Hello and welcome to today's Clarivate First Quarter 2022 Earnings Conference Call. My name is Bailey and I will be your moderator for today's call. All lines will be muted during the presentation portion with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to Mark Donohue, Head of Investor Relations. Mark please go ahead.

Thank you, Bailey and good morning everyone. Thank you for joining us for the Clarivate first quarter 2022 earnings conference call. With me today are Jerre Stead, Executive Chair and Chief Executive Officer; Jonathan Collins, Chief Financial Officer; Gordon Samson, Chief Product Officer; and Steen Lomholt-Thomsen, 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. And accompanying earnings presentation is available in the Investor Relations section of the company's website, clarivate.com, under Events and 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 the factors that could cause actual results to differ materially from anticipated results or performance can be found in Clarivate filings with the SEC and the company's website. Our discussion will include non-GAAP measures or adjusted numbers, including adjusted revenue, adjusted EBITDA. Clarivate believes non-GAAP results are useful in order to enhance our 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. Reconciliations of these measures to GAAP measures are available on our earnings release and presentation on our website. And after our prepared remarks, we'll open the call to your questions. And with that, it's a pleasure to turn the call over to Jerre.

Thank you Mark and thanks to all of you for joining us today. I'm very pleased to report that we're off to a good start in 2022. We delivered improved first quarter performance as a result of the operational improvements we have put in place. We also benefited from acquisitions as we offer our customers a wider portfolio of products to meet their ever-growing needs. Our move to One Clarivate, our strategy to be more customer centric and outside-in focused is starting to deliver some early cross-sell wins. For the first quarter revenue of $662 million increased 58% at the constant currency and was up 4.4% on an organic basis. We delivered a very strong profit conversion of 73% as we continue to benefit from cost synergies and operational improvements. And the power of our business model is generating strong cash flow with adjusted free cash flow of $191 million for the first quarter. Jonathan will cover the results in more detail soon. Our business represents a very compelling investment, even more so in the concurrent economic environment. Almost 80% of our revenue is subscription and recurring-based with a renewal rate of more than 92%. We have the ability to raise prices to offset inflation, which in an inflationary environment helps to offset cost increases. And we have little or no exposure to rising raw material costs. These are just a few of the many reasons I'm very excited about the growth potential of Clarivate. For over a year our, team has been working very hard on constructing the One Clarivate strategy. One Clarivate presents significant opportunities for us to sell more solutions to existing customers, while improving our renewal rates and generating more new business. With the total addressable market of over $100 billion there is significant space for…

Thank you, Jerre. Good morning everyone. Slide 12 is an overview of our 2022 first quarter results compared with the same period in 2021. First quarter revenue reached $662 million, an increase of $234 million compared to the same period last year, driven primarily by inorganic growth from the ProQuest acquisition as well as 4.4% organic growth, which was slightly better than the 4% indication we provided in March. Adjusted EBITDA for the quarter was $262 million, an increase of nearly $100 million compared to Q1 of 2021 for a profit margin that approached 40% and represented 140 basis points of margin expansion over the same period in the prior year. Net income attributed to ordinary shares was $51 million in the quarter for a growth of $107 million over the same period last year on higher income from operations. Adjusted diluted EPS for Q1 was $0.21, a $0.07 increase over Q1 of last year. Operating cash flow was $67 million in the quarter down $107 million over the same period last year. The decline is entirely attributed to $150 million of payments out of restricted cash for the CPA phantom share plan. This item, as well, as one-time costs associated with the integration of acquisitions, are excluded from adjusted free cash flow which grew by 17% over the first quarter of last year. Please turn with me now to page 13 for a closer look at the adjusted revenue and adjusted EBITDA growth in the quarter. First quarter top and bottom line growth over the same period last year was driven by four key factors. First, organic growth of 4.4% added $19 million to the top line and $11 million to the bottom line for a profit conversion of 58%. As you can see from the table on the…

Thank you. [Operator Instructions] Our first question today comes from Toni Kaplan from Morgan Stanley. Toni, please go ahead. Your line is now open.

Thanks so much. I really like the new breakdown of the organic growth drivers on the slides and I wanted to ask about that. So, in first quarter, pricing hit the mark, the other three didn't. You mentioned, Russia being an offset for the improvement on the small customers. It makes sense, but I'm imagining that probably does continue through the rest of the year. So, just maybe talk about how the other three drivers start to accelerate to the 50 basis points for the full year and what you see as the biggest risk to hitting the full year organic growth target. Thank you.

Great question, Toni. Happy to start, because we'll keep that current each quarter. Jonathan, do you want to pick it up?

Sure. So -- and to the point you made, were it not for the cancellation or moving out of Russia, we would have been nearly there on renewal rates. That is something that we see as being weighted towards the beginning of the year and is going to improve as we move through the balance of the year. So, we're still quite confident we can get there on renewal rates given the line of sight we have into the next three, four months in particular. Cross-sell was never intended to be at that level of growth early in the year. So Steen and the rest of the sales team have done a remarkable job in pivoting the organization to the four customer verticals. A tremendous amount of work took place remapping all of the territories, developing quotas for all the new reps and in particular, training them on the solution selling for their respective submarkets to help drive that cost selling. So, we were really excited by the examples that we saw really in the month of March that Jerre shared and we think that one will really start to accelerate in the second quarter and beyond. And then transactional, that's coming off of a tough comp. This is -- we're still seeing some softness there. But as we repivot the sales force to the four customer verticals and we get additional resources brought into the field and in particular, have some exciting new data coming online in our HDS suite of products, we expect that to accelerate into the second and third quarter.

I'd just add one thing to it. It's a great question. If you just step back in 2019 and 2020, we grew just under 2% organic, last year 2021, 4.5%. So the 200 basis points that we've split up, is what we'll report each quarter to everybody, so they can see our progress. And I would say our entire team felt really good about where we were at in the Q1 with much more to go. Thank you, Toni. Next question.

Thank you.

The next question today comes from George Tong from Goldman Sachs. George, please go ahead. Your line is now open.

Hi. Thanks. Good morning. Subscription organic revenue growth of 2.8% was somewhat muted in the quarter and decelerated from 4.5% in 4Q. You mentioned, Russia is certainly a factor, but can you describe some of the trends with subscription revenues that you're seeing both positive and negative and factors that may weigh on subscription revenue performance?

Yeah. No, good question, George. Go ahead Jonathan, pick up on it.

Yeah. It's helpful to remember, Q1 for us is a big renewal quarter. So, it's a period where we're obviously focused on bringing in those renewals getting them in on time. It's typical that our new subscription sales will start to accelerate as we move through the year. So, there's the seasonality impact, that's really just driving that sequential comparison. When you go back and you look at the things that are going well for us, obviously, very encouraged on what we're seeing on pricing in our subscription file, but also in our reoccurring business we're getting really good yield there as well too. So we see that as a positive. And then as Jerre highlighted, we're really encouraged by the new sales we're seeing of products into different customer categories that we really saw towards the end of the quarter, and we really think it's going to be a driver moving into the balance of the year. So, look for that area, subscriptions to continue, to accelerate as we move through the year based on those factors.

And we could have both Gordon and Steen add to it. But this is really now Q2 George. It is the first real quarter, we've had with all the reorganization, we went through et cetera. And I would say, remember last year, we had an anomaly in first quarter, second quarter. So I think you see particularly with the range Jonathan provided you for Q2, I think you'll see the exact improvement that over Q2 last year that Jonathan talked about. Thank you. Next question.

The next question today comes from Andrew Nicholas from William Blair. Andrew, please go ahead. Your line is now open.

Thank you, and good morning. I just wanted to ask a question on ProQuest. Obviously, it's been about six months, I believe since you closed that deal. Wondering, if you could kind of speak to the major learnings. And then maybe, if you could provide a number on that growth in the quarter. And maybe anything else you could say in terms of the seasonality of that revenue? I apologize. I realize that's a multi-parter, but I think ProQuest is obviously a part of the business –

Well, done. We'll have Jonathan start. As a reminder to everybody, Jonathan six and half years ago was with ProQuest for four years prior to them. So he can give you a good view of that. And then we'll have Gordon and Steen both pick up because it's a great question.

Yeah. We're really off to a great start with the ProQuest integration as Jerre mentioned. We highlighted the cost actions where we're about a-third of the way there which certainly we benefited from having quite a bit of planning in advance. But I think the examples that Jerre shared in the prepared remarks on the product integration are the most exciting. So a big part of the value proposition here is enhancing, the value for our customers and being able to integrate not only, the index for our discovery layers with Web of Science, but also starting to create some integrated feature functionality both of those platforms is going to be very exciting. So, great encouragement on the integration side and getting the cost synergies, really pleased with where we are from a product perspective. And ProQuest results came in generally in line with what we expected in the first quarter. So, great work.

Thanks, Jonathan. Gordon please pick up, because you've been living with it.

Yeah. Thanks Jerre. It's Gordon here. The two examples that Jerre and Jonathan commented on around the integration that drive research and higher value in research and in discovery products, are really important in combination with the Web of Science family or portfolio. I would add, a couple of comments on progress integration. One is the leadership integration has gone extremely well. We are combined as a team. So our portfolio is now seen across, the entire business, and it's focused on the four verticals that Steen is driving into the marketplace. So, what you'll see us coming out with even more so going forward are solution sets that drive value for customers that are specific to their vertical and solve their needs. So really pleased with the progress on that, and I expect us to continue that progress on plan for the rest of the year.

Thanks, Gordon. Let's go to the next question.

The next question today comes from Ashish Sabadra from RBC Capital Markets. Please go ahead. Your line is now open.

Thanks for taking my question. I just wanted to drill down further on the revenue growth acceleration – the organic revenue growth acceleration from first quarter to second quarter. I was wondering, you might have already touched on this, but I was wondering, if you could provide some more clarity around how should we think about the subscription reoccurring and transaction pieces of the business improving from first to second quarter? Thanks.

Just one quick thing, and then we'll have Jonathan pick up on that. What I said in my written remarks this morning is, we'll approach as we go out of 2022 into 2023, closer than ever to 80% being organic growth and total growth in both subscription base, and repetitive if you will, and 20% in transactions of which another larger part will be with the selling solutions. So pick up from there.

Absolutely. So pricing the improvement, I expect to be generally in line with the improvement we saw in Q1. Renewal rates will get much closer to that 50 bp improvement as we lap some of these episodic items in Q1. Cross-sell will inch up by 20 or 30 basis points is what we expect in Q2 as we start to see continued progress and get the benefit of a full quarter of work. And I would expect transactional to start to reach parity with last year in Q2 and then in the second half of the year turn positive to drive that full year improvement. So, in particular, I'll just emphasize continued improvement in pricing or consistency with what we saw and then a ratcheting up of renewal rates and cross-selling with transactional starting to get relatively flat with the growth we saw last year.

Thank you. Next question.

Thank you. The next question today comes from Hamzah Mazari from Jefferies. Please go ahead. Your line is now open.

Good morning and thank you. My question is just on capital allocation. You mentioned favoring the buyback in the near term and you talked about how much stock you bought back. But looking at the balance of this year, how much can you buy back out of your free cash flow? And then just on M&A, how much M&A do you need to hit your long-term financial targets? So just kind of two parts on capital allocation. Thank you.

Happy to. Jonathan?

Yes. Just as a reminder of how we intend to spend the overall $1.5 billion of cash we generate this year and next, we'll continue to service the preferred mandatory converts with cash. We'll use a portion of that adjusted free cash flow to integrate the acquisitions and we will leave ourselves a little bit of capacity to do some other things that are strategic. But then for all intents and purposes we'll have about $1 billion available of that for share buybacks between this year and next. With our improved or upsized cash flow revolver, which we did in the first quarter, we can manage some of the seasonality within the year of cash flow to address and take advantage of the stock price where it is today. So we could do up to half of the overall program this year. And we'll be looking at that carefully as we move over the course of the next few months then we'll give you an update on where we progress that when we're together again in July or August.

Thank you. Next question please.

Thank you. [Operator Instructions] The next question today comes from Shlomo Rosenbaum from Stifel. Shlomo, please go ahead. Your line is now open.

Hi. Thank you. Good morning. Just a question a little bit about just the…

Good morning.

Just the geographic kind of challenges between Russia and some of the stuff we're seeing in China with lockdowns. Could you talk about why the Russia impact will dissipate or decline after the first quarter and whether the Russia impact will be excluded from organic revenue growth as you calculate it? And then given the lockdowns in China can you just talk about how much revenue is coming out of China for Clarivate and whether you're seeing any impact from the lockdowns over there?

So, Jonathan you start. Gordon and Steen you may want to pick up on China if you would please. But you start please Jonathan.

Yes. So just on the Russia side, obviously, moving out of there in Q1, we're going to see a disproportionate impact on not just the subscription but any transactional sales that we were doing in the region occur earlier in the year. We also had some other cancellations early last year that will start to lap off. So that's the reason why we expect the subscription and renewal performance to improve as we move throughout the balance of the year. To your -- we are not going to make any adjustments for that in organic growth. So just to be crystal clear that will just be a headwind for us and we see a path to being able to offset that through the balance of the year. So, no change to the full year guide on the 6.5%. As it relates to the region of Asia, China is quite small for us. I'm not sure we put an exact number on it, but not a very large market for us. It's -- we're being very thoughtful and careful about what's happening and developing there with our teams on the ground. But yes, I'll let Gordon add some commentary.

And just as a refresher, thanks Jonathan for everybody. Gordon right now a year ago was starting to implement in the Asia region the One Clarivate. That's where we did all the test-drive. So Gordon please.

Yeah, sure. Thanks, Jerre. Thanks, Jonathan. A couple of things on China. First and foremost, we're not seeing any immediate impact from the various city or partial city lockdowns. And in fact that's not a new thing. So although it's continuing, it has been that way for quite some time. We're not reliant on physical footfall presence in the same way that ourselves and many other organizations were before. So we don't anticipate that will have any certainly near-term impact. So we see the same continuing in terms of our ability to perform in China. And final comment would be what we are focused on in China is making sure that our colleagues are -- subject to these very sudden lockdowns are looked after. So our priority actually is that given that there is minimal business impact.

And Steen, anything to add?

Yeah. The only thing I would like to add is we do see some interesting growth opportunities in China in medium term, as we look at the ProQuest portfolio and how we bring that together with the legacy Clarivate portfolio. We think there is a very interesting growth opportunity to accelerate the ProQuest presence in China. And that's something we're working through right now to hopefully be able to accelerate that in 2023 and beyond.

Thanks, Steen. Next question.

Thank you. The next question today comes from Pete Christiansen from Citi. Please go ahead. Your line is now open.

Thank you. Good morning. Jerre.

Good morning.

Good morning. I know last quarter you talked about improving sales productivity within the quarter, not allowing so much to occur in late in the quarter. Just any progress on that? Maybe that was just a fourth quarter kind of phenomenon. And then, if there was -- was there any slippage from 4Q into 1Q that benefited growth this quarter? Thank you.

Yeah. I'll pick up the last part of that Pete and then Steen will be happy to pick up the first part. Yeah, about $3 million flowed through out of Q4 into Q1 more still in the pipeline. We said that when we announced Q4, we didn't lose any of those opportunities and they continue to flow through. Great question. Steen, please pick up on productivity your favorite subject.

Absolutely. And a very relevant subject these days. So a couple of comments. As we prove how we run and how we execute the business under One Clarivate, we're getting a very different level of insight and discipline around our pipeline and how we look at our business, not only in current quarter, but also in future quarters. So we are able to predict the business much better as we continue to progress in 2022. We're also able to navigate around the key clients and key opportunities in our business as well so that we can really allocate the resources for where we can get the greatest return within our business as well. And then lastly, we're also adding sales capacity, so we are not only looking at sales productivity by our teams and individual contributors. Actually our number one priority right now is to add sales capacity into the business, so we can further scale the business and further grow the business and that is the number one priority that we have right now in the business. So very focused on productivity, but even more focused on increasing sales capacity right now.

Thanks, Steen. Next question.

Great. Very helpful.

You bet. Happy too. Next question, Steen. Sorry, next question. Thanks, Steen.

Thank you. Our next question is a follow-up question from Shlomo Rosenbaum. Please go ahead. Your line is open.

Jerre, I was just testing if you're going to let me back in. I'm just kidding with you.

Any time you've got a question then we've got time for you.

Okay. Just a couple of just like -- a little bit of a housekeeping stuff. Just -- the transactional on Slide 13, the bottom left has transactional revenue down seven -- 0.7%. In the press release, we're talking about transactional revenue, up 2.8%. Is there a comparability item in other words over 2021 versus 1Q 2021? Maybe you could explain that. And then also, I don't see anywhere the organic growth rate of ACV in the quarter. I think we used to get that quarterly?

That should have been out.

It's consistent with the organic growth rate for the quarter.

Yeah.

It'll be around 4.4%.

4.5% to be precise. Yeah. Jonathan?

Yeah. To your question on transactional, so the lower left-hand corner of the page there is comparing how we're tracking to the acceleration of the growth rate. So, transactional sales did grow over the prior year. But if we compare that just under 3% to the growth rate that we saw for the full year last year it decelerated by about 70 basis points. So in order for us to get to that 6.5% on a full year basis that's got to swing positive and contribute equally to the 200 basis points of organic growth expansion or get to a positive 50%. So we're just highlighting there that transactional is still softer earlier in the year. And we expect that momentum to pickup in the balance of the year as we get further into the go-to-market implementation.

Thanks Shlomo.

Okay. Thank you.

You're welcome.

Next question?

There are no additional questions waiting at this time. So I'd like to pass the conference over to Jerre Stead, for closing remarks.

Thank you. And thank you for joining us today. As I said at the beginning, I feel very good about where we're at with the progress. I'm very thankful for what everybody has accomplished. I would ask each of you to focus on page 19 that we talked about today. And one thing to remember, each of the big acquisitions we made, we said that we would be accretive, on adjusted EPS all in at least 10% in year one and midpoints in year two. And we're spot on including all three of those. I couldn't be happier with that, because it's the only way to really measure when you use shares to make -- to pay a portion or all of the acquisition value. It's the only way to measure it. So that's on point. And as we said today -- and I'd lived through 2008, 2009 and 2010 back in my IHS days and we did really well, because of the kind of product offerings we have as we run into the headwinds that we're seeing worldwide right now. This company is blessed with the best total business model I've ever had, even way back when Clarivate was part of Thomson in 2008 and 2009 they were flat or marginally up. So everything we have done puts us on point, to deliver what we said, we'd do. The thing I must say I'm most proud of is the, $283 million of adjusted EBITDA in 2019 and the midpoint guidance of $1.2 billion to make it easy for 2022, with huge upside as we continue. And I would say today with all the work that's gone on with our sales organization and our product organization, I feel better today than I've ever felt about our ability to hit what we said we would hit and how we do it in 2022 and 2023. So I'm very proud of our team and very thankful. Thank you all.

That concludes the Clarivate First Quarter 2022 Earnings Conference Call. Thank you for your participation. You may now disconnect your lines.