Good day, and welcome to the Clarivate Analytics Q3 2019 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Anthony Gerstein, Vice President, Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us for the Clarivate Analytics third quarter 2019 earnings conference call. With me today are Jerre Stead, Executive Chairman and Chief Executive Officer; and Richard Hanks, Chief Financial Officer. As a reminder, this conference call is being recorded and webcast and is copyrighted property of Clarivate Analytics. Any rebroadcast of this information in whole or in part without prior written consent of Clarivate is prohibited. This morning, Clarivate issued two press releases, the first announcing its third-quarter results for the period ended September 30, 2019, and the second, announcing the divestiture of certain assets within the Mark Monitor product line. These releases, as well as the third quarter earnings supplemental presentation are available in the investor relations section of the company's website, clarivate.com under events & presentations. 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 these factors could cause actual results to differ materially from anticipated results or performance and can be found in Clarivate's filings with the SEC and on the company's website. Our discussion for the quarter will include non-GAAP measures or adjusted numbers, including adjusted revenues, EBITDA, adjusted EBITDA, adjusted EPS and free cash flow. Clarivate 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 in isolation from or as a substitute for GAAP financial measures. After our prepared remarks, we'll open up the call to your questions. With that, it's my great pleasure to turn the call over to Jerre.

Thank you, Anthony, and thank you, everyone, for taking the time to join us for the call today. I am very proud of our team. We delivered strong financial results while accomplishing a tremendous amount of core foundational work in the period. I'll give you an overview for the third-quarter results and an update on the progress we've made on several key initiatives. Then Richard will provide more detailed financial commentary before we open the call to your questions. As I said, I'm pleased with our results for the quarter. They were in line with our expectations, and we are on track for the guidance we gave for 2019 back in January of this year, which we are now reaffirming today. Adjusted revenues increased 3.6% on a constant currency basis with adjusted subscription and adjusted transactional revenue growth of 2%, 11.6%, respectively, on a constant currency basis. The increase in subscription revenue was primarily due to pricing and new business with both product groups, while the increase in transactional revenue was due to timing as well as greater backfile sales. In addition, the biannually published boiler pressure vessel code standards were delivered this quarter. As this is a periodic publication, its availability on sales contribute to fluctuations between the quarters for this segment. Our ACV, which is annual contract value of subscription-based agreements increased 3.9% in constant currency, with a revenue renewal rate of 90.6% for the nine-month period ending September 30, 2019. Adjusted EBITDA increased 16.1% to $77 million in the third quarter, and adjusted EBITDA margin was 31.7%, a 350 basis point improvement over last year's third quarter. Adjusted net income was $47.5 million or $0.14 per diluted share compared with $26.5 million or $0.12 per diluted share in the prior period. Please note that the prior period…

Thank you, Jerre. As mentioned, it was a good quarter. Reported revenues for the third quarter of 2019 were flat on prior year at $243 million compared to the same prior-year quarter and up 0.4% at constant currency. Recall that the prior-year period revenue included the results of IPM of $7.8 million. IPM was sold in the fourth quarter of 2018. Adjusted revenues accounting for the divestiture of IPM increased by $7.5 million or 3.2% to $243.1 million in the third quarter of 2019, up from $235.6 million in last year's third quarter. Again, as a reminder, this excludes revenue from IPM from the prior-year quarter, as well as the modest impact of the deferred revenue purchase price accounting adjustments. Foreign exchange was approximately $1 million of headwind in this year's quarter, mainly arising from euro and sterling weakness relative to the U.S. dollar. On a constant currency basis, adjusted revenues increased by 3.6% in the third quarter compared to the third quarter of 2018. In terms of currency profile, please note that approximately 83% of our revenues in the third quarter of 2019 were U.S. dollar denominated. Turning to our revenue profile when looking at revenue by geography. We've a consistent balance of revenue across the regions, with 45% of our revenues from North America, 24% from Europe, 23% from Asia Pacific and 8% from emerging markets. Please note that going forward, we will be reporting revenues by geography as follows: firstly, the Americas; secondly, Europe, Middle East and Africa; and thirdly, Asia Pacific. Moving on to revenue by type. Adjusted subscription revenues increased by $3.3 million or approximately 2% at constant currency for the quarter. Our comparative against last year's quarter was slightly more challenging, with prior-year third quarter benefiting from renewal timing that we benefited from in…

Great job, Richard. This wraps up our discussion for the third quarter. We look forward to sharing the many exciting opportunities ahead with you. We're now ready to take your questions. As a reminder, please limit yourself to one question and then return to the queue. Operator, let's open up.

[Operator Instructions] First question is from Andrew Nicholas with William Blair.

I just wanted to start with the MarkMonitor brand protection divestiture. Just hoping you could provide a little bit more detail on your rationale there. Maybe a little bit more detail on the business itself. And any other details you could provide in terms of like the size of the business, how fast it was growing and maybe anything we should think about in terms of its profitability.

So, that's a great question. We're going to give you a full - remember, we just announced this two hours ago. So we're going to give you a full review of that next week, but I'll give you a quick overview and then set it up for the future. If we were to exclude the parts that we're selling in Q3, what you would have seen with constant currency that we reported at 3.6% growth? It would have been 4.15%. So it's over 50 basis points. You'll see a similar profile from a profit standpoint. So we'll give you guidance for 2020, excluding those pieces that we've sold. There are a couple of other things. As I said and if you read the press release, we think this business under the new ownership, where they're very focused on that, those opportunities will really flourish in the future and be a great home for our people. If you think more importantly, though, what it allows us to do with IP, those pieces we've sold don't directly partner with the business, which we're in. Do you want to add anything to that, Richard?

No, I think that's right. We're delighted with the divestiture. We will complete the - expect to complete the transaction at the end of December 2019. And as Jerre said, I think that the company we're partnering with, OpSec Security, is going to be a terrific home for those product lines and our colleagues.

And as I said, we'll give you the full 2020 guidance next week. And in there, with that, we'll exclude the parts that we're selling. I would remind everybody on the call that actually back on January 14, we said that we would exit 2020 at 4% to 6% organic growth and 35% to 38% EBITDA margins. You can bet if you just look at this piece that we're going to be able to do that. We'll do two things next week. We'll show you how that works and then also give you the full 2020 because what Richard did a great job of was describing how the cost reductions that are very significant. As we said, there's $70 million to $75 million. Very proud of the team for the work they've done, how that impacts 2020 and how it will impact the entire company. So I would just close on this question. It's a great one. I actually had my 40th anniversary, October 3, of leading public companies. This would be in the top 1 or 2, maybe three quarters that I've ever reported. I've never been prouder of what we've done on a financial side, equally and critically important is all the changes we're making, including the shift with MarkMonitor. Thanks for the question.

The next question is from Zach Cummins with B. Riley FBR.

So Jerre, can you just provide a little more detail on your work with BCG. I mean can you talk about some of the areas that you discovered or potentially uncovered that were not there prior to your work with the merger with Churchill Capital and kind of how you get to that $70 million to $75 million in annualized cash savings?

Yes. No, great question. Thanks. Just for background, I've used BCG to do the same thing with six of the companies I've led over the years. This time, we were extra blessed because the team that we used when we did the IHS merger with market was the same team that we had here. We - they started June 10, wrapped up actually at the end of September, right on target. The big pieces, and we'll give you more views of that as we go forward. There's three critical big pieces that we're operating with. It's what I said, we'd streamline, flatten out the organization significantly, which you're now seeing under way. Secondly is that you'll see location wise, we'll be going from 60 locations to approximately 30 or less. And that, again, will play out during 2020. And then as we bring the contractors, which was a large number of people in, we'll enjoy the benefits not only of significant cost reduction, we'll enjoy the benefits of - with Randy Harvey's team much more efficient, new product introduction and we're excited about that. I would say, it's a great question. Just as a reminder to everybody, I had a handshake to acquire this business in 2012. So I had a very good view of what I expected, and I was blessed to have people like [indiscernible] of Randy's team, helping us now, actually help and all I do is try to stay out of their way. I would say, there was actually no surprises with two exceptions: the ability to grow this business was even better than I expected. I'll make a quick comment. I talked a little bit about it. But I've always done colleague engagement and then customer delight. We just finished our second customer delight review…

[Operator Instructions] Next question is from Peter Christiansen with Citi.

Jerre, can you give us a sense of - I know as the business exited Thomson Reuters, there was a lot of discounted pricing that was used on longer-term contracts. When do we start lapping that and realizing a more normalized pricing environment across your business lines?

Actually, that's a great question. I'll start, Richard will pick it up. Actually, by the end of this year, that's all behind us. Just remember, it's now our third anniversary of acquiring - our Onex acquiring and then CCC and Onex together Clarivate. And so - and with a great job done this year by being out of the carve-out by the end of March, so just to put that in perspective, it's three years and those long-term agreements all expired this year, three years. One of the things Richard mentioned this morning was that we enjoy - a lot of that was the renewals of those agreements that we enjoyed in Q1 and Q2. Pick up, though, Richard, because it's a great question.

Yes. I mean just in terms of pricing yield, as we've covered previously, the yield in 2019 will be approximately 2.1%. That's the yield we enjoy. And the yields we get across the product group does vary. We find that the Web of Science platform, for example, attracts the highest yields in terms of price relative to the rest of the portfolio. Through the pricing work we've done this year, we are targeting price yields in 2020 of north of 3.6% - 3.3%. So 3.1%, 3.2% is our target for 2020. In terms of multiyear contracts and multiyear contracts unwinding, we do have that. Most of our multiyear agreements are with large university consortiums, and we enjoy those relationships. We like multiyear agreements, but what we do require our pricing escalators built into the multiyear agreements. So it's a three-year agreement, the five-year agreement. We actually have just completed a seven-year multiyear contract within our IP product group, which is terrific. And again, we ensure that there's pricing escalators on an annual basis each year.

Each year.

Each year in those contracts.

That's as good as it gets. And it's a great example. The other thing I'd just add to this. We also learned, and we did learn this with some of the work BCG did for us. We have a disparity with a lot of our product pricing. Just as a reminder, on a historical basis, there was less-than-tight governance on pricing. When Richard arrived that change, which is 2.5 years ago, but what we've now seen as we've done an analysis with our internal pricing team, our 500 largest customers, which we'll talk about next week. What we've now seen there is same product, same amount of users, significant price realization difference. Because of the way the system work, you could as a salesperson, discount 10%, 12%, get the annual subscription base and actually be a full quota for commission. That's long gone behind us. But what that does mean is, we've got a big job in the next - this is probably a three-year project. My view, to get equitable pricing across the board so that's one that we've not built in, but we'll get that as we go forward. Great question, thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Jerre Stead for any closing remarks.

Again, thank you all very much for the time. We look forward to - I hope seeing many of you next week. As I said, this would be in the top two or three quarters I've ever done and it feels good. There's a lot done. But hang tight, as I've said to our team, hang on to your lower red hat because we're just getting started. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.