As a reminder, this conference call is being recorded and webcast and 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 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 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 the anticipated results of performance can be found in Clarivate's funds with the SEC and on the company's website. Our discussion will include non-GAAP measures or adjusted numbers. Collaborate believes non-GAAP results are useful in order to enhance an understanding of our ongoing operating performance, but they are 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. With me today are Jonathan Gier, Chief Executive Officer and Jonathan Collins, Chief Financial Officer. Both will be available to take your questions at the conclusion of the prepared remarks. After prepared remarks, we'll open the call. With that, it's a pleasure to turn the call over to Jonathan Gere.

Great. Thank you, Mark. Good morning, everyone, and thanks for joining us today. As I begin my second full financial year as CEO of Clarivate, I would like to provide an update on our turnaround journey, including the timing and actions required in the years ahead. 2023 was a critical year for Clarivate, as we executed significant changes. These changes allowed us to set the foundation for future growth. I will cover some of these changes on the next slide. It also was a year where we were impacted by macro pressures that, to varying levels, impacted each of our segments and contributed to lower organic growth than originally expected. Nonetheless, these changes were required to set us up for the next phase of Clarivate where we innovate for growth. Beginning on prior investments and changes, we expect to see continued progress in academia government and new success in our focus areas in intellectual property and life sciences and healthcare. This will accelerate in 2024 into 2025. We expect new product introduction to lead to increased renewal rates, new sales, better ability to capture pricing, and drive revenue growth. I now fully expect us to exit 2025 positioned to drive value as we couple mid single digit organic growth with our scale business model to accelerate our ability to be a cash generation machine for investors. I should acknowledge that this revised outlook is a year longer than the plan I set forth at investor day last year. The macro environment hampered us in 2023, and we pivoted our strategy in life science and healthcare under a new leader. Nonetheless, with one year under my belt and the changes complete, I am more confident than ever in the potential for Clarivate's success and growth. 2023 was a foundational year for Clarivate. It was a year where we drove significant changes in three areas to position us for growth. Prior to 2023, our operating model was primarily aligned by function, and this allowed us to rapidly realize cost synergies from the three large acquisitions completed over the prior few years. However, there were tradeoffs, namely less accountability and a fragmented key account management strategy. I recognize that we needed to drive more accountability and build a more effective way of operating closer to our customers. From this view, we created our segment operating model to tighten our customer focus, accelerate decision-making, and bring innovations to market faster. The result was an organizational alignment into three segments, academia and government, intellectual property, and life sciences and healthcare. In May 2023, I appointed presidents to lead each segment. I hired two external industry leaders, Barr-Weinstein to run academia and government, and Henry Levy to run life science and healthcare. I reassigned Gordon Sampson from his role as chief product officer to run the IP segment, an industry in which he's had nearly a decade of experience. With new experienced leadership in place that has full accountability for their respective segment P&Ls, including sales, go-to-market, product leadership, technology, and operations, we are in a better position to drive improved performance across the organization. At our investor day, we highlighted the lack of investment in flagship products and innovation over several years, which we needed to reverse. We commenced a significant level of investment and executed against a roadmap to reinvigorate our portfolio. This includes creating new products, enhancing existing solutions, and accelerating the use of artificial intelligence to move faster, be more agile, and bring solutions to market more quickly. Starting in 2023, we increased our annual capital investment by around $40 million, an increase of around 20% to propel product innovation across all segments. We are seeing early evidence that these investments are paying off. The reinvigoration of Web of Science, where we made the earliest investments, is our first example, as that platform has returned to growth with further growth acceleration expected. Packed Intelligent Services NIP is our second example. We hired a new product team in late 2022. They engaged deeply with our customers in the first half of 2023 and began executing against a roadmap to reinvigorate this platform. We plan to take it to market in the first half of 2024 and look forward to sharing KPIs with you in future calls. In life science and healthcare, we made a major pivot on our real-world data platform after the arrival of Henry Levy. We invested in a new focus strategy in the second half of 2023 and expect to share initial customer wins later in the year. Finally, and related to our new org structure, we renewed a focus on aligning with our customers and supporting their success. I myself hosted nearly 100 customer meetings in 2023 and learned what we're doing well and what we can do better. As a result, we realigned our customer-facing teams, including sales, marketing, customer care with the product teams, ensuring our differentiated industry expertise is front and center in every customer interaction. With the foundation now built, Over the next two years, we will focus on specific organizational and segment priorities to improve organic growth to a low single-digit range. First, with our organizational-wide priorities, with our segment model now in place for a year, we are better equipped to drive excellence across Clarivate to build a winning culture focused on innovation, customer centricity, and accountability. We will continue to pursue operational efficiencies, including utilizing AI and its many benefits to further enhance productivity. This will help us maintain and improve our operating margins while still investing in innovation. It will also help us generate even stronger cash flow to reduce our leverage to the low three times range. Finally, we are actively evaluating opportunities to prune the portfolio of smaller diluted products. This will sharpen our focus on core growth markets and generate cash to reinvest in our business and reduce our debt. Moving on to our segment priorities, our prior year investments in the Web of Science have delivered improved usage and renewal rates. With additional product innovation, we are targeting enhanced performance across content aggregation within the A&G segment. In addition, we continue to pursue advancements in AI as well as in business development opportunities, such as our acquisition of Aletheia, an AI student engagement solution. In 2023, our IP segment experienced some of the most challenging economic and budget pressures in years. This has now stabilized, and we expect improvements in second half of 2024 as we lap the prior year comps. Last year, we launched two new AI-powered workflow solutions, the brand landscape analyzer, and an IP forecast tool. We look forward to launching our new IP intelligence platform this year and extend our current IP management system win rates through service integration with AI-enabled workflows. Our life sciences and healthcare segment, which has the greatest upside potential, has been our most volatile business over the last two years. While this segment also experienced macro headwinds last year, We believe the growth potential far exceeds our other two segments. With a change in leadership and the change in our go-to-market strategy it has brought, we are now better positioned to optimize the long-term success of the analytics platform. In addition, on prior earnings calls, we discussed the investments we're making to drive innovation across our wearable data platform supported by generative AI functionality. The increase in capital spending in 2024 is primarily targeted to accelerate innovation within this very important high growth segment. Each of our presidents looks forward to sharing more details on these growth strategies over a series of upcoming investor webinars. We will be sharing more details of the timing of these events soon. As we exit this year, we will be well on our way in our transformational journey. Under our updated outlook, we believe we can achieve our mid-single-digit organic growth target in 2026. This is approximately one year longer compared to the targets we provided last March. We, of course, will continue to look at every opportunity to accelerate this timeline. I'm confident that we have the people, customer relationships, products, and solutions to succeed. By achieving a mid-single-digit growth rate, we will be well-positioned to deliver margin accretion stronger cash flows, capital allocation optionality, and deliver significant value for our shareholders. I now want to briefly discuss our 2023 financial results. Even in a challenging growth year, we improved on our underlying financial position. Organic subscription revenue grew more than 2% in 2023, and we achieved record renewal rates of 92%. We generated our highest free cash flow ever at more than $500 million, of which $300 million was allocated towards accelerated debt repayment, dropping our leverage ratios below four times. We also repurchased $100 million of our ordinary shares. With an improving balance sheet and strong cash generation, we continue to invest in CapEx spending to drive additional product innovation. We will continue to be disciplined in capital allocation and currently expect to use approximately $400 million primarily for deleveraging in 2024. I want to thank all of my colleagues for their ongoing dedication in helping Clarivate achieve its full potential. I'm confident that the significant structural and operational changes we made last year have created the path to accelerate and sustain organic revenue growth. I look forward to updating you on the progress in the quarters ahead. With that, let me now turn the call over to Jonathan Collins to walk you through our financials.