Clarivate Plc

time, I'd like to welcome you to the Clarivate Q1 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, follow the number one on your telephone keypad. If you'd like to withdraw your question, press star once again. Thank you. I would like to now turn the call over to Mark Donahue, VP, Investor Relations.

Thank you, Karen. Good morning, everyone, and thank you for joining us for Clarivate's first quarter 2025 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. Company 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 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 factors that 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. These non-GAAP results are useful in order to enhance understanding of wrongdoing, operating performance, but they are supplemented to and should not be considered in the legislation 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 Mari Shentog, Chief Executive Officer, and Johnson & 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 Mahdi. So, good morning, everyone, and thank you for joining us. I'd like to thank, I'd like to start by thanking our colleagues around the world. Over the past six months, climate has been undergoing transformation to optimize revenue, improve sales execution, and accelerate innovation. I'm proud and impressed by the dedication of our global team members as they rise to the occasion. Since implementing our value creation plan and shifting to more subscription-centric models, we are moving faster to deliver product innovation and sales execution. This is evident by our improved Q1 performance. Organic ACV grew sequentially from last year's fourth quarter, driven by an improvement in the subscription book due to higher renewal rate and new business wins. Total organic revenue in the first quarter grew for the first time in more than a year, and recurring organic revenue grew nearly 1%. Renewal rates across our subscription base also improved over the last year first quarter by a percentage point. The mix of recurring revenue to total revenue is now 83% and improvement on 200 basis points compared to last year first quarter. Adjusted EBITDA margin increased more than a percentage point due to internal cost efficiencies. Free cash flow continues to be strong as we generated $110 million. We performed well in the first quarter and we are reaffirming our full year 2025 outlook. Today, I'd like to highlight three takeaways from the quarter. One, our offering continues to be mission critical for our customers around the world and an integrated part of research needs, and workflow for users. Two, our solutions are competitive advantage and are translating into new logo wins and expansion within our existing customer base. Three, our value creation plan is on track despite the volatile macro environment as we continue to effectively execute our long-term strategy. On the call today, Today, I will expand on each of these takeaways, and Jonathan will then cover the financial results in more detail. Across our segments, we are seeing some favorable trends, including sequential acceleration in ATV growth and improving renewal rates and new AI features utilization in key products. Over 3,000 customers across more than 90 countries are actively using Clarivate's AI-powered research assistant to enhance their research, learning, and library management. In A&G, we are seeing early success in our new Web of Science commercial model, which has led to customers extending annual renewals into multi-year deals totaling over $80 million. Our sales team is also making progress with new wins in developing markets in Asia and Latin America. I want to address the recent events involving the U.S. government funding. We mentioned on the February earning calls that these sales represent a small portion of our total revenues. Specifically, less than 3% of our revenue is directly from the U.S. federal government. We also note that some portion of ANG's segment revenue flow indirectly from the U.S. government funding. We have completed a review, we have completed a revenue risk analysis for all U.S. government accounts, as well as indirect risk through universities and state systems that might be impacted by future funding decisions. This includes speaking to our customer advisory groups. Based on this analysis, we believe the current risk is contained within our guidance range. In our IP patent annuity business, we are pleased to see a return to growth. as organic reoccurring revenue grew 5% in the first quarter, primarily due to higher volumes. We are also pleased that the improvement made to Derwent's innovation platform, including AI-powered search, show early signs of strong user adoption with excellent customer feedback. In the first quarter, The launch of the new search capabilities within Delwent has driven a double-digit increase in search volume for the alpha cohort compared to the same period for the prior year. Finally, during the first quarter, the life science and health segment secured a cross-segment multi-million dollar renewal and expansion with the Brazilian Academic Consortium. This was an exciting win that underscores the opportunities to expand our relationship with customer by collaborating across segments. I'll touch more on this win in a moment. Additionally, subscription renewal rates in life science and health improved to 90% in the fourth quarter, an increase of C percentage point over prior year. Next, I'd like to highlight key wins from the quarter across our segments that speaks to our progress, executing our subscription first strategy, strengthening our customer success and sales execution. First, we signed a new strategic software as a service deal with the British Library. One of the largest, most prestigious libraries in the world, which features more than 170 million printed books, manuscripts, sound recordings, maps, and digital archives. We have enjoyed a decades-long partnership with the British Library, and this award reflects our success in building deep relationships and expanding them over time by delivering solutions that help libraries achieve their goals. We will be working closely with the British lobby to implement Alma and Primo as the next generation service platform and platform interface. This is effectively an ERP system for the lobby, which will be used by hundreds of end users on a daily basis, and a search system used by hundreds of thousands of patrons. The British Library will be the 43rd national and state library in the world to adopt ALMA, our flagship library management system. This quarter, we also secured a significant expansion of long-term customer relationship with CAPES, the Brazilian Foundation for Coordination and Improvement of Higher Education. CAPES serves over 400 higher education research institutions across Brazil. This multi-year agreement is one of the largest subscription contracts we have signed in years. It's evidence that our subscription first strategy is working. In addition, this contract is cross-segment. This contract is cross-segment evidence of opportunities available to us to cross-sell across the business units. The consortium has continued to invest in more A&G, life science, and IT solution, including Cortellis, Derwent, and journal citation reports. Turning to slide nine, the strength of the first quarter is due to continued execution of our value creation plan. As a reminder, Our first pillar focuses on business model optimization and increasing the subscription and reoccurring revenue mix. As part of business model optimization, we launched an e-book subscription platform, our new DRG Fusion real-world data subscription offering. While still early, there has been a positive interest in this platform, and we have signed the first handful of contracts for both of these new offerings. And as I mentioned earlier in my remarks, we have started to see an increase in recurring revenue mix, which grew to 83% in the first quarter compared to 81% last year. We expect this mix to continue to improve as we focus on our subscription-first model. Based on customer feedback, we have extended the timeframe of the book's transition by six months. Our second pillar focuses on sales execution. The wins we talked about earlier with the British Library and Brazil are terrific proof points of the actions to improve our sales leadership and processes. This action has also led to improvement in our organic ACV and retention rate. The third pillar involves accelerated product innovation. On page 10, you can see we have achieved several recent milestones with more to come in 2025. Over the past six months, we have launched AI-powered features, encompassing patent search for Derwent and new subscription-based platform, including ProQuest eBooks, ProQuest Digital Collections, and DRG Fusion. We have a few upcoming product launch milestones in the second quarter with a focus on leveraging AI to deliver enhanced user experiences. This includes the release of e-book central AI-powered research assistant and enhanced AI-powered search functionality in Cortellis. This innovation enhanced our competitive advantage. There is a significant excitement in the industry around the deployment of AI-enabled agents to enhance value for customer. I am pleased to share that in the second half of this year, we will be incorporating agentic AI into solutions across our segments. For example, in Q2, we are introducing AI agents in Web of Science for literature review capabilities, which helps simplify what is often a labor incentive and time-consuming process. Importantly, we are continuing to evaluate strategic alternatives to unlock value. We have engaged with our advisor to analyze options to maximize shareholder value. We will provide updates on this when appropriate. I'm very pleased with the first quarter results and the progress we are making in implementing the DCP. I look forward to updating you on future calls. And with that, I will turn it over to Jonathan. Jonathan, please.