Clarivate Plc (CLVT) Q4 2025 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Clarivate's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mark Donohue, Vice President, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for the Clarivate's Fourth Quarter and Full Year 2025 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, and the accompanying earnings call presentation is available on 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 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 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. Reconciliations of these measures to 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 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. We are at a positive inflection point in the Clarivate journey. In 2025, we delivered on our initial full year financial guide for the first time since 2019. The value creation plan is working as evidenced by our improved performance and forward outlook. We have accelerated organic ACV, organic recurring revenue and enhanced our free cash flow conversion. Looking ahead to 2026, our guidance calls for 10% free cash flow growth and continued improvement in our KPIs. With strong cash generation, stable revenue retention rates of 93% and a business that generates 97% of its revenue from proprietary solution enhanced by AI, we see tremendous opportunity in front of us. Last February, we announced a strategic review of our business portfolio, which involves evaluating multiple options. After an in-depth analysis, we have launched a process to sell our Life Sciences & Health business, which if the deal is concluded, could accelerate value creation for shareholders. We believe selling this segment will allow further emphasis on the A&G and IP market and strengthen our balance sheet through reduced leverage. We are currently engaged in active discussion with interested parties. There are no guarantees we will reach an agreement. We will update the market when appropriate. While we understand the market's concern around AI disruption for software and information services companies in general, we believe our business is highly proprietary with significant moats. A few weeks ago, we launched a webinar titled Clarivate Intelligence Amplified in the Age of AI. If you have not viewed it yet, I encourage you to do so. For us, AI is not a disruption to our business model. It is an amplifier of what already sets us apart. Today, 97% of Clarivate's revenue come from proprietary assets, including intelligence solutions, workflow software and tech-enabled services. This reflects decades of strategic investment in proprietary content, expert enrichment and curation and the development of software products embedded across customer workflows. This strong and proven foundation provide us with a significant advantage in the age of AI. Our customers operate in high-stake environments such as research, intellectual property and highly regulated life science industry when provenance, accuracy and trust are essential and nonnegotiable. Let me explain our AI strategy. We are leveraging AI to capitalize on our strengths. By combining our proprietary data and deep domain expertise with cutting-edge technology, we are delivering what we call intelligence amplified. This shows up in 3 ways. First, AI research assistants provide a conversational contextual search and discovery, a front door to our trusted intelligence, where customers can simply ask questions in natural language and get a precise answer backed by our proprietary data. Second, AI workflow agents are embedded directly into customer workflows, acting as digital analysts that enable execution at speed. Tasks that used to take hours or days can now happen in minutes. Imagine a patent analyst who has an AI agent that can monitor thousands of patents, identify relevant prior arts and flag potential conflict automatically. That is the power we deliver. And third, through AI ecosystem access, we are extending our gold standard intelligence across the broader AI ecosystem via secured integrations such as MCP servers. By expanding our reach beyond cloud boundaries, we are ensuring our assets remain available to users as they develop new ways of working. For example, we recently introduced Nexus, which exemplify our ecosystem access strategy. As students increasingly begin their research in general purpose AI tools, Nexus meets them where they are, embedding our gold standard curated content such as Web of Science directly into public chat tools. This is how we extend the value of our proprietary assets beyond our own platforms, turning AI adoption into a distribution opportunity rather than a displacement risk. We will continue to capitalize on the benefits of AI by enhancing and developing solutions that are trusted by more than 45,000 customers globally. We see this new technology as a legitimate accelerant to our organic growth. Now let's turn to 2025 results. I am proud of the results we delivered in 2025, which lay a strong foundation for 2026. We delivered nearly 2% organic ACV growth at the high end of the range. We also improved the mix of organic recurring revenue to 88%, clear evidence of continued progress towards a more predictable subscription-based model. We delivered more than $1 billion of adjusted EBITDA and $365 million free cash flow. As Jonathan will cover in more detail, we expect approximately 10% free cash flow growth in 2026. Our value creation plan has built strong momentum and better focus across the organization, which has improved our operational and financial performance. We optimized the business model, which has led to an improvement in our recurring revenue mix. We improved our sales execution and as a result, delivered nearly 2% organic ACV growth, representing approximately 90 basis point improvement year-over-year. We drove innovation forward by introducing 12 major products and AI-powered features, strengthening our unique position in the market. Our strategic review has led to the initiation of a process to sell our Life Science business. If successful, this will focus our organization and strengthen our balance sheet. Let me take you through each of our business segments where we have made meaningful improvements, starting with Academia & Government. This segment delivered solid performance in 2025, achieving 2% organic ACV growth despite funding headwinds in the U.S. academic market. On the innovation front, we launched 10 AI assistants and AI-native agentic solutions, and these are being used by over 4,000 institutions today. And here is the foundation that makes this all possible. 97% of our A&G revenue is generated from proprietary solutions. Last year, we successfully transitioned the business model away from transactional revenues. This increased our organic recurring revenue mix to 93% with mid-90s retention rates. Looking ahead, we expect organic growth acceleration as our AI innovation continues to materialize, supported by improving market dynamics. Now let's us talk about the Intellectual Property business. It is powered by the industry's largest agent network and a comprehensive portfolio of solutions covering the full IP life cycle. This includes patent and trademark created proprietary data, decision intelligence, tech-enabled services, IP management software and the largest annuity book in the market. This gives us scale, reach and a competitive advantage no one else can match with a new leadership team, including the President, CTO and the Head of Software and clearer priorities, we are confident in returning IP to growth. On the innovation side, we launched 5 GenAI and AI native products and enhancements last year. 2026 will bring additional AI product launches across the IP landscape. The changes we have implemented are starting to show up in the results. We delivered 270 basis points of year-over-year improvement in annuities revenue, reflecting stronger execution. The outlook for IP is increasingly positive. The fundamentals are there. The team is aligned and the AI-led innovation and products are resonating positively with our customers. Turning to Life Science & Health. Life Science & Health is anchored in expert curated highly enriched data, which is optimized for compliance critical workflows where accuracy, governance and trust are essential. We now have 11,000 global active users leveraging our AI research assistant and workflow agent. That is incredible adoption in a market where accuracy and trust are nonnegotiable. And we are not slowing down. We are due to release more than 10 additional AI solutions this year. We have reached a clear inflection point. Cortellis, DRG and [indiscernible], our 3 major product lines are now moving in the right direction with consistent quarterly ACV growth. Based on deals we closed last year and our current pipeline visibility, we expect a return to organic revenue growth in 2026. Now let's talk about where we are headed and why we are confident in the outlook. For 2026, we are guiding to 2% to 3% organic annual contract value growth. That is a meaningful acceleration from where we were just 2 years ago. On recurring organic revenue, we are targeting 1% to 2% growth for 2026, an improvement of almost 100 basis points compared to last year in the middle of the range. Finally, free cash flow is expected to grow to about $400 million, that is approximate 10% increase over last year. I am optimistic that we can achieve our target in 2026 because we have built the foundation. We have optimized the business model. We have strengthened sales execution. We are accelerating innovation, and we are rationalizing the portfolio. In closing, 2025 was a turning point for Clarivate. In 2026, we expect to continue to improve our key financial metrics. Under my leadership, we have built a more focused, accountable and performance-driven culture, and we will maximize shareholder value through portfolio simplification and disciplined capital allocation. I will now turn the call over to Jonathan for a review of our financial results and outlook.

Thank you, Matti. Slide 17 is an overview of our fourth quarter and full year financial results compared with the same periods from the prior year. Q4 revenue was $617 million, bringing the full year to $2.455 billion. The change in the quarter and the year was entirely inorganic as we disposed of and divested businesses over the last year. Fourth quarter net income was $3 million. The $195 million improvement over Q4 of the prior year and the full year improvement of $436 million was driven by the noncash impairment charges recorded in the prior year that did not recur in 2025 as well as lower income tax and interest expense. Adjusted diluted EPS, which excludes items like the impairment, was up $0.02 sequentially at $0.20. The change over last year was entirely inorganic. Operating cash flow was $160 million in the quarter. The $19 million improvement compared to last year is driven primarily by working capital and lower interest and taxes. Please turn with me now to Page 18 for a closer look at the drivers of the fourth quarter top and bottom line changes from the prior year. As expected, the changes over the prior year were driven by four primary factors. First, while organic subscription revenues continued to grow at 1% followed the continued acceleration in our ACV, total organic revenue declined by about 1% as the subs growth was offset by reoccurring in transactional. Fourth quarter operating expenses were higher as we continue to invest in innovation and incurred higher incentive compensation expense as we delivered our full year guidance, resulting in a $16 million profit decline. Second, during Q4, the businesses we are disposing decreased by $43 million over the prior year. But was largely offset by cost reductions in these businesses, yielding a net $10 million reduction in adjusted EBITDA. Third, as we have seen in the last couple of quarters, we experienced a modest inorganic impact from the ScholarOne divestiture. And fourth, the U.S. dollar remained relatively weaker against the basket of foreign currencies, which caused a foreign exchange tailwind on the top line that was partially offset by fewer transaction gains than the prior year, resulting in a small profit impact. We exited 2025 with a Q4 profit margin run rate of just over 41%, which was about 50 bps higher than the full year results. Please turn with me now to Page 19 to review how these same drivers impacted the top and bottom line changes on a full year basis compared to 2024. As Matti noted in his remarks, our full year revenue and profit results were above the high end of the original guidance ranges we provided a year ago. While recurring organic growth approached 1%, this was offset by organic transactional revenues, resulting in essentially flat organic revenue. Full year operating expenses were higher than the prior year as we continued to invest in growth and incurred higher incentive compensation expense as we delivered our full year guidance. The entire revenue change and the vast majority of the profit difference came from the combined impact of the disposals and divestitures, which lowered revenue by about $116 million and adjusted EBITDA by about $44 million compared to the prior year. Both the top and bottom lines benefited from foreign exchange translation as the U.S. dollar weakened compared to a basket of foreign currencies. Please turn with me now to Page 20 for a look at how the Q4 and full year adjusted EBITDA converted to free cash flow and how we allocated the capital. Free cash flow was $89 million in the fourth quarter, bringing the full year to $365 million towards the higher end of our guidance range, which is about 2% growth over the prior year as lower adjusted EBITDA and higher onetime costs were more than offset by lower working capital, capital spending, interest and taxes. We used the free cash flow we generated to buy back $225 million worth of stock, and we called $100 million of the bonds that were due later this year and then called the remaining $100 million in January of 2026. This balanced deployment of capital allowed us to maintain net leverage at approximately 4 turns while retiring $56 million or 7% of our outstanding shares. Please turn with me now to Page 21 for a look at our full year financial guidance ranges for this year. Beginning at the top of the page, we anticipate the acceleration of our organic annual contract value last year will continue in 2026, resulting in growth of between 2% and 3%, representing continued steady progress and an increase of about 0.75 percentage point at the midpoint of the range. We expect recurring organic growth of about 1.5% at the midpoint of our range, which is an improvement of nearly 1 percentage point over last year. Due entirely to the wind down of the businesses we are disposing, we expect revenue to decline by almost $100 million at the midpoint of the range to $2.36 billion and that our organic recurring revenue mix, which excludes the impact of the disposals, will improve to between 88% and 90%. Moving down the page, we expect adjusted EBITDA will grow modestly despite the lower revenue, increasing our profit margin to nearly 43% at the midpoint of the range. We anticipate diluted adjusted EPS will grow about 9% at the midpoint of the range to $0.75, largely due to the share repurchases we completed last year. Finally, free cash flow is expected to grow by about 10% to $400 million at the midpoint of the range. Please turn with me now to Page 22 for more details on the full year top and bottom line changes we are expecting compared to last year. We expect adjusted EBITDA margin will expand by about 200 basis points at the midpoint of the ranges, driven by a return to organic growth, continued aggressive cost management and completing the strategic disposals. We anticipate organic growth of about 1%, led by subscription revenue growth from continued ACV acceleration. We have plans in place to achieve cost efficiencies to fully offset inflation, resulting in a full flow-through of the approximately $25 million of revenue growth to profit. This will account for about 1/3 of the profit margin expansion. The strategic disposals are expected to lower revenue this year by approximately $130 million, and we are reducing operating expenses by more than $100 million, which yields a profit impact of about $25 million, delivering the remaining 2/3 of the profit margin expansion. As Matti highlighted, we are pursuing the sale of our LS&H segment. However, our financial guidance for this year assumes we will own this business for the entire year. And if agreement is reached, a revision to our guidance for this potential divestiture may come later in the year. We continue to anticipate a modest foreign exchange translation benefit to the top and bottom lines of $10 million and $5 million, respectively, as the U.S. dollar is expected to remain slightly weaker against other foreign currencies compared to last year. Please turn with me now to Page 23 to step through a high-level overview of the expected seasonality of our revenues and profits this year. Broadly speaking, we expect to make continued progress as we move through the year. However, it's worth highlighting some timing differences that will affect our trajectory. First, in our annual contract value, we often see timing differences with renewals in the first quarter. And as a result, we anticipate a slight sequential pullback in Q1, but steady acceleration through the balance of the year. Second, last year, we saw mid-single-digit organic growth in our reoccurring revenues in Q1 due largely to patent renewal accelerations in the U.S. that will not recur this year and will unwind in the first half. The combination of these two factors should result in recurring organic revenue growth that is essentially flat in Q1 and will result in a profit margin that's similar to Q1 of last year with the margin expansion occurring in the balance of the year. Finally, it's worth noting that our transactional books revenue will cease this summer, resulting in a sequential step down from the first to second half. But as I noted on the prior page, this disposal will expand our profit margin. Please turn with me now to Page 24 to step through our expected path to delivering approximately $400 million of free cash flow this year. At the midpoint of our range, we expect free cash flow will grow about $35 million or 10% over last year. Onetime costs are expected to abate primarily on lower restructuring costs. As noted a couple of pages ago, our guidance does not contemplate the sale of our LS&H segment. If we reach an agreement, this is an area we would update later this year. We expect cash interest to improve by about $20 million over the prior year as a result of the debt we prepaid last year and last month, additional debt we plan to prepay this year and some savings associated with the projected forward base rate curve. Cash taxes are expected to be $5 million to $10 million higher than last year due largely to new corporate tax in Jersey. We anticipate the change in working capital this year will be a use of approximately $20 million compared to last year's source of just over $10 million, primarily due to incentive compensation payments early this year. We're also expecting a $10 million benefit associated with lower impaired contractual costs. And while we remain committed to investing in product innovation, the strategic disposals and cost efficiencies will improve capital spending by another $15 million following last year's savings of more than $25 million. From a capital allocation perspective, we plan to lean more towards deleveraging this year and started last month by retiring the final $100 million of bonds that were due later this year. In closing on Page 25, I want to draw attention to the consistent free cash flow we have generated over the past 4 years. Last year's free cash flow of $365 million resulted in a 4-year cumulative average growth rate of 6% with expected accelerated growth this year of 10%. At the current stock price, our stock is yielding a free cash flow return of 30%. Over the past 4 years, we generated a combined $1.9 billion of free cash flow and asset sale proceeds, which we used to repay $1.2 billion of debt, lowering our net leverage by more than a turn and to repurchase about $700 million of stock, lowering our share count by 13%. And we expect to generate another $400 million this year and may generate proceeds from the potential sale of our LS&H business to further strengthen our balance sheet. We continue to believe executing the value creation plan will lead to healthy, sustainable organic revenue growth, further accelerating our free cash flow growth in the coming years, delivering meaningful value for shareholders moving forward. I want to thank everyone for listening in this morning. I'll now turn the call back over to the operator to take your questions.

[Operator Instructions] Your first question comes from Toni Kaplan with Morgan Stanley.

I was hoping you could talk about your monetization model for your subscriptions and for the new AI products. I think historically, some of your subscriptions at least were based on seat licenses and which products were being used by clients as well. So is that still the model that is underlying the subscriptions? Or have you been changing that? And I guess, approximately what percentage of revenue is based on seat licenses?

So, thank you, Toni. This is Matti. We continue to use AI to our advantage with protecting and growing the base of our subscription revenue. We have an upsell opportunities, upselling some of the AI innovation for existing products. And then we are constantly introducing new products. We are totally new revenues. In terms of the business model, we have quite a number of different products with different pricing models. We have rationalized some of our business model. For example, Web of Science, we have actually streamlined to be more and more subscription-based product as opposed to onetime. I'm not sure we can share the numbers. Maybe Jonathan can add to this in terms of the breakdown?

Yes. Thanks, Toni. More broadly, for example, within the A&G segment, as Matti highlighted, the pricing of the subscriptions is based on the size of the institution, so not necessarily the exact amount of students or researchers, but the size of the institution certainly affects that model. As we think about the adoption of AI, we believe that as we bring those features and capabilities into the products, whether it's the researcher assistants, the workflow agents or access to our content via the broader AI ecosystem, there's an opportunity to continue to harden the renewal rates, demonstrate more value and drive better pricing and offer new AI-type solutions such as the researcher intelligence that we just featured in that market. In our corporate markets and in the law firm markets, it's similar based on the size of the company and based on the size of the law firm is effectively how the pricing grid works for the subscription products. We expect that to continue based on the size of the institution will be broadly how we price the subscription products.

But just for clarity, there are some products that are also based on the combination of the size of institution and also the actual FTE that actually -- the actual end user are actually using it just for clarity and full transparency here. I don't see this as a major concern at this point of time. I know where the question is coming from. We don't see this concern. We have quite a good -- if we look at our renewal rates, going up, usage is going up. If you look at -- maybe you can talk about -- slightly about where we are in -- do you want to talk about Q1?

Yes, we continue to -- early in Q1, we continue to see progress across our key metrics. And when we're out with our Q1 results in just a couple of months, we think we'll continue to demonstrate that we're on the right path. We continue to move in the right direction, and that's the best demonstration of the value we think we can capture the technology shift.

Your next question comes from Scott Wurtzel with Wolfe Research.

Just wondering if you can explain or give a little bit more detail on the 97% of revenue coming from proprietary data and specifically on how the tech-enabled and workflows kind of fits into that would be great.

Basically, these are two questions. There is the AI question and there is the workflow question, which is kind of different for us. Just to remind ourselves, 97% of our business derived from proprietary data, about 60% is information services. We do have a component of about 20%, which come from enterprise software. I can address both of them. So let's talk about -- start with information services. Our data is originated in three sources: public, license and some which are exclusively and internally generated. The value we deliver is regardless of the source of the data. Almost entirely, the value lies with our creation enhancement, harmonizing and embedding the data with the right algorithm in the workflow ecosystem of the end customers. I want to give just two examples, some life example we will make it a bit clearer. Let's take, for an example, Web of Science in Academia & Government. The created harmonized data is then embedded directly into research and valuation, funding allocation, publishing decision and national science policy workflow. Transparency and auditability are very, very essential. This is why Web of Science underpins decisions such as where researchers publish, how government allocate funding and how universities assess performance. General purpose AI tool, which lacks the provenance of government and governance cannot substitute this high-stake workflow. Let me give you another example. When pharmaceutical companies use general purpose LLM to ask about drug safety profile, it returns publicly available information that is useful, but incomplete and potentially outdated. When the customers use Clarivate's Cortellis platform, they access 3 million safety and toxicity alerts that have been expertly created linked across Cortellis data sets and continuously updated by our in-house scientists. This is not just better data. It is a different category of intelligence that directly impact billion-dollar decision in the drug and medical device development. At the high level, it's positioned us very, very well, 97%, and this is why we are continuing to see an improvement in our renewal rate of 93%. I can also go and talk about the workflow element of the business. It's 20% of our business. Just remind ourselves, the IPMS business, the IP business is driven also by strong recurring and growing IPMS software business. Within IP, we have also a major component of software within A&G and the Alma product, the Polaris product. And I can speak here from a vast experience. I've been in the enterprise software space for almost 30 years. We hear out the issue of like AI sweating us by commoditizing the coding. But I do believe that we are in the best position here. It's not for AI to develop code. I understand. We actually use it ourselves, accelerating our development process. But we have some inherent competitive advantage as an enterprise software vendor, including the commercial channels that we have developed and supported over years. The switching and implementation dynamics, the workflow integration. And I think the most important one is security and governance. That is why we believe the 93% of our business is proprietary, and we will continue to demonstrate this in quarters to come. Thank you for the question.

Your next question is from George Tong with Goldman Sachs.

What were the key considerations that led you to initiate a sale process for your Life Sciences & Healthcare business? Why did you deem LS&H as nonstrategic and A&G and IP as...

So first, as we -- as I mentioned when I joined the company, I think the first earnings call was late 2024, our ultimate goal is to create shareholder value. We have initiated the value creation plan with four pillars. The fourth pillar was the strategic alternative one. We -- I think we've demonstrated the success of the value creation plan. We've gone from 80% recurring to 88% execution of the sales execution. We see a tremendous momentum on the AI innovation. We do believe there is also shareholder value to -- shareholder value that we can create through the strategic alternative side. We've run a process. We looked at our different alternatives, and we have concluded that Life Science segment is the one that we will -- that's the one that we have the opportunity to increase to sell, and then we will increase our focus and operational execution across A&G and IP segment to further strengthen our balance sheet. It makes sense for us to keep IP and A&G together because we benefit tremendously from the shared content assets, technology platform, commercial channel scales and strengthen our innovation. If any time in the future, we feel better off separating them, we will definitely keep you informed.

Your next question is from Manav Patnaik with Barclays.

I just want to follow up on that last comment, Matti, in terms of the -- I guess, the strategic synergies between IP and Academia & Government, I guess, could you just elaborate on what you said towards the end there? Like how do those two segments potentially work with each other?

I think it makes sense to keep IP and A&G together because we benefit from shared content. We are some -- there is some content flowing between the two different segments. We're using technology platform. We see -- I mentioned already on the call that IPMS is software. Alma is software. We do have agentic capabilities that we are currently building in Alma. We're definitely going to take advantage of the advanced stage on the expertise around Alma and Polaris, and we are working together. We have a new -- I mentioned we have a new head of -- as new CTO and a new Head of Software in IPMS. So first a collaboration between the software expertise that lies within A&G and the IPMS software arm of IP, which running behind the scenes is a major, major part of the business. So far, we haven't seen much of a collaboration between the two, definitely an opportunity. There are commercial channels. We have some customers that buy both from IP and -- buy from both IP and from Academia. In last year, we've seen some major universities tech transfer accounts. I can't mention the names, but we're actually taking over the annuity business. So we expanded the market and sold the annuity service to some of the top universities in the U.S.A. definitely innovation. We see the academic AI capabilities of A&G definitely going to help accelerate AI innovation even further. There are some common projects that we run on cost cut out that is in a collaboration with the three segments going through some further opportunities. So there's a lot of opportunities. And at the same time, we can run the companies as we can run the three segments independently. We are currently and we will continue to take the benefits of being together but we will maintain the strategic flexibility to operate separately in the future just to create more value for shareholders.

Your next question is from Shlomo Rosenbaum with Stifel.

Can you talk a little bit about the IP segment and what it will take to really return that business from -- to organic revenue growth from the declines? And what's going on behind the scenes that's going to make that happen? And what's a realistic time frame for investors to expect that to happen? That's probably the biggest value driver from an operational standpoint for your company.

Yes. So let me start and then Jonathan can join later. So first of all, let's just remind ourselves, we are the biggest player in IP. We have the greatest assets. We have -- we are in a unique position, and I mentioned this on the call, we have the largest annuity book. We have IPMS technology behind the scene, and we keep winning new more and more IPMS customer. We have the patent search and we have the trademark services. Yes, there are some -- in the recent years, we've noticed some weaknesses. I think we are -- but we are coming from this from a position -- from a very strong position. It's almost $800 million business. We have vast majority -- we have an amazing customer base, and we have some tremendous assets I think with Maroun joining with the new CTO, the new Head of Software, we're just going to need -- we need to be much more focused on innovation, execution, subscription, reoccurring. And I have -- very confident. I believe we can turn this company, this IP segment around. And we're starting to see the initiation of this turnaround. We've grown in 2025, 200 basis points year-over-year improvement in the annuity books. We've done different surveys about the annuity book, the worldwide annuity book, the overall pattern is growing. We will take -- we'll definitely take our share back. And we have outlook of IP is increasingly positive. The fundamentals are there. The team is very aligned. And I think I'm very optimistic about this IP turnaround. It will take time. It's not going to be done overnight. Anything, Jonathan?

Yes Shlomo, two things I'd emphasize that Matti touched on. The first is the commercialization and adoption of new product innovation is definitely going to be a driver for the intelligence offerings within IP. So we launched the new Derwent Patent search last year, went live early in the market. Derwent Patent monitor came to market using agentic AI capabilities to look for potential infringements and help companies in the process of protecting their IP. So the adoption of those tools and driving growth in the patent intelligence. We're really excited. Matti touched on it earlier in the script about the new RiskMark product on the trademark side, which leverages AI capabilities and native AI development to help companies protect their brands and their trademarks as well, too. So certainly, product innovation is a big piece, as he said. And I think the second piece is the continued market recovery. So as Matti touched on, this is a business -- the annuity business that 2024 declined by a few percent. It returned to about flat last year. And the leading indicators there, as we've said before, are growth in the overall patent in force around the world. And we've seen a couple of years in a row where that has returned to a more healthy growth level. There's usually a 2- to 3-year lag on that before it really starts to affect the annuity business, but we feel good about the market recovery in global IP. And we touched on last year that the AI boom, we think, is also going to continue to drive more new patent filings around the globe and be a healthy wind in our sales for that business. So it's definitely a combination of the things that we control and the market recovery.

Your next question comes from Ashish Sabadra with RBC.

Solid free cash flow generation in the quarter and the guidance also reflects on robust free cash flow generation. My question was more focused on capital allocation priorities. You talked about leaning more towards deleveraging, but at the same time, talked about stock trading at 30% free cash flow. So I just wanted to better understand the rationale for deleveraging over buyback this year. And just if you could provide us incremental color on when is the debt due? My understanding is it's not due till 2028. So any color on those capital allocation priorities?

You got it, Ashish. This is Jonathan. Yes, I'll just touch on that second point. You're right. We have a patient capital structure. We don't have any maturities for the next couple of years. But our current judgment is that just based on the overall market environment, we will best serve all of our investors by focusing on deleveraging this year. So we noted in the materials that we've done a balance over the course of the last 4 years. Most of it's been deleveraging, but we've also lowered the share count in the business by 13%. And we do think that the stock is yielding a very attractive free cash flow return. But on balance, we think leaning more towards repaying debt over the next 2026 time frame makes the most sense. So we'll continue to look at conditions in the market, but our judgment right now is leaning towards deleveraging is the best way to create value.

Your final question comes from Andrew Nicholas with William Blair.

I just wanted to ask about price realization. Can you speak a little bit to the composition of both ACV and recurring revenue growth in '25? How much of that came from price and what your expectation is in terms of price realization going forward?

Yes. Thank you for the question, Andrew. It's Jonathan. Just a couple of points here. The headline is our price realization has been pretty consistent over the last couple of years. Where we are seeing improvements in our ACV and in our recurring organic growth is really from volume. So we're seeing improvements in our renewal rate. We're seeing acceleration of new subscription sales. That's what's driving the improvement there. We continue to see opportunities to monetize investments that we make into the product through the price increases, but we do expect that it's that volume component of our subscription and reoccurring organic growth that's really going to help us to continue to accelerate through this year, monetizing the investments that we've made into the products with fewer cancellations and downgrade, more new subscription sales, and we think that's really what's going to help propel us to an improved outcome in 2026.

There are no further questions at this time. I'll now turn the call back over for closing remarks.

Yes. Thank you, everyone, for listening in this morning.

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