Hello, and thank you for standing by. My name is Regina and I will be your conference operator today. At this time I would like to welcome everyone to the Clarivate Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute, to prevent any background noise. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to the company to start the call. Please go ahead.

Thank you and good morning, everyone. Thank you for joining us for the Clarivate third quarter 2024 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 the prior written consent of Clarivate is prohibited. An accompanying earnings call presentation is available in the Investor Relations section of the company's website. 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 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 measure. Reconciliation of these measures to the most directly comparable GAAP measures are available in our earnings release and supplemental presentation on our website. With me today are Matti Shem Tov, Chief Executive Officer; and Jonathan Collins, Chief Financial Officer. After our prepared remarks, we'll open up the call up to your questions. And with that, it's a pleasure to turn the call over to Matti.

Good morning, everyone, and thank you for joining us today. Jonathan is going to cover our quarterly results in details in just a few moments. Our financial performance has been disappointing, and not what we aim to achieve at Clarivate. But I would like to take you - what I would like you to take away from today's call, is that while Clarivate has a lot to do to improve performance, we also have a lot of value levels and opportunities in front of us. And with that comes a possibility of a significant upside. I'm going to talk about how do, we plan to reposition Clarivate to realize its potential. First, I would like to share a bit about myself and what brought me to this leadership role. I have 19 years of experience as CEO, including 14 years at Ex Libris and five years at ProQuest, now meaningful part of Clarivate. Under my tenure, Ex Libris grew six times into a SaaS education technology leader. During this period, we accelerated our focus on innovation, transforming the company from an on-premises technology to SaaS technology provider, by introducing the Ex Libris Alma cloud solution. We expanded our offering beyond Libris and invested in strategic acquisitions, to deliver more value to our customers. As CEO of ProQuest, I continue to focus on driving growth through operational discipline, product innovation and strategic acquisitions. We introduced ProQuest to One, bringing together our deep connection of academic content, e-books, videos into a single platform. We launched the Rialto Content Marketplace, the company's first onboard solution in many years. We have acquired and integrated five companies, including innovative interface and public cloud software leader. We delivered strong sustainable growth with revenue increasing from [$1,750 million] to more than $900 million ,and substantially increasing our…

Thank you, Matti. Slide 11 is an overview of our third quarter and year-to-date financial results, compared with the same periods from the prior year. Q3 revenue was $622 million, a decrease of $25 million, compared to the prior year, bringing the year-to-date to $1.9 billion. The third quarter decline was largely organic, but was also impacted by the Valipat divestiture. The third quarter net loss was $66 million, $59 million lower than last year, largely attributed to a $40 million increase in FX losses, due to the weakening of the U.S. dollar. And a $14 million non-cash goodwill impairment charge recorded in the IP segment. Adjusted diluted EPS, which excludes the impact of one-time items like the impairment, was $0.19 in Q3, a $0.02 decline over the same period last year, due to lower adjusted EBITDA. Operating cash flow was $203 million in the quarter, an increase of $40 million over the third quarter last year, taking the year-to-date to over $0.5 billion, which is down $48 million over the prior year. The decline is almost entirely driven by lower adjusted EBITDA, as higher working capital requirements were offset, by lower one-time costs. Please turn now to Page 12 for a closer look at the drivers of the third quarter top and bottom-line changes from the prior year. We previously anticipated the business would return to slightly positive organic growth in Q3. However, our results came in below those expectations at a decline of 2.6%, lowering revenue by $17 million versus the third quarter of last year. Our subscription business grew at just under 1%, which was slightly below our expectations, but in line with the prior quarter. Sums growth in A&G remains strong at 3% so far this year, but we continue to experience headwinds in our LS&H…

[Operator Instructions] Our first question will come from the line of Owen Lau with Oppenheimer. Please go ahead.

Well, thanks for taking my question. Could you please talk about the actual organic growth was so far [Technical Difficulty] was something [Technical Difficulty]?

Hi, Owen, I'm sorry there. The connection was poor. We had a hard time making out what you said.

Yes, let me try again. Could you please talk more about why the actual organic growth was so-far off from your expectation? And I know you talk about transactional revenue and some weakness in all three key segments, but where was the disconnect and how do you plan to change it? Thanks.

Sure, Owen. I'll start with a little more color on the quarter and then I suspect Matti will want to touch on how the value creation plan will help to address this. So as I mentioned in the prepared remarks, the transactional performance compared to expectations in Q3 was largely concentrated in our A&G business and in our Life Sciences segments. IP was reasonably close to what we were expecting on transactional, on recovery and trademark services business. Within A&G, you'll recall we have a few different lines of transactional services we're providing digital content and historical research and analytics information in particularly in North America we saw less spending on the digital content that is transactional in nature. The pipeline development and conversion was lower than is anticipated and would be normal for those lines of business. And then additionally in Asia, where we still see significant market opportunity for historical research and analytics content, sales were lower there and the pipeline conversion was particular. In addition to that on the Life Sciences side of the business, as we touched on, where we support our large pharmaceutical customers in commercialization products and services. A number of those products -- the projects that were anticipated did not materialize or pushed during the quarter as well, too. So those are the reasons. I'll maybe let Matti touch on the things we're focused on.

Basically, this is a good -- a great segue to what we're actually doing. And as part of my three-month journey talking to the internal people, sales organization product and some of our customers volatility and exposure to one-time revenues is, also we can see that during the last quarters and going forward, we are going to take away some of the volatility and rationalize some of the onetime transaction business. We're looking further into the one-time business is low-margin, it's low profit, it's low-growth, it's extensive. It's very hard to predict and part of the -- my impression is we are currently contemplating this and taking away this volatility and making rooms to focus -- to help us focus more on product innovation, subscription, reoccurring predictable profit revenue streams. That's where we're going.

Thanks for the question, Owen.

Thanks.

Next question.

Our next question comes from the line of Ashish Sabadra with RBC. Please go ahead.

Hi, good morning. This is David Paige on for Ashish. Thanks for taking our question. I was wondering maybe you could just parse out some of the weakness that was driven by just general macro headwinds or - I know in the initial value-creation plan, you have to improve sales execution and get more focused on product portfolio. But maybe you could just parse out like what was a macro headwind versus what was an internal product portfolio that needs to be fixed? Thank you.

Yes, thanks for the question, David. So we certainly believe that it's a combination of both. We think a meaningful portion of what we experienced in the quarter were market headwinds being higher than we expected. But as Matti touched on in his remarks, we certainly acknowledge that there is significant opportunity to improve our sales execution.

There are several factors which relate to sales reduction. I actually mentioned. We are all aware of the history of Clarivate One and the reversal of Clarivate One. Some of it sales -- existing sales set-up within the different segments. And I want to reiterate the smart and right decision by previous management to bring back the three-segment approach. But still there are some work to be done on the specific sales organization of the different segments and there are the concept of the sales generalist approach doesn't really work in some of the segments. So what we're actually going to do is actually introduce the sales - we're going to emphasize further on the sales specialist and try to rely on the customer buying. The customer is actually buying our product with our sales expert. This is one of the drivers for the improvement on the sales organization. There are some other elements of the sales that we -- sales improvement we are doing. The company somehow was underinvested in customer success in some of the segments. Making sure that people are actually using our product to the fullest and understand the new function and features coming on. And we are -- we have identified some shortage of staff that we will maneuver from other places of the organization to be closer with our customers and close engagement to make sure our renewal rates are actually going up and they are going up in some of the segments.

Thanks for the question, David. Next question, please.

Our next question comes from the line of George Tong with Goldman Sachs. Please go ahead. Hi, George, your line might be on mute. We'll take our next question from the line of Toni Kaplan with Morgan Stanley. Please go ahead.

Thanks so much. And I appreciate the information on the value creation plan. I wanted to just ask. I think when you think about moving transactional to subscription, improving sales execution, accelerating product innovation makes total sense. But I think a lot of these were items that prior management had tried to work on as well. And so, just wanted to understand, I guess what's going to be different this time? And also, should we expect a higher level of investment going forward? Does that mean that maybe we see a little bit of a hit to margins to try to drive some of the growth? Just wanted to understand those two aspects. Thank you.

So maybe, I'll start with the first question. So I'm not here to comment on the previous management. I actually reiterated already. I think the previous management has done a good decision to realign the company with having three segments that also started the investment into product innovation. I'm simply different, I've come from a different background I have my strong passion for people, product and sales. So going to invest myself, in making sure we have the right talent and we do have the right talent. We need to do some minor alignment with our talent and I'm going to focus a lot into product. Some of you look at my bio, I've been a product person since my - early in my career. So I'm going to put a much stronger effort and I go deeper into the product innovation life-cycle. I developed during my long career with Ex Libris and ProQuest methodology that worked with our customers to develop product and then making sure that we align our product development with customers' needs and -- evolving needs and lastly, the sales execution. I've been involved in ever during my career, I was focused a lot in sales execution and delivering the product. So I'll bring my three passions, people, products and sales into the Clarivate environment. And I'm sure this experiences will work well for a broad putting back the company on an organic growth trajectory, create value for our customers and obviously create value for our shareholders as well.

Thank you for the question, Toni. Next question. Please.

Our next question will come from the line of Andrew Nicholas with William Blair. Please go ahead.

Hi, good morning. Thank you for taking my questions. I'm thinking there's a lot of experience with turnarounds and people, product sales. Just kind of curious, and I'm not asking for specific guidance. I know you're going to talk a little bit more about the plan next quarter. But based on your experience, how long do some of these different pieces tend to take? I'm just kind of curious how quickly some of these go-to-market motions, for example, can be revitalized based on what you've seen within the business to this point.

So based on our experience, I've been around for 90 days. I don't want to jump ahead of myself. I've been investing my time meeting our people and meeting some of our customers and trying to see what's working, what can be further improved. I have some very clear ideas about the way forward. Some of the change will be up-and-coming pretty quickly, some will take more time and evolve all the time. Obviously some changes in the middle - in different levels of cost management, some product innovation, it takes time to renew a product. So I would be expecting to give you more details in February, but this will evolve - like improvement will evolve over time. And one of the ideas that we have and that we actually are going to give you some KPIs and some KPIs at some point, which will allow you to track our progress against the plan. But this will come in February and beyond. We are not going to give a specific before the February but we understand that you need to be able to track. Of course, we will address this in February earnings call.

Great. Thank you for the question, Andrew. Next question, please.

Our next question comes from the line of Manav Patnaik with Barclays. Please go ahead.

Thank you. Good morning. Matti, you talked about all the time and effort you put into ProQuest to fix it and kind of turn it around. I think there you had the benefit of it being a private company in a lot of kind of time and cover, if you call it. From what you're describing, it sounds like all three of these segments that most of us don't think belong together have issues as well and it's probably best done private versus public if you're not going to split it apart, it sounds like you aren't. So just curious your discussions there with the Board, like why isn't that something that's part of this effort that you're going through right now?

First of all, let's talk about whether these three businesses belong together or not. So all these three segments have some very similar characteristics, right? They all enriched data, provide analytics insights, deliver workflow solution by our SaaS to provide some expert services. This is one. There's also - the three businesses have the same ability and the same technology infrastructure. We're talking about content, we're talking about technology and we're talking about share commercial channels to deliver efficiencies and scale. And at the same time, I recognize what you're saying. We have some - our current thinking, it's too early to comment on what you said, but there are no secret accounts.

Thank you for the question, Manav. Next question, please.

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

Hi, thank you for taking my question. Wanted to - I just wanted to ask you between some of the stuff that you were talking about in terms of getting rid of products that are marginally profitable and simplifying the business and potentially looking at areas to get out of. Should we expect a substantial kind of shrink to growth strategy over here where the business has to actually be decently smaller than what it is today, particularly on that transactional side of the business? Or is that really - that's not really a huge factor, it's just kind of marginally making sure that the business is not so volatile and you're in a more a better position to sell the products. I'm just trying to think of strategically how we should be thinking about this in terms of trying to layer things into our thinking.

So we have identified -- thank you for the question, Shlomo. We've actually identified some potential businesses that we want to divest, wind down and maybe shrink in different ways. And we're still deliberating on which what should we do and how do we go about this? Because if we divest the business and we are staying in a certain segment, we want to protect our reputation, we want to protect our other business, as we said, with their respective segments. So there are currently different teams are working on different ideas and opportunities and they are for real. But you have to bear with me, first 90 days and you have to be patient till February. We will lay down in February. We have some good idea. It will be much more concrete and specific in February.

Okay. Thank you for the questions.

Next question.

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

Good morning. Thanks for the question. Matti, I think one of the original full thesis on Clarivate over the years has been driving revenue synergies either within segment by expanding the value chain presence along the value chain or across segments. Obviously the company's done a decent job in driving cost synergies there. But just curious on your assessment on whether you think there are potentials for revenue synergies between the three various businesses and likewise within segments where the company has added capabilities? Thank you.

So, I think we all know the history when one -- like the pendulum go one way with One Clarivate brought it back to another - to the other side. I believe it's from my initial view that there is some revenue synergies between the three organizations. This is something I still need to check and dive in and come back with some specific. The potential is there, the concept of putting the three together was a sound concept execution. We can argue about the execution. There is some - definitely, there is cost synergies and this was taken to an extreme in our situation. There should be also some revenue synergies and there are some cross-selling between some customers of the different segments are buying from other segments as well. But I want to wait some more time before I give you some complete answers about revenue synergies between the different segments. It's definitely something there.

Yes. Thank you for the question, Peter. Regina, let's go to our last -- our next and final question, please.

Our final question comes from the line of George Tong with Goldman Sachs. Please go ahead.

Hi, thanks. Good morning, and sorry for the technical issues earlier. In each of your segments, can you talk a little bit more about some of the end-market trends that you're seeing? What would need to improve externally to help support some of the internal initiatives you have to transform the business?

Yes, first of all, it's a given that we are operating in three different segments, the very good segments to be in. And I believe that the mid-term growth of those segments and I'm talking about - I'm being very careful, I'm talking about the segments themselves. I'm not talking about the company at the moment. I think those segments grow four, five, maybe even more on the life science side. That's our belief. Those segments are growing. We have different characteristics or different situation in -- within the three segments themselves. We see that on the - I'll start with the A&G, the current situation with the university we have - we see less of an appetite to invest in capital expenses. That's why we see some softness on the digital collection front. This is why we're also talking - this is - we've seen all - already in the - we keep talking about the softness of capital expenditure on the A&G side, which impact our one-time revenue. That's on the A&G side. On the IP side, we've seen - again, it's a 4%, 5% growth on the market side itself. We do see some -- currently some softness on the annuity side. Not only from us, if we take the Dutch PTO as an example, we see from the Dutch PTO because the indication that our annuity is suffering -- the entire industry is suffering on the annuity and we do expect this to come back. And thirdly, the life science, that seems to be the most promising in terms of growth, but we see headwinds, especially on the commercial side of the life science where we see that R&D is still doing well on the commercial side of life science. We see some softness at the moment, but since the beginning, they are all good segments to be in, 4%, 5% growth as an industry. Life science, maybe even more.

Got it.

Thank you for that question. And Regina, I think we have one final question. Go ahead.

And that question will come from the line of Colton Feldmann with Jefferies. Please go ahead.

Hi, this is Colton on for Surinder. One quick question I just wanted to ask. I think you guys had mentioned, seeing some lower renewal rates in some areas of the business. Just wanted to ask kind of what you're seeing there and kind of - if there's any certain segments you're seeing higher churn or if you can generally just kind of talk about what you're seeing from kind of a churn perspective, if it's quantitative or qualitative, just kind of generally. Thank you.

Yes, thanks for that, Colton. So in our prepared remarks, we highlighted the fact that the subscription growth for A&G remains solid. So renewals in A&G continued to be very strong where we saw renewal pressure in the third quarter that had a small impact or smaller impact was within the Life Science and the IP segment. So as we touched on, we know there's pressure on spending even for recurring revenues within the Life Sciences space, particularly in our large pharma customers. And then as Matti touched on, we do continue to see some pressure on spending in IP on our recurring business, but also within subscriptions ahead of the new Derwent launch that's happening as we speak. So those are the two areas that we were a bit softer on in the third quarter. And obviously the things that we discussed in the VCP between sales execution being closer to the customers. Making sure that we're driving a strong usage of the product through training will help to alleviate that in addition to the product innovation investments we've made. So, thank you for that question, Colton.

Regina, I think that's our last question. So I want to thank everyone for joining in this morning.

Ladies and gentlemen, that will conclude today's call. Thank you all for joining, and you may now disconnect.