Clarivate Plc Q1 FY2025 earnings call

• Clarivate has been undergoing transformation to optimize revenue, improve sales execution, and accelerate innovation. - Organic ACV grew sequentially, total organic revenue grew for the first time in over a year, recurring organic revenue grew nearly 1%, and renewal rates improved. - Adjusted EBITDA margin increased due to cost efficiency. - Launched e-book subscription platform and DRG Fusion real-world data subscription offering. - Achieved milestones with AI-powered features in products, with over 3,000 customers in 90+ countries using the AI-powered research assistant. - Secured key wins like the British Library deal and expansion with CAPES in Brazil.

In AMG, early success in the new wave of science commercial model led to customers extending annual renewals into multiyear deals totaling over $80 million, with sales in Asia and Latin America. The IP patent annuity business saw organic recurring revenue grow 5% in Q1 due to higher volumes. The Life Science and Health segment secured cross-segment multimillion-dollar renewals and expansion with a Brazilian academic consortium, with subscription renewal rates improving to 90% in Q4, a 6 percentage point increase over the prior year. Recurring revenue to total revenue mix is 83%, an improvement of 200 basis points compared to last year's first quarter.

• Reaffirmed full-year 2025 outlook. - Annual contract value expected to accelerate by ~60 basis points to 1.5% midpoint. - Recurring organic growth likely flat at midpoint of range. - Revenue expected to approximate $2.34 billion midpoint. - Recurring revenue mix to improve by ~5 percentage points to 85%. - Adjusted EBITDA range $940M-$1B, profit margin 41.5%. - Diluted adjusted EPS between $0.60-$0.70. - Free cash flow anticipated at midpoint $340M.

• Exposure to US government funding, with less than 3% of revenue directly from US federal government, but some AMG segment revenue flows indirectly. - Monitoring of macroeconomic environment and its impact on business.

Q: Double-clicking on AMG, talk about conversations with customer advisory groups on indirect impact from funding cuts, how cautious customers are, and if further deceleration in AMG is expected A: Matti Shem Tov and Jonathan Collins discussed collaborative discussions with advisory groups, minimal impact so far in Q1 AMG, half of government contracts already renewed, and monitoring risk within guidance range Q: Comment on Reuters article mentioning PE interest for IP segment A: Jonathan Collins stated no specific comments, but they continue evaluating strategic options and will provide updates when appropriate Q: Walk through drivers behind higher than expected renewal volumes in IP and other drivers of 5.3% organic recurring revenue increase A: Jonathan Collins said majority of improvement in recurring revenue from patent and trademark renewals, underlying volume improvement was primary driver, aided by some timing items Q: How much revenue came from large universities with US government funding issues A: Jonathan Collins said less than half of AMG segment business is in US, and majority of that has already renewed, with risk analysis showing potential impact within guidance range Q: Expectation for transactional revenue inflection to positive growth and catalysts A: Jonathan Collins said transactional revenue remains softer, focused on accelerating ACV growth, encouraged by progress in recurring order type Q: Changes to sales incentive model and how quickly reset A: Matti Shem Tov talked about upgrading sales leadership in segments, empowering customer success organization, AI enhancement aiding retention and new wins, and rebalancing incentive plans to reward subscription, revenue growth, and customer retention/win new logos Q: Cyclical nature of patent renewals and impact of macro slowdown A: Jonathan Collins said patent renewals have some cyclicality, seen quarter to quarter and year to year movements, but long-term trend likely healthy