Clarivate Plc Q3 FY2024 earnings call

• Matti Shem Tov has 19 years of CEO experience, including at Ex Libris and ProQuest. Clarivate's financial performance has been disappointing, but there are value and opportunities. - Plans to reposition Clarivate by optimizing the business model to focus on core subscription and recurring revenue, rationalizing declining transactional product lines. - Improve sales execution by strengthening the sales organization, better territory alignment, reviewing incentive plans, and enhancing customer engagement. - Encourage build versus buy mentality in product development, leveraging AI and formalized development partnerships. - Rationalize portfolio by divesting non-core solutions to simplify organization and drive cost rationalization for product innovation and margin protection.

In the third quarter, revenue was $622 million, a decrease of $25 million from the prior year, with year-to-date revenue at $1.9 billion. The subscription business grew at just under 1%, slightly below expectations. A&G segment had 3% growth YTD. LS&H and IT segments faced headwinds due to customer budget pressures. IP segment saw recovery in trademark services, bringing year-to-date decline in this segment to mid-single-digits. The subscription business contributes a portion of the revenue, while transactional lines have seen declines in certain segments.

• Removed full-year and long-range guidance, focusing on executing the value creation plan. - Expect to improve organic revenue growth, have a revenue mix more skewed towards subscription and recurring, higher EBITDA margins, and better free cash flow conversion once the initiatives are implemented.

• Volatility in transactional revenue which is low-margin and hard to predict. - Macro headwinds affecting segments like LS&H and IT. - Challenges in integrating acquisitions, leading to focus loss on product innovation and organic growth. - Product technology debt hindering product innovation. - Lower renewal rates in some segments due to underinvestment in customer success.

Q: In each of your segments, can you talk a little bit more about some of the end-market trends that you're seeing? What would need to improve externally to help support some of the internal initiatives you have to transform the business?

A: Matti Shem Tov said A&G has less appetite for capital expenditure impacting digital collection. IP has softness on annuity side. Life Sciences has softness on commercial side but is a promising growth segment. Externally, improvement in capital expenditure appetite in A&G and recovery in annuity in IP could support internal initiatives.

Q: I think you guys had mentioned, seeing some lower renewal rates in some areas of the business. Just wanted to ask kind of what you're seeing there and kind of - if there's any certain segments you're seeing higher churn or if you can generally just kind of talk about what you're seeing from kind of a churn perspective, if it's quantitative or qualitative, just kind of generally.

A: Jonathan Collins said subscription growth for A&G remains solid, but renewal pressure was in Life Sciences and IP segments. Life Sciences had pressure on spending in large pharma customers. IP had pressure on spending ahead of new Derwent launch. Efforts to improve sales execution and product innovation will help alleviate this.