Hello, all, and welcome to Clarivate's Fourth Quarter and Full Year 2023 Earnings Call. My name is Lydia, and I'll be your operator today. [Operator Instructions] I'll now hand you over to Mark Donohue, Head of Investor Relations, to begin.

Thank you, Lydia. Good morning, everyone. Thank you for joining us for the Clarivate fourth quarter and full year 2023 earnings conference call. 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 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. 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. Reconciliations of these measures to GAAP measures are available in our earnings release and supplemental presentation on our website. 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 the prepared remarks. After prepared remarks, we'll open the call up. With that, it's a pleasure to turn the call over to Jonathan Gear.

Great. Thank you, Mark. Good morning, everyone, and thanks for joining us today. As I begin my second full financial year as CEO of Clarivate, I would like to provide an update on our turnaround journey, including the timing and actions required in the years ahead. 2023 was a critical year for Clarivate as we executed significant changes. These changes allowed us to set the foundation for future growth. I will cover some of these changes on the next slide. It also was a year where we were impacted by macro pressures that, to varying levels, impacted each of our segments and contributed to lower organic growth than originally expected. Nonetheless, these changes were required to set us up for the next phase of Clarivate, where we innovate for growth. Beginning on prior investments and changes, we expect to see continued progress in Academia & Government and new success in our focus areas in Intellectual Property and Life Sciences & Healthcare. This will accelerate in 2024 into 2025. We expect new product introduction to lead to increased renewal rates, new sales, better ability to capture pricing and drive revenue growth. I now fully expect us to exit 2025 positioned to drive value as we couple mid-single digit organic growth with our scaled business model to accelerate our ability to be a cash generation machine for investors. I should acknowledge that this revised outlook is a year longer than the plan I set forth at Investor Day last year. The macro environment hampered us in 2023 and we pivoted our strategy in Life Sciences & Healthcare under a new leader. Nonetheless, with one year under my belt and the changes complete, I am more confident than ever in the potential for Clarivate's success and growth. 2023 was a foundational year for…

Thank you, Jonathan. Good morning, everyone. Slide 12 is an overview of last year's fourth quarter and full year financial results compared with the same periods from the prior year. Q4 revenue was $684 million, an increase of $9 million versus 2022, bringing the full year to $2.629 billion, a decrease of $31 million compared to the prior year. The decline was entirely due to the MarkMonitor divestiture and was partially offset by favorable foreign exchange. The fourth quarter net loss was $863 million due to the non-cash goodwill impairment charge related to the legacy businesses in the IP and LS&H segments. This was also the primary driver of the full year net loss of $987 million, which was an improvement of $3 billion over 2022, as this year's non-cash goodwill impairment charge was lower than the one recorded in the prior year. Adjusted diluted EPS, which excludes the impact of one-time items like the impairment, was $0.23 in Q4, a $0.01 improvement over the same period last year. The full year result was $0.82, $0.03 lower than 2022, stemming from the MarkMonitor divestiture. Operating cash flow was $191 million in the quarter, an increase of $54 million over the prior year's fourth quarter as the working capital timing issue from the third quarter unwound. Full year operating cash flow improved $235 million, or 46% over 2022, to nearly $0.75 billion on lower one-time cost and working capital requirements. Please turn with me now to Page 13 for a closer look at the drivers of the full year top- and bottom-line changes from the prior year. On our Q3 earnings call, we indicated Q4 organic growth was expected to approach 1%. However, it came in slightly below those expectations, closer to flat. Q4 has historically been the largest transactional sales…

Thank you. [Operator Instructions] Our first question today comes from Owen Lau of Oppenheimer. Your line is open. Please go ahead.

Good morning, and thank you for taking my question. So, both Jonathan, you talk about some of the investments for future growth in 2025 and 2026. Could you please add more color on kind of like which -- what kind of product you expect to invest into? When do you expect to launch this new product and the return of -- on these investments? Thanks a lot.

Sure. We'll do this. It's Jonathan Gear. I'll go ahead and go first. And maybe I'll walk around just through each of the segments to give a complete picture. So, as I mentioned in my remarks, Owen, in A&G, that's a segment where we made the earliest innovation investments around Web of Science, and that's where we see the initial returns from that. As we discussed in Q1 of last year, we saw the uptake of renewal rates, and that really was on the back of a complete refresh of that platform. Now, that is -- was the beginning of that journey. We continued to invest in Web of Science, primarily by creating additional analytic tools to drive value and increase in the workflow of our researchers there. That will drive usage, allow us to capture price, and allow us to price differentially. We're also seeking ways to expand our pricing model to move into different segments of the market that we typically haven't been able to address with our existing pricing model. All that is to say, within A&G, I think the path is the most advanced of the three segments in terms of the innovation and the results we're seeing from that. In IP, the biggest area of focus is around our Patent Intelligence and Search Analytics platforms, and that is the group that includes Derwent, Innography, IncoPat and related services around patent search. This is an area, Owen, I think, as you know, that we've been underperforming the past. The team has done a phenomenal job of getting close to the customers, having customer user groups drive this innovation, and we expect to launch the first two of a series of additional new modules in this area in the first half of this year. So, we expect…

Our next question comes from Manav Patnaik of Barclays. Your line is open.

Good morning, gentlemen. My question is the pruning of the portfolio that you talked about. Can you just help us size how much of the portfolio is up for pruning? And also just what is the Board's aversion to doing something bigger? It sounds like you have three disconnected segments, Life Sciences is the smallest and the most volatile, so why not do something bigger?

Yeah. Thanks for the question, Manav. This is Jonathan Collins. I'll touch on the portfolio pruning and let Jonathan take the second part. So, the small business that we are exiting in the IP segment that I mentioned in the prepared remarks that we will likely close on in Q1 and it'll affect Qs two through four, that's about the size that we're looking at. So, the focus here is identifying areas that are growth dilutive and distractive to the teams to help improve the probability of success in execution and product innovation by focusing the team. So, that is about the size. They could be slightly larger, slightly smaller, but there are opportunities in all three of our segments to winnow down the areas that we are really focusing on and investing in to drive the organic growth acceleration.

Great. Now, this is -- Manav, this is Jonathan Gear up. I'll touch on your second question on kind of a larger move. I mean, certainly the Board and myself are completely aligned that we are here to drive value for shareholders. As I've described in the past with you and others, we certainly see value of these segments being together. And the value has been driven by shared content, shared technologies, in particular around IP and Life Science & Healthcare, some shared customers, and certainly on the significance of cost synergies we have been able to drive over the last few years as we brought these four large platforms together. That being said, we will always optimize what's in the best situation for our shareholders and for our customers. And to do that right now with the Board has me focused and what I have the team focuses on operating and improving every single segment as we've described. Thank you.

Next question, please. Lydia? Please standby, I think we're experiencing technical difficulty.

Thank you. Our next question comes from Heather Balsky of Bank of America.

Hi. This is Heather Balsky. Thanks for taking my question. I was hoping you could talk a little bit more about the increase in CapEx spend and the investment spend you're doing, and just help us understand how much of it is GenAI initiatives, how much of it is other investments in the business? And how -- you talked about investing to drive growth, just how we should think about spend over the next few years? And how you're thinking about if there's incremental opportunities to invest just balancing that with the margin growth and cash flow growth? Thanks.

Yeah. Thank you for the question, Heather. So, with respect to our CapEx increase, most of that is adding development capacity, which we capitalize at a relatively high rate when we're enhancing and improving products. So, maybe, I'll just touch on a couple of the areas that Jonathan mentioned a bit ago. In the A&G segment, we continue to ramp up the investment in the Web of Science to stay ahead of adding features to the platform and ingesting new mediums of content to make it a great experience. And there certainly is an AI overlay there. All of our businesses are starting to move towards conversational discovery, which is an example of embedding AI in the products, and it certainly comes with development effort in all of those areas. Web of Science certainly doing that as well. As we move into Life Sciences, it's a combination of development capacity and some content or data for the real-world data offering. As Jonathan highlighted, we spent a lot of effort in the past couple of quarters building out pharma-grade data and the technology investment there. And then the next step for us is start to build these therapy area platforms or offerings that will take meaningful development efforts. So, that's really how we're spending within the Life Sciences segment. And then, on the IP side, the four new platforms or modules that will be put on top of the Derwent data set for search, for watch, for strategy, and for R&D, those applications have pretty meaningful technology developments that will happen over the course of this year and into next year. Just in terms of the time horizon, we indicated last year and the cash flow guidance that we highlighted today, getting to that greater than or about 50% conversion in a couple of years does contemplate CapEx being at a reasonably steady dollar level over the next few years. As revenue grows, that margin on CapEx should drop a bit, but we do expect that we'll need to continue to make that investment over the next few years. Thanks for the question.

Next question, please.

Our next question comes from Toni Kaplan of Morgan Stanley. Your line is open.

Hey, good morning. This is Greg Parrish on for Toni. Thanks for taking our question. I just want to dig into the change since Investor Day in March. I mean, what really drove the difference in the turnaround trajectory that you were targeting? You're ramping up investment here. So, is more investment required than you thought back then, or they really just macro, or is the end market more challenged maybe than you thought? If you can kind of help bridge the gap there? Thanks.

Sure, Greg. And the way I think about it, and I encourage you to think about it, is really two different things. First is macro certainly impacted us far more than we were anticipating in 2023, primarily in IP, and we talked about that in our Q2 call also in Life Sciences & Healthcare with commercial markets there. Those were the most impacted. And to a lesser degree, with some -- on the margin within A&G with some discretionary transactional items. But, primarily, again in Life Sciences & Healthcare and IP. So, macro was part of it. So, it ended up impacting kind of our starting point, if you will, on the three-year plan. And the other element of it really was around -- as we brought in more -- brought back in more industry expertise back into the business as we reestablished some of the teams that we'd had before, we began to slightly modify and change some of our go-to-market product strategies, particularly around Life Sciences & Healthcare. And with Henry coming on board middle of last year, spending time with him, again, we really made a decision to change our Life Sciences & Healthcare RWD platform strategy. Absolutely the right thing to do and it makes me even more confident in the future. But that did pull us back a year in terms of the timing around that platform. So, those are really the two kind of key areas I would call out. Thank you.

Great. Thank you. Next question, please.

Next question is from George Tong of Goldman Sachs. Please go ahead.

Hi. Thanks. Good morning. It looks like in your guide you're expecting improved organic growth this year in subscription and reoccurring. It's really the transactional piece that's going to be the offset. So, can you talk a little bit more about how much of the transactional revenue headwinds are cyclical versus structural, and steps that you're taking internally to drive improved performance here?

Sure, George. Yeah. Just to reiterate what this year's guidance range contemplates on organic growth. So, we do believe that the subscription business will be relatively consistent with last year. We grew about 2.5% last year. I think we'll be in that 2% to 3% range. As Jonathan highlighted, those investments that we are making this year in Life Sciences and in Patent Intelligence within IP should start to improve usage in the second half of this year and help the lift subscription growth next year. And we should continue to see some traction in A&G as the Web of Science product continues to improve. Most of the impact in reoccurring, which we think will grow modestly this year, is going to come from a modest improvement in the second half of the year on volumes within that market. We'll have tough comps early in the year, which is why I indicated growth will be lower, particularly in Q1. But to your point on transactional, we continue to expect and are conservative around commercialization budgets in 2024. We do think there is some opportunity in the second half for things to improve modestly, but we've been pretty conservative on the rate of improvement in that market. On the IP side, from a transactional search and watch, we've been relatively consistent there. It's been lower than in the past couple of years. And then, on the A&G side, which is the only place that we were a bit softer in the fourth quarter, we've been a bit conservative about the expectation there. So, that's what's leading to the anticipation that transaction will be down a couple of percent. In terms of what we are doing about it and the things that we can control, the primary area to focus on is within Life Sciences. So, the investment that we are making in these therapy area focused offerings for our real-world evidence and the pharma-grade data will lead to opportunities to sell this in a subscription model. So, that's a place where the headwinds we've seen in transactional the last couple of years we expect to see come back to us in the form of subscription growth. So, that's a little bit more color on how we're seeing 2024's growth expectations by order type.

Next question, please.

The next question comes from Seth Weber of Wells Fargo. Please go ahead.

Hey, guys, good morning. I was wondering if you could just touch on the pricing environment where it sits today and kind of what you're contemplating for pricing as you ramp into 2026? Like, how much better do you think -- or how much of a bigger contributor do you think pricing will be as you get further down the road with more products and better -- more cross-selling, things like that? If you could just sort of talk through where pricing is today and how you see that trending over the next couple of years? Thank you.

Sure, Seth. Yeah. I mean, I'll go ahead and comment on that and see if JC has any additions. I mean, in general, pricing has been a net contributor for us across all three product lines with our subscription products. Now, certainly if you unpack that and look at specific products, where we have innovated in the past, where we are creating new updates to the products, that's where we're able to capture more price, and areas where we've done less so, and I will call out Derwent, for example, not able to capture price. There's a direct correlation between our ability to innovate, drive that innovation to impact customer workflows and our ability to capture price. When I look forward to the plan this year, we've been fairly modest in terms of assuming any improvement on price capture for our plans for 2024. That being said, we are amping up our rate of innovation. Henry Levy has announced that he's going to be -- every product is going to have an update this year in terms of his portfolio, and that will be able to capture price. But I think we're going to take a wait and see in terms of when we actually see that coming through. JC, anything you want to add to that?

Yeah. I think the indication we would expect 2024 to be pretty consistent, as Jonathan highlighted. In 2025 and 2026, as we launch these new offerings, we certainly think that this will be an area that will help contribute towards the growth acceleration as we move up a bit in those key product areas that we haven't been able to price meaningfully in the last few years. Thanks for your question, Seth.

Thanks, Seth. Next question, please.

The next question comes from Ashish Sabadra of RBC Capital Markets. Please go ahead.

Thanks for taking my question. Maybe just following up on an earlier question around the revenue growth trajectory in 2024. The visibility historically has been pretty low. So, I was just wondering what gives the confidence in that back half acceleration in second half 2024? And in order -- like, what could drive upside or downside risk there? Is it mostly macro, or are there certain client wins which are ramping up that can provide further confidence on that growth improvement? Thanks.

Yeah. Thanks for the question, Ashish. This is Jonathan. On the expectations and the cadence for this year, it's mostly driven by the comps from the prior year. So, we have not built in to your point because of visibility challenges for the last couple of years, a meaningful improvement in the markets in the second half of the year. But you'll recall, for example, in our patent renewal business, we started to see the softening in the second quarter, late in the second quarter. So, we have tougher comps in the first part of the year. That's also true with the trademark business within IP. So, that's the reason we expect that growth will be slightly negative in the first quarter. We'll return to growth in the second quarter and have better growth in the second half of the year. It's less to do with the run rate improving and more about the comps. And we have expected the transactional business to decline by a couple of percent, as I indicated. So, we think we've been a bit more conservative with our outlook on those sales that have been a bit more challenging to predict over the last couple of years. Thanks for the question.

Thank you. [Operator Instructions] Our next question comes from Shlomo Rosenbaum of Stifel. Please go ahead.

Hi. Thank you very much. Some of the players in life sciences, like IQVIA and [Veeva] (ph) are talking about improved optimism amongst their client base, and they're thinking that we should see a second half improvement. Is that square with what you guys are expecting in your numbers? Are you not seeing that? Are you not expecting that? And then just, Jonathan, I want to touch on one thing that at the Analyst Day the 2025 target was 6% growth, and you're now pointing to '26 at 4% to 6%. Can you just address, is that lowering the growth expectation even in the next year?

Sure, Shlomo. This is Jonathan Gear. I'll go ahead and address the first question, and have JC address the second. So, on life sciences, I think what -- as others are seeing, we are seeing renewed optimism within our life sciences customers. The commercialization budgets appear to be higher and we're seeing it kind of across the board, both on large pharma, large biotech and even the small biotech. So, there is renewed optimism coming back into it. That being said, we're going to want to wait and see in terms of how quickly that converts into really increased demand for our products and services and consulting. So, while we are seeing that certainly in the macro environment, we've been cautious about putting that optimism into our guidance in second half. JC, do you want to address Shlomo's other question?

Yes. And that conservativism around the macro, Shlomo, is the other factor that's really driving the change in the last year of the guide we gave. So, to your point, we had previously indicated in the 5.5% to 6.5%, or 6% at the midpoint, we're now in the 4% to 6% range, so we'd have to get to the higher end of that to touch the prior midpoint. That is primarily due to our conservatism around the rate of improvement in the end markets. What could cause us to be to the higher end is faster acceleration, for example, in the commercialization market that, Jonathan, just highlight, a better outlook on the patent renewal front would be another example. So, that is the primary difference in the change between the two outlooks. Thank you.

Thank you. Next question, please.

Next question comes from Andrew Nicholas of William Blair. Please go ahead. Your line is open.

Thanks, and good morning. I just had a small question on A&G. Jonathan Collins, I think you mentioned it's the largest transactional quarter. I think, that's mostly back file sales within Web of Science. But just if you could confirm that's where the weakness was? And then just any color on the drivers of that? Is that also budget-related cyclical pressures or is there -- is it just a timing issue and you'd expect some of that to come back next year? Thank you.

Yeah. Thank you for the question, Andrew. So, as a reminder, we have multiple types of transactional sales within the A&G segment. You touched on one of them where we're selling the back file of Web of Science, which makes the analytics of the platform much more valuable to the users. Other examples are digital collections, historical collections that we've digitized and preserved, and also our books business. So, it's a combination of those. Q4 usually is the largest quarter for us. What we saw a bit later in the quarter is our customers in that space pausing a bit. What we heard from them is that they want to wait and see on some other spending factors. Most of our customer base is in North America within that part of the business, and their budget years run similar to the school year. So, their budget year will end in the second quarter. So, we'll see how that plays out in the coming quarters. But that's most of the feedback that we heard from that market, and those were the sales that were affected. Thanks, Andrew.

Thanks, Andrew.

Great. Thank you, Andrew. I think that was our last question. Just as I wrap, just want to thank everyone for joining our call today and listening with our remarks, engaging with us. As we look forward to next year, again, as we said in the call, 2023 was a foundational year for us as we made the changes that we needed to make to really propel Clarivate. And I look forward to sharing with you over the ensuing quarters coming up of the results of the investments we're making, innovation as we drive this company to grow. Thank you very much, everyone. Goodbye.

This concludes today's call. Thank you for joining. You may now disconnect your line.