Clarivate Plc Q2 FY2025 earnings call

• The Value Creation Plan launched in fall 2024 is on track, with measurable progress across key initiatives. • Organic ACV grew 1.3% year-over-year, total organic revenue was up 50 basis points, and recurring organic revenue grew almost 1%. • In A&G, they are discontinuing transactional sales of digital collections and books, subscription revenue is 93% of the segment revenue (excluding disposals), with a 96% renewal rate in the first half of 2025 and over 4,800 institutions adopting AI tools. • IP segment saw patent renewal business return to growth, IPfolio grew new clients/partnerships over 50% YOY, and Maroun Mourad joined as President of IP segment. • Life Sciences & Healthcare returned to organic ACV growth, extended a long-term agreement with a global pharmaceutical company, and launched DRG Commercial Analytics 360.

In the second quarter of 2025, all segments showed improvement. The A&G business delivered 2% organic ACV and subscription revenue growth, with subscription revenue constituting 93% of the total segment revenue (excluding disposals), up from 79% the prior year. The IP segment saw the patent renewal business return to growth, with organic recurring revenue rising by about 1.5% in the first 6 months of 2025, and IPfolio, the industry-leading cloud-based IP management platform, grew new clients and partnerships over 50% year-over-year. The Life Sciences & Healthcare segment returned to organic ACV growth in the first half of the year, with a long-term multimillion dollar agreement extended with a global pharmaceutical company and the launch of DRG Commercial Analytics 360.

• Reaffirmed full-year 2025 outlook. • Organic annual contract value is expected to accelerate by approximately 60 basis points to 1.5% at the midpoint of the range. • Recurring organic growth is likely in the upper half of the range. • Adjusted EBITDA is slightly above the midpoint, profit margin at approximately 41%. • Diluted adjusted EPS is between $0.60 and $0.70. • Free cash flow is anticipated to be about $340 million at the midpoint of the range.

• Market dynamics such as reduction in U.S. federal agency contracts, increased constraints on higher education research funding, and potential university budget cuts. • Potential impact of changes in the U.S. patent fee structure. • Disposal processes taking longer than expected due to customer requests for extensions on onetime e-Books.

Q: Question on the IP business rebound and AI exposure in China.

A: Jonathan M. Collins stated that while more AI-related patents are being filed, it takes a couple of years for them to work into renewals, and there's an uptick in most major regions including Asia, including China.

Q: Potential impacts of changes in the U.S. patent fee structure.

A: Matitiahu Shem Tov noted that Clarivate is well-positioned to support any changes in the IP ecosystem as they've been part of it for decades.

Q: University funding cuts and A&G renewals.

A: Matitiahu Shem Tov mentioned A&G has a 96% renewal rate, 93% of revenue is recurring, and customers are moving towards subscription-based offerings.

Q: Update on sales incentive plan progress.

A: Matitiahu Shem Tov said the sales organization is focused on subscription and recurring revenue, with an upbeat outlook for the rest of the year and next year.

Q: Life Sciences & Healthcare market dynamics.

A: Jonathan M. Collins explained that the R&D side of Life Sciences & Healthcare is stable with solid spending on their solutions, attributed to investments in the Cortellis suite, while the commercialization part is still soft.

Q: Disposals taking longer than expected.

A: Matitiahu Shem Tov explained that one disposal is taking longer because customers asked for an extension to get organized with alternative offerings