Good morning. Thank you for attending today's Clarivate Q3 2022 Earnings Release Call. My name is Forum, and I will be your moderator for today's call. [Operator Instructions]. It is now my pleasure to pass the conference over to our host, Mark Donohue, Head of Investor Relations. Mr. Donohue, please proceed.

Thank you, and good morning, everyone. Thank you for joining us for the Clarivate Third Quarter 2022 Earnings Conference Call. With me today are Jonathan Gear, 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. An accompanying earnings call presentation is available on the Investor Relations section of the company's website, clarivate.com. During our call, we may make certain forward-looking statements within the meaning of applicable securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause 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's filings with the SEC and on the company's website. Our discussion will include non-GAAP measures or adjusted numbers, including organic revenue and adjusted EBITDA. Clarivate believes non-GAAP results are useful in order to enhance an understanding of our ongoing operating performance, but they are a supplement to and should not be considered in isolation from or as a substitute for GAAP financial measures. Reconciliation of these measures to GAAP measures are available in our earnings release, supplemental presentation on our website. After our prepared remarks, we'll open the call for your questions. With that, it's a pleasure to turn the call over to Jonathan.

Great. Thank you, Mark. It's great to join my first call as CEO of Clarivate. I could not be more excited to be here. Since joining the company in early July, I spent much of my time traveling around the world, meeting with thousands of my colleagues. The time I've spent with them has reinforced my view of the strengths of our people, of the resilience and growth potential of our products and the power of our customer relationships. There are many great things taking place at Clarivate, but we also have work to do to realize our full potential. While I look forward to covering this in great depth at our Investor Day in March 2023, I will touch upon some of my initial impressions and areas of focus in the next few minutes. First, I want to start with our third quarter financial highlights. It was a mixed quarter with us with both areas of great strength and pockets that did not perform as we had expected. Our key financial metrics of revenue, EBITDA and EPS were all up year-over-year as we continue to grow and expand the business even in these challenging economic times. This growth speaks to the resiliency and criticality of our solutions. Focusing on revenue, we came in at $636 million, an increase of $5 million on an organic basis over the prior year period. However, this was $4 million below the bottom end of the range we provided, and I will spend some time focused on this metric. Peeling back these numbers, well over 95% of our business, including our Academia & Government business, our IP business and the subscription portion of our Life Sciences & Healthcare business delivered as expected. In total, organic subscription revenues increased 4.3% in the quarter, which is…

Thank you, Jonathan. Good morning, everyone. Slide 13 is an overview of our 2022 third quarter and year-to-date results compared with the same period in 2021. Third quarter revenue was $636 million, an increase of $194 million compared to the same period last year, driven primarily by inorganic growth from the ProQuest acquisition as well as 1.2% organic growth, both of which were partially offset by a substantial foreign exchange translation headwind as the U.S. dollar strengthened significantly against primarily the pound sterling and euro. This brings year-to-date revenue to nearly $2 billion for an increase of $668 million for growth of just over 50%. The third quarter operating and net loss of $4.4 billion is entirely attributed to the noncash goodwill impairment charges recorded primarily for the CPA Global and ProQuest acquisitions. The drivers of the impairment were deteriorating macroeconomic conditions, such as inflation and rising interest rates as well as the recent sustained decline in our share price. Adjusted diluted EPS for Q3, which excludes the impact of the impairment, was $0.20, a $0.04 increase over Q3 of last year, bringing the year-to-date to $0.63, a $0.14 increase over the first 9 months of last year. Operating cash flow was $208 million in the quarter, an increase of $164 million over Q3 of 2021, bringing it to $372 million for the first 9 months, which is an increase of $66 million over the same period last year. Please turn with me now to Page 14 for a closer look at the drivers of the third quarter top and bottom line growth over the same period last year on a consolidated basis. When we refined our expectations for the third quarter in early September, we indicated revenue would likely be in the range of $640 million to $650 million…

[Operator Instructions]. Our first question comes from the line of Manav Patnaik with Barclays.

I just wanted to touch on -- Jonathan Gear, you pointed out, obviously, the -- your growth versus the market growth and the gaps. And I know you'll give us more color on the Investor Day. But when you look at your 2023, I guess, implied organic growth, it's improved but still kind of in that 3% camp for next year. So I was hoping just a little bit more color on how long or how much do you really need to do to get -- to be able to go penetrate that white space. It sounds like maybe '23 won't show that.

Sure, Manav. Thanks for the question. So a couple of comments to your question. First, I mean, we certainly expect and will make progress on our organic growth in 2023, and we'll come out with a very precise number at our guidance call at the end of the Q4. I think your second part of your question is really the timing, if you will, to the market rates of 6% overall. And it's -- the way we're thinking about it, and again, I will have much more precise views on the timing of this, Manav, and also importantly, the past so that you can best attest your assumptions there. But I think that will be measured in, I would call it, a few years. And a few could be measured in a couple of type years, think of it in terms of that being the timing. But again, let me come back to you, Manav, at Investor Day with some more precise timing on this.

Our next question comes from the line of Toni Kaplan with Morgan Stanley.

So I wanted to sort of go back to September, it seemed like you had some idea that the quarter wasn't going well since you lowered the guide. I know transactional has less visibility, but I guess, down 9% is sort of a big delta versus flat. So like, I guess, are you able to monitor the transaction intra-quarter? Or was September really a lot worse than July and August? And just how should we think about 4Q and next year for the transactional business? Like how do you get that to recover, basically?

Sure. Yes, I'll add my comments and Jon, you can add if I miss anything. So first of all, as I mentioned in my comments, it really came down to really a half dozen very, very large deals. And we certainly -- obviously, our Life Sciences & Healthcare sales team led by Tom -- we are very involved, myself, Steen, Jonathan are monitoring these on a really daily basis given the size of them. And this really gets to the crux of what I made in my comments, kind of my discovery here being my first quarter on the role. These are just very hard to predict. They -- and what's interesting is we didn't lose these to competition. They just -- the decisions were delayed. They are postponed. And I've come to realize, this is just the nature of the product, is you have a small number of very large deals that you can feel very good about and they just don't convert. And it's something that is, I'll say, relatively new to me, Toni, in terms of my experience and is a key for us here. So as we think about next year, I think as I mentioned and Jon also mentioned in his remarks, our view on this is, first, we have to structurally change it. And the investments which we're making, which I'm incredibly excited about, which we actually okayed and greenlighted before the end of the quarter, I feel very good about what that will do to really smooth out both by adding more value into our clients, so moving up the value chain, as I mentioned, but also really smoothing out the predictability of this important revenue chain. And then the second piece, as both Jonathan and I mentioned, is given the volatility here, I think the prudent thing to do is just take some of these large deals out of our guidance and out of our view. And the result of that might be maybe we have a couple of quarters where we come in surprise the upside. When that happens, we will call it out. So you'll have the visibility and know what happened, but that's how we're thinking about it. Jonathan, anything you'd like to add?

No, that's great.

Our next question comes from the line of Andrew Nicholas with William Blair.

I wanted to ask on profit margins for next year. I think on Slide 21 and in your prepared remarks, you talked about modest expansion, primarily on ProQuest cost synergies. So I just wanted to clarify, is the intention or the messaging here that you're planning to reinvest the organic kind of margin expansion that you expect from this business back into LS&H or other growth initiatives? Is that how we should think about next year?

Andrew, it's Jonathan Collins. As we think about next year, the big things we wanted to highlight were the top line, just to be clear that the FX headwind we're going to see in the divestiture of MarkMonitor will offset even the improved organic growth on a dollar basis. To your point, when we think about the profit margins, we do believe we'll have some margin expansion. As Jonathan said, when we're out in February with our year-end results, we will give more specifics around that. With organic growth in the range that it has been, the margin expansion, as a result of that, is not going to be significant, but we will have the ProQuest cost synergies next year that we'll complete, which will help to bolster the margins. So those are the big pieces that we wanted to point to and highlight for next year as we think about the bottom line.

Our next question comes from the line of Shlomo Rosenbaum with Stifel.

I'm trying to understand a little bit more, what is the impact of removing the large deals from -- of real world data from your guidance? In other words, when I'm looking at '23 over '22, and you're talking about looking kind of flattish, how much revenue are you excluding from big deals that you would normally exclude that could be potential upside? Because I'm trying to get a baseline of what kind of organic growth we're looking at because it seems like you're introducing this kind of conservatism, but it's hard for us to really get a beat on how much revenue are we talking about.

Maybe I'll give a thematic and have Jonathan be specific. So again, the '23 -- we will, of course, Shlomo, come back with more details at the end of the Q4 call. But thematically -- and a couple of things, and Jonathan will comment on this, we did want to highlight just the impact of some of the -- the big impacts of MarkMonitor, FX, et cetera, in the total revenue numbers. When we think about this, again, I'll call out, as I mentioned in my earlier comments, well over 95% of our business performed as expected. And so the bulk -- vast majority of this business is quite predictable as you would expect with everyone on this call would expect for a business of this nature. We do have this one aspect of our business, which can have great quarters and not so great quarters. And so when we look forward next year, what I would expect and maybe I'll just -- Jonathan, you comment on it. And keep in mind, we have not finalized our plans for next year. But I would expect kind of no heroics whatsoever in our real world data business line for next year. But Jonathan, do you want to add to that?

Yes. I think that characterization is fair. And, Shlomo, since we haven't given a specific number for next year, I'm not going to be able to answer it with a lot of detail. But I would point to our guidance for the fourth quarter. What we've effectively done here was saying that Q4 is going to be flat organically. It's heavily discounted, all these deals. So that's a pretty significant impact in the fourth quarter. That's typically the largest quarter for these deals. So as Jonathan said, as those -- as we hopefully get some of those closed during the quarter, that would provide some upside. But that's how we've approached the fourth quarter. More details to come on around 2023 when we guide to that early next year.

Our next question comes from the line of George Tong with Goldman Sachs.

I wanted to stick with the Life Sciences & Healthcare transaction revenue performance. You mentioned that you didn't lose any of the deals, the decisions were delayed and postponed. So can you talk a little bit more about the dynamics of what happened there? Are these truly delays? And were they due to macro factors or other factors that caused the deals not to go through? And then separately, what are you doing to improve the predictability in terms of translating these revenues into recurring revenue streams? Are you looking to restructure contracts and how you go to market? Any color there would be helpful.

Sure. Yes. Let me comment on all those. As I went through my first quarter close, I've learned a lot on this part of the business. So first, let me just kind of describe the nature of some of these larger deals. And if I should mention, we have large deals. We also have a tail of smaller deals on the real world data. So it's not all -- but what happened is you get these series of larger ones basically not close. And a couple of takeaways, which I'll share with you in terms of my learning. So first, we -- in some cases, we're going direct to the end user, but in many cases, particularly with these larger ones, we are selling to other data aggregators who themselves are bringing other data sets, other content that they may have or others may have to provide a more comprehensive solution for the ultimate end user. And so that they're -- they're complex deals. And the key thing, as I mentioned, is very reliant on the timing and specific need of the end customer, which is a moving target. That's number one. The second thing, you asked about any economic pressures. The answer is no. I don't believe any of these deals were materially impacted based upon what we're seeing in the slowdown of the economy. Maybe a little more governance, if you will, from Boards and whatnot of smaller companies, if they scrutinize this. But when they need the data they do and if they postpone decisions, then they just postpone the needs for those decisions. So George, I did not see really any macroeconomic pressure on this or really materially in any part of our business. It continues to be a very resilient business as it historically has…

Our next question comes from the line of Seth Weber with Wells Fargo.

I'm wondering if you could just comment on the pricing environment, what you've seen here in the back half of the year and maybe just what you're expecting for 2023. I think the company had previously spoken to something in the -- like a mid-single-digit growth from pricing. Can you talk about whether that's still the right way to think about it? And just any kind of early view to conversations for next year.

Yes. Seth, it's Jonathan Collins. On the pricing front, that's one area that continues to perform as we expected. It's been a bright spot for us in the first 9 months. It is one of the key contributors towards the strong subscription growth that's been improving as we've moved through the year. So those conversations have gone well. We've talked quite a bit about the fact that this is really about an exchange of incremental value. So we've made meaningful investments in the products over the course of the past couple of years, and now we're able to be able to recognize an economic benefit associated with that. As we look to next year, we're cognizant of the overall environment. We'll be very thoughtful and careful as we move forward in all of these product categories, but we think this will continue to be an area that helps to bolster the strength of our recurring business, which as Jonathan highlighted earlier, has been a real bright spot for us so far this year.

Our next question comes from the line of Peter Christiansen with Citi.

I want to go back to the transactional revenue retooling. I appreciate the comments there. But I was wondering, have you investigated whether there's parts of that business, particularly the data sales, where you may have the opportunity to repackage the product, maybe introduce it into subscription, maybe at a new tier level or something of that nature? How should we think about product repackaging as a potential means of smoothing out some of the volatility from the transactional business?

Sure. Yes, let me dive in with that. I think it's a great, great opportunity. And I'll highlight a couple of things. Firstly, the end market in this area is a high-growth market. It's a market that grows on average, 7% to 10%. And so it's the right neighborhood to be in and is the right area to be playing in. And we've had, as I mentioned in my remarks, some quarters of incredible performance in that real world data [indiscernible]. First half of this year was great. First half of last year, it was also great, but it's the unpredictability which is painful. I mean it pains me [indiscernible] that we had 95% of our business perform great and as expected, yet we're having this volatility caused by this one piece. So to address that, we're doing exactly as you suggested. The prioritization of our real world data, and I'd call attention to those 2 investments that we called out, which we do believe will have a significant impact on our total company organic growth rate once it's rolled out, will do just as you suggest. They're taking the platform, packaging it, creating more use case-based products, insight-based products, which has the benefit of: a, being more predictable; b, being stickier; and c, being frankly easier to use, and we frankly control the channel with the end user quite a bit better with that. So we do think it will help with that significantly. There will always be some ongoing demand for data in its native form, and that's just the nature of the business and the nature of the consumption. But by productizing and adding the insight and analytics on top of the data to create these new products, it will smooth out the revenue and the growth in the Life Sciences & Healthcare division significantly.

Our next question comes from the line of Stephanie Moore with Jefferies.

This is Hans Hoffman on for Stephanie. Can you just talk a little bit about the ProQuest integration, kind of a little more specifically, kind of what you're seeing within the Web of Science product and how that's performing relative to your expectations? And then just sort of on divestitures now, kind of MarkMonitor, have you guys sort of pruned on noncore assets? Or is there maybe more left to go there?

Okay. Sure. So maybe I'll make a comment and have Jonathan Collins come in and add some additional color. So first, on the ProQuest acquisition integration, it's gone exceptionally well. It's always hard. And one thing I commented when I joined this company a few months ago, the one thing that really struck me was just the pace of change that has taken place, the pace of growth, if you will, driven by acquisitions the last 30 months, and as I've mentioned on previous calls, all during COVID. Now I think the success of the integration of ProQuest really is a success story within Clarivate. And a lot of credit goes to the teams both on the ProQuest side and the legacy non-ProQuest, Clarivate side who made that happen. But the ProQuest acquisition has performed well, and we're very pleased with it, both in terms of the top line as well in terms of the efficiencies that we pulled out of it. And the combination of Web of Science from the legacy Thomson business with ProQuest is such a natural combination. It's just -- the content makes sense. The products make sense together in terms of how we're going to market. Now I do think, and I mentioned in one of my remarks is when I look at the path to grow from our current growth rate to just market at 6%, there are a few legacy Thomson products in particular that we need to improve in, and Web of Science is one of those. We announced previously some investments being made there in improving our Journal Impact Factor as an example. And we are now leaning in with investments behind Web of Science and other products to help make improvements in those areas. But overall, we feel very good about the progress. And Jonathan, do you want to add comments on that or talk about other pruning?

Yes. And as it relates to the ProQuest, the cost synergies continue to run ahead of schedule. So we bumped up the outlook for cost synergies in our full year range that we provided. So continue to do better there and are encouraged by the cost synergies. On the revenue opportunity side or integrating the products better, as Jonathan highlighted, one of the key product integrations that we've pointed out before is the inclusion of the Web of Science bibliometric data index content into our web-scale discovery solutions that ProQuest has, both Primo and Summon. Great opportunity. This is driving additional usage and a better value proposition of the product for many of our customers around the world that use those services. So that's a great example of where we're continuing to integrate not only the back office and achieve cost synergies, but create better value for our customers. As it relates to the portfolio pruning, we've mentioned before, we started with the most obvious. So the work that we did on MarkMonitor, as Jonathan highlighted earlier, this was not the best strategic that we wanted to free up some opportunity. We'll continue to be careful stewards of the business and look for opportunities to make sure we free up capital to invest as everyone would expect.

Our final question comes from Ashish Sabadra with RBC Capital Markets.

This is John filling in for Ashish. It looks like you're expecting an incremental $15 million in CapEx largely focused on organic growth investments. You've talked about them a little bit, the legacy products. But maybe could you just give us some more color on the expected benefits and time line? Is this more of a back half '23 or potentially a longer term?

Yes. You got it. The incremental CapEx that we put in for this year is largely to begin the investments that Jonathan highlighted. So most of those are concentrated in the LS&H business. So we want to get those off and running in the second half of the year this year. So we've greenlighted both of those projects. We added some additional content licensing that we wanted to bring in that's included there as well to help drive better sales. So I would expect to start to see a benefit from those next year. And then we'll be able to provide some more color, as I mentioned, a bit more specifically when we provide our guide for next year in the first quarter.

Thank you. That concludes our call for today. We appreciate you all joining us. If you have any follow-up questions, please reach out to Investor Relations. Available always to help you. Thank you.

Thanks, everyone.

This concludes today's Clarivate Q3 2022 Earnings Release Call. Thank you for your participation. You may now disconnect your lines.