Hello, and welcome to today's Clarivate Q4 and Full Year Earnings Conference Call. My name is Bailey, and I'll be the moderator for today's call. [Operator Instructions]. I would now like to pass the conference over to Mark Donohue, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for the Clarivate Fourth Quarter and Full Year 2022 Earnings Conference Call. With me today are Jonathan Gear, Chief Executive Officer; and Jonathan Collins, Chief Financial Officer. Both will be available to take your questions at the conclusion of their 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 in 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 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'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 and supplemental presentation on our website. After our prepared remarks, we'll open the call up to your questions. And with that, it's a pleasure to turn the call over to Jonathan Gear.

Great. Thank you, Mark, and good morning, everyone, and thank you for joining us today. In my 6 months as CEO of Clarivate, I have made it a point to personally visit many of our colleagues and customers globally. These learnings have given me an even deeper appreciation of our company, its strong culture and Clarivate's leading products in the large markets that we serve. We will hold an Investor Day next Thursday, where we look forward to sharing with you our compelling investment thesis and our detailed plan to accelerate our growth profile. I will share more about this event in a few minutes. Turning to our financial results and business highlights for 2022. I want to give you an update on our progress in continuing to transform Clarivate for the better as we seek to accelerate our growth and bridge the market trajectory. I am proud to report that we implemented important organizational changes through segment restructuring of our major segments. The past 1 year was also a trying period as we navigated a highly dynamic macro environment marked by high inflation and economic uncertainty. Despite these headwinds, our business grew and remained strong and resilient. We continue to serve our customers well by providing mission-critical products, and we are benefiting from long-term industry tailwinds all while holding a strong competitive position in the marketplace. Last year, we delivered improved performance across many of our key financial metrics. Full year revenue was $2.66 billion, an increase of 47% at constant currency, primarily driven by the acquisition of ProQuest. Organic revenue growth increased 2.6%. Our combined subscription and reoccurring revenue, which represented almost 80% of revenue, improved 4% on an organic basis over the prior year period. Operationally, we delivered $74 million of cost synergies in the first year…

Thank you, Jonathan. Good morning, everyone. Slide 12 is an overview of our 2022 fourth quarter and full year results compared with the same periods in 2021. Fourth quarter revenue was $675 million, an increase of $115 million compared to the same period last year, driven primarily by inorganic growth from the ProQuest acquisition as well as a 0.5% organic growth, both of which were partially offset by a substantial foreign exchange translation headwind as the U.S. dollar remained strong against primarily the pound sterling and euro compared to the same period last year. Full year revenue was $2.66 billion, an increase of $783 million for growth of more than 40%. Fourth quarter net income was $304 million, up $434 million over the same period in the prior year on higher income from operations and lower interest and income tax expenses. Full year loss of $4 billion is entirely attributed to the noncash goodwill impairment charges recorded in the third quarter, primarily for the CPA Global and ProQuest acquisitions. Adjusted diluted EPS, which excludes the impact of onetime items like the impairment, was $0.22 in Q4, a $0.02 improvement sequentially over Q3 and a $0.01 decrease over Q4 of last year, bringing the full year to $0.85, a $0.13 or 18% increase over 2021. Operating cash flow was $137 million in the quarter, an increase of $119 million over Q4 of 2021, bringing the full year to $509 million, which is an increase of $185 million over last year. Turn with me now to Page 13 for a closer look at the drivers of the full year top and bottom line growth over the same period last year. Full year revenue of $2.66 billion came in at the top end of our guidance range. While organic growth came in just…

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

This is on for Manav. I just wanted to ask on the guidance. Obviously, there's been some -- there's a lot of transactional kind of exposure in different parts of your business that hit you guys this past year. And just wondering like what are you assuming in that outlook for next year for that part of the business? And then kind of back into also the subscription part, just trying to see how much of that is helping or hurting you guys next year.

Yes. , thanks for the question. This is Jonathan Gear. I'll answer, and then Collins will add some color here. I mean, first, we -- there are different philosophies of how you build out our budget. With this year, we've gone through a very granular, bottoms-up build on this budget under the new segment strategy at a product-by-product level. And it's one that certainly myself, Jonathan Collins and the team have put a lot of fidelity into building up this plan. So the guidance we've raised right now, I'd say, overall thematically, it's not a heroic guidance. It just has us executing against the outcomes we saw coming out of Q4 and then heading through the year. Now on the transactional side, you know the base of our business. 80% is recurring in nature. 20% is transactional. A couple of things I would call out. First, some real-world data wins that we had in Q4 rather than being completely onetime as we built up some backlog heading into this year. So we've derisked some of the RWD assumptions heading into 2023. And then with the rest of the portfolio, it's the normal kind of risk, I would say, around the transactions, primarily in Life Sciences & Healthcare. We see less of a risk in the other segments. But certainly, I think the key theme is we haven't built up a bottoms-up build in the budget that requires a lot of positive assumptions to take place. We know we're in a tough environment. We know we're in a tough macro. We know that some of our clients are not leaning into onetime spends right now. They're being cautious, and all that's been built into our budget. But Jonathan, do you want to add to that?

Yes. I'd just highlight that the improvement in the organic growth will largely come from the transactional order type. So when you think about the things that will help accelerate the growth rate, obviously, not having the ceasing of our operations in Russia will offer some benefit. That will benefit the subscription order type. There are some other puts and takes there. But as we've highlighted before, we've rebuilt capacity in 2022 in our Life Sciences & Healthcare consulting practice. We expect the utilization rates in that practice to progressively improve through the year, and that will hit our transactional order type. And then as Jonathan touched on, one of the real benefits of last year's sales execution campaign with our real-world evidence in Life Science & Healthcare is building a backlog. So last year, almost everything that we recognized as revenue we sold in the year. This year, we come in with a very nice proportion of this year's revenue already sold that has to be delivered in 2023. So that helps to derisk and reduce the volatility in that segment of the business.

Yes. Just a quick follow-up, if you could. You talked a little bit about what -- with your reinvestments, just some product investments you need to do or low-hanging fruit investments you can do to help move your product down market and win some more share. Can you -- any update on that? I assume you guys are still working on that but just if there's any update on the product side.

Yes. I'm going to make a brief comment here, Brendan. So the investments we're making are across all 3 of our segments. If you remember, coming out of the last call, we talked about investments in Life Sciences & Healthcare around pharmacovigilance and building out that real-world data platform to create more of a recurring, predictable engine. That's -- so both of those are well underway in the product development cycle. We continue to make investments in A&G. past, but I will call out what we've done with Web of Science and the investments we've made there in improving the interface and some of the comments that I made in my -- in the transcript earlier around how we're improving just the usability and impact at the researcher level. And then in IP, very focused on Derwent and those solutions there to, again, lift those products that we know have been dragging us down. So continue to make investments there. And certainly, we'll share more at Investor Day next Thursday.

The next question today comes from the line of George Tong from Goldman Sachs.

You mentioned that the improvement in organic revenue growth for 2023 is going to come primarily from transactional revenue improvement, especially around the consulting side. Can you elaborate a little bit more on that? And then also on the subscription side, putting Russia aside, what are some of the key drivers of organic revenue growth acceleration for subscription revenues in the year ahead?

Sure, George. On the transactional side, I mentioned the consulting, also the solid real-world evidence backlog that we bring into this year. I'll also point to our IP segment. We do expect to lap some pretty difficult comps in the first half of this year. And as we move into the second half of next year, we think the trademark portion, both the maintenance and the servicing of trademarks and even some of the discovery, to improve, which will also help to bolster the IP segment's growth improvement. As we think about the subscription file, what we're counting on is strong retention and starting to monetize some of the investments that we've already made. Jonathan alluded to Web of Science. We're really encouraged by the feedback we got last year from the new UI and some of the feature functionality there. We've expanded the Journal Impact Factor to include thousands of new journals. And then finally, we just announced the Preprint Citation Index that's going to be included in the product this year. We're already getting early great feedback on that addition. So those are examples of investments that we've made that we hope will continue to firm up renewal rates, help us to be able to capture some of that value in the form of pricing. And those are the things that will help to buoy the subscription performance in 2023.

Got it. That's helpful. And then just a quick follow-up. Can you highlight your expectations for 2023 organic revenue growth by segment, so academic and government, Life Sciences & Healthcare and Intellectual Property?

Yes. We certainly expect a modest improvement in A&G. Web of Science, which I just highlighted, is going to be a key component there. On the IP side, we do expect some improvement in the trademark portion of business that I highlighted. But really, much of the improvement next year is going to come in Life Science & Healthcare as we continue to see the recovery in the consulting practice that I highlighted as well as stronger execution compared to a pretty challenging last year in portions of our transactional business in that segment.

The next question today comes from the line of Toni Kaplan from Morgan Stanley.

Jonathan, in the past, you've talked about thinking of this as a mid-single-digit growth business. Has your view on that changed? I know this year had some onetime issues, and I appreciate '23 sort of providing more conservative guidance. But just wanted to see if anything has really changed in your mind on the growth profile.

Thanks, Toni. No, it has not changed at all. This is still a business -- as we peel back and I've gotten to know the businesses much, much better at the customer level and the product level, this is a business which should be growing at mid-single digits. And I think as we view 2023 as a bridge here to help us get us there and head down that path, and certainly at Investor Day, Toni, we'll be sharing kind of more on exactly what that path looks like to take us there. But no, my confidence, if anything, is stronger now than it was 2 months ago, the last time we were on this call and talked about it.

Great. And then as a quick follow-up, and I know you talked about Derwent a couple of questions ago, but I just wanted to get an update on sort of how you view your position in the market on some of the legacy products like Web of Science and Derwent. And like basically, I guess, is your investment strategy more to enhance the product capabilities there? Or is it more on the newer sort of investments in platform -- the newer products and platforms?

Sure thing, Toni. So yes, let me go on both those products. I mean, those are both products which are dragging down our growth rate. And that's -- I think I've shared that in previous calls. And as we dug into it, that hasn't changed. Now what's interesting, again, when I talk to clients about Web of Science, and we just visited one of our university clients yesterday, it is still the gold standard. It is absolutely the gold standard and a critical, critical product. What we allow to do over, I will call it the last 10 years, has allowed that product to become frankly a little, some of you use the word dusty, a little dusty in terms of user interface, in terms of not leveraging analytics. And so we allowed that to happen. I will call that very much an own goal. So we're focused right now on making investments since the initial phase was around the interface and the usability of Web of Science. The second thing as we look forward is to how to leverage the underlying content in Web of Science and the impact that has in the publishing market to drive additional synergies as we drive that content with other content sets we have across Clarivate. Really, same story with Derwent. It is still, at the high users of IP, kind of the most IP-intensive companies in the world, it's still the gold standard. But it is a not easy-to-use tool. It's clunky. And as a result, we've allowed some ankle biters to come in around the edges. We are very focused. I'm actually sitting in our Ann Arbor office today, and I was here in January with our new leader of that product, in particular. And he outlined the plan on how we're going to lift that product. So very focused on improving that. So to come back, Toni, to kind of wrap around your question, we have to fix those products. We will fix those products. I feel very confident of the plans in place. At the same time, the investments we're making are not limited there because there are so many things we can do with AI and machine language to kind of combine different content sets. But that is certainly a core area of focus, those 2 products. Thank you.

The next question today comes from the line of Seth Weber from Wells Fargo Security.

I wanted to just try to tie together some of the data points from the call this morning. So it sounds like first quarter organic revenue growth is going to be kind of around what fourth quarter looked like. So -- and then -- so what I'm trying to understand is to get to the full year guide, are you comfortable with kind of a fourth quarter exit rate close to 5% on an organic revenue growth basis just to get to your full year guide?

Sure. Maybe I'll make a quick comment and then pass it off to JC here. I mean, Seth, the short answer is yes, that's how we view the budget. I would just remind you, we have some structural things built into the year-on-year comps with some very tough first year comps, particularly in Q1, but also a little bit Q2. And we have to fully lap the impact of both Russia, the Russia impact, as well as the impact of the macro environment on our trademark services. That makes it slightly tougher early in the year. It also makes it much easier second half of the year. So that's some of the structural, I'd say, derisk we have in the business. But Jonathan, do you want to add some additional color?

Yes. The only other thing I'd highlight, Seth, is I think we'll definitely -- or we're anticipating exiting the year with a 4 handle. But as I mentioned in the comments, we'll give you more color on the quarterly phasing of the growth rate as we step through the rest of the year.

Okay. And then just as a follow-up, can you just comment on the pricing environment, what you're seeing, whether from a competitive perspective or what your customers are willing to kind of tolerate at this point and how much is -- how that factors into your calculus for this year?

Sure. That's always an important component of the subscription growth that we are projecting. Broadly speaking, we are seeing normal receptivity to sharing in the incremental value that we're creating within the products. A few moments ago, we gave the Web of Science example, but we have those examples of enhanced feature functionality, incremental new content being brought into the products. And those are being reasonably well received. The one soft spot that we're keeping a very careful eye on is some of our international customers that are buying products that are priced in dollars. So certainly, the most recent move on the dollar has helped that, but that's something that we're carefully navigating with. For example, some of our A&G customers that have much greater budgetary pressures having to live within those means, we're working with them on some of those price increases. But broadly, I would say it's pretty positive, and we see that as being a good momentum moving into 2023.

The next question today comes from the line of Peter Christiansen from Citigroup.

Jonathan Gear, Jonathan Collins, I was just hoping, at least qualitatively, you could provide us a sense of some of the components of growth for -- towards the outlook as it relates to pricing, cross-sell, volume, that -- those sort of elements. And then just as a quick follow-up, Jonathan Collins, could you provide us with a sense of the pro forma trajectory for the ProQuest business and how that rounded out through the end of the year?

Okay. Great. So I'll go ahead and tackle the first, Pete, and then pass it off to Jonathan. So in terms of the growth, it's fairly balanced. As Jonathan just mentioned in the previous question, price does continue to be an important component of our metric of growth. And so I think roughly about, I would say, 1/3 of the total growth, you could ascribe to price specifically. So the remaining 2/3 is from volume in total. And the volume, as you know, Pete, has many components. The first is making sure that the retention rate continues to improve. We did improve it in 2022, up a point, and that's significant for us. As you continue to notch stepping up through being closer to our customers, serving them better, making sure we're refreshing our products at appropriate rates so they're seeing the value, that's how you notch step retention. The cross-sell, what I would call interest segment, is important for us, and we've now realigned the sales teams around this segment. And so they're just rolling out quarters right now. And they are very, very focused on making sure we have line of sight to the interest segment. Then the intersegment is also an important component. And in my scripts, I talked about a key win we had within IP services at a pharma company, a great example of how we kind of leveraged the broader footprint of the company across the different segments. And then, of course, driving both volume and also new business and new logos, which, as you know, is a little less important for us, but still important in some of our segments, still important also in life science with a long tail of biotech. So it's all those of things that are kind of coming together to drive the underlying growth formula. Jonathan, do you want to add on a piece?

Yes. And then, Peter, your question on ProQuest, it generally came in line with expectations last year. We do believe it's going to be a contributor to accelerating organic growth as it will be fully included in the organic growth calculation for 2023. I'll highlight one of the real exciting wins that Jonathan pointed to. The Singapore ILS win is a real positive. That will come online, big implementation product on that -- project on that in 2023 and will start moving into the subscription base towards the end of the year. That, combined with some of the improvements in Web of Science, should really help to put some wind in our sales within the A&G segment. So looking forward to that being included in the overall calculus for organic growth going forward.

The next question today comes from the line of Ashish Sabadra from RBC Capital Markets.

This is John filling for Ashish. Could you just quickly touch on the current selling environment? One of your large competitors saw some moderation in December with a lack of budget flush. And maybe if you could just hit on some of the kind of large pieces, especially with the transactional side as well.

Sure. So maybe I'll give some color there, and then Jonathan can add anything that I missed. So I mean, it's not a great macro environment, and that certainly is the case, not to state the obvious. And as I mentioned earlier, John, as we built our budget, that budget assumes a not great macro environment. Now I think the news, when you look at our business overall, in this environment, we're still growing. We're still a highly resilient business model with must-have products and services, and that's reflected by the fact that we still grow even in these down markets. But while we are insulated from macro environments, we're certainly not immune. We're certainly not immune. Now the specific areas I look at is kind of a couple of things. First, in Life Sciences & Healthcare, we have the transactions. Again, my experience of being 20 years in this business information industry, transaction is always a piece that can be pinged at a little bit. Consulting projects can be a little delayed. Market research reports can be put off for a quarter or 2, and we saw a bit of that in Q4. And we assume that will continue. We assume that will continue, and that's certainly in the plan that we've laid out. We also say regionally, Europe is still feeling the impact of the Russian invasion of the Ukraine. You see it as governments there, in particular, have shifted dollars from areas we would normally be supporting into refugee support services. We see it in Africa, where governments have to shift dollars to support -- pay more for grain because they're no longer be able to import grain at the price from Ukraine, et cetera. So we see a little bit of that in Europe, just a tightening, a tightening of budget dollars there as governments are strained. But those are really the 2 areas that I would call out. Now I will just -- as I wrap a bow around that, those are the 2 key areas. I'll just emphasize, John, the vast majority of our business, our IP, academic budgets, so on and so forth, our subs for Life Sciences & Healthcare aren't really impacted by these macro headwinds.

That's great color. Maybe just piggybacking on George's question, could you give us some more color on the subscription growth cadence in terms of the pacing and how we should kind of expect it to evolve in '23?

Yes. I think that tends to be quite stable in our business, and that's our expectation through this year. Similar to last year, most of the changes from quarter-to-quarter are going to be manifested in the transactional business. And just as to reemphasize a couple of key points, we expect Life Science & Healthcare consulting to improve progressively through the year. There will be some timing impacts associated with our patent renewal business that we will build into the color that we provide on the quarterly cadence. We had some pull-aheads we helped our customers with to support the best economic outcome for them in their renewals. So that will have somewhat an impact. But also, as we indicated, we do believe that the volatility of the transactional component of our Life Science & Healthcare products or data that we're delivering will improve this year as we're entering in the year with a much higher backlog than we started last year. So really encouraged by that. That should help to level it out a bit, but we'll continue to give you some color as we move through the year on what that's going to look like.

The next question today comes from the line of Stephanie Moore from Jefferies.

I appreciate the color around the organic growth guidance and certainly the bottoms-up approach and clearly, the more visibility on the transactional side. Would love for you to maybe kind of talk through what would be the factors that would come into play that would ultimately get you to the -- maybe the low end or high end of the guidance, just trying to kind of put some guardrails around the dynamics that could have you fall kind of at either end.

Sure. Sure. And it's something we often think about, as you can imagine. So the low end of the guidance, it would -- I'll take a step back. As I've said a few times, we have built in a tough macro environment into our guidance right now. Now -- so to go into the lower end of that range, it would have to be an incredibly bad macro environment. It would have to be some exogenous impact, particularly to our life science business. So a real, real meaningful and unexpected slowdown of our transactions there, that's what you would have to see to get to low end of that range. The upper end of the range is a couple of things I would call out. I think, obviously, a little more health on -- I guess, a little bit of the opposite here. It would mean we were a little too conservative in our outlook on the macro environment, particularly with the transaction spend within Life Sciences & Healthcare. It speeds up a little bit faster. We do a bit better with our -- in A&G with our collections business there. That goes a little bit better than we expect. And those are probably the 2 big areas, I think, are swing. But Jonathan, do you want to add anything that I missed?

No. I think you highlighted it. And obviously, as we move through the year, we'll be pushing for those additional opportunities to drive us to the higher end of the range, which are largely going to be on the transactional part of the business.

The final question today comes from the line of Shlomo Rosenbaum from Stifel.

This is Adam on for Shlomo. Can you talk about any of the recent impact on inflation throughout the business, any update from last quarter?

Yes. I think we've mentioned before, about 3/4 of our operating expenses are people costs. It's just the nature of our business, largely employees but also contracted services. So as we moved through last year, that was a challenge for us that we managed carefully. Certainly, with very hot job market, higher-than-normal levels of attrition helped to address that. We plan for that to kind of settle into the guide that we've provided for this year. So certainly, that's a component of the organic profit conversion that we highlighted that, that component alone won't really deliver much margin expansion. So I think that's how we think about it from managing our internal costs. But we've got a pretty decent line into sight of what's going to happen this year, and we've got that embedded in our outlook for 2023. And then I think we've talked before about the commercial impact of that. Certainly, it helps a little bit with the pricing conversations, and we saw some of the best price utilization we've ever seen as a company in 2022. We do expect some of that to carry into this year. But generally speaking, we've got that embedded in our outlook for 2023.

Okay. And what drove the significant improvement in DSOs in the quarter year-on-year? And how should we think about the quarterly pattern of working capital this year?

Yes. I'm sorry, Adam, I didn't catch the first part. Could you say that again?

What drove the significant impact in AR DSOs in the quarter year-on-year? And how should we think about the quarterly pattern of working capital next year?

Yes. So 2022 is our first full year of having ProQuest in our seasonal working capital. So I would say we have a decent line of sight into what that's going to look like. I expect that to be our new normal. Late in the year, we saw a little bit of pressure on timing of payments, which caused a slightly higher working capital use than we were anticipating. I think that's going to balance out. I think we've got a little bit of opportunity to recapture some of that in 2023, but we'll continue to provide more color on that as we move through the year. Thanks, Adam.

Great. And I think with that, we'll go ahead and wrap. So everyone, thank you so much for joining our call this morning. We really enjoy sharing both our results from '22 as well as our outlook for '23. And again, we really encourage and invite all of you to join us at our Investor Day next Thursday, March 9, in New York City. Look forward there to really sharing our outlook and growth plan for the next few years as we continue to accelerate growth across Clarivate. Thank you so much, everyone.

This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.