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Edited Transcript of CCC.N earnings conference call or presentation 27-Feb-20 1:00pm GMT

Q4 2019 Clarivate Analytics PLC Earnings Call

Mar 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Clarivate Analytics PLC earnings conference call or presentation Thursday, February 27, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeff Roy

Clarivate Analytics Plc - President of IP Group

* Jerre L. Stead

Clarivate Analytics Plc - Executive Chairman & CEO

* Mark J. Donohue

Clarivate Analytics Plc - Head of IR

* Mukhtar Ahmed

Clarivate Analytics Plc - President of Science Group

* Richard Hanks

Clarivate Analytics Plc - CFO

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Conference Call Participants

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* Andrew Owen Nicholas

William Blair & Company L.L.C., Research Division - Analyst

* Keen Fai Tong

Goldman Sachs Group Inc., Research Division - Research Analyst

* Seth Robert Weber

RBC Capital Markets, Research Division - Equity Analyst

* Shlomo H. Rosenbaum

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Zachary Cummins

B. Riley FBR, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good morning. And welcome to the Clarivate Analytics Q4 2019 Earnings Conference Call.

(Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to your host today, Mark Donohue, Vice President and Head of Investor Relations. Please go ahead.

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Mark J. Donohue, Clarivate Analytics Plc - Head of IR [2]

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Thank you, Keith. And good morning, everyone. Thank you for joining us for the Clarivate Fourth Quarter and Full Year 2019 Earnings Conference Call.

With me today are Jerre Stead, Executive Chairman and Chief Executive Officer; Richard Hanks, Chief Financial Officer; Mukhtar Ahmed, President of Science Group; and Jeff Roy, President of the IT Group. All will be available to take your questions at the conclusion of the prepared remarks.

As a reminder, this conference call is being recorded and webcast and is copyrighted property of Clarivate Analytics. Any rebroadcast of this information in whole or in part without prior written consent of Clarivate is prohibited.

This morning, Clarivate issued a press release announcing our financial results for the period ending December 31, 2019. The release as well as an accompanying supplemental presentation is available on the Investor Relations section of the company's website, clarivate.com, under events and presentations.

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 such 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, including adjusted revenue and adjusted EBITDA. Clarivate believes non-GAAP results are useful in order to enhance an 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.

Again, after our prepared remarks, we'll open the call up to your questions.

And with that, it's a pleasure to turn the call over to Jerre.

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [3]

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Thank you, Mark, and thanks to all of you for joining us this morning.

2019 was an extraordinary and highly productive year for Clarivate. I'm so very, very proud of my Clarivate colleagues and the significant progress our team made on both strategic and financial initiatives. Their collective accomplishments were a leading contributor to driving our transformation and driving our growth last year and positioning us for continued success in 2020 and the years beyond. We were last officially with you at our Investor Day in November. And when I think of what we have gotten done and the multiple priorities we've managed since then, I'm even more grateful for the talented and committed Clarivate team, and we're just getting warmed up. We hit the ground running in 2020 with the acquisition of Decision Resources Group, which we will close within the next few days. More on this strategic acquisition in a minute. And as you know, we have just completed a very successful equity offering. Our many thanks to all of you for your support. We're announcing very solid results for our fourth quarter and full year 2019, delivering growth on both a sequential and year-over-year basis. Richard will cover the financials in detail, but before, I'll highlight some of our major accomplishments.

Now let me provide an overview of our results. Adjusted revenue for the fourth quarter increased 4.2% on a constant currency basis. Adjusted EBITDA was up 11.6%, and our adjusted EBITDA margin improved by 200 basis points to 33.2% compared to last year's fourth quarter. Our growth was driven by pricing and new business across both our Science and IP Product Groups. We also started to see the benefits of our operational cost efficiency initiatives.

On a full year basis, 2019 was in line with our full year guidance and an improvement over 2018. Adjusted revenue increased 2.5%. Adjusted EBITDA increased 7.7% and adjusted EBITDA margin improved to 30.2%. Excluding the MarkMonitor divested assets, the sale of which we completed on January 1 of this year, adjusted revenue increased 3%, adjusted EBITDA increased 8.6% and adjusted EBITDA margins was 32%. We expect to see our margin continue to improve in 2020 as we will benefit from price increases, improved retention rates and the ongoing cost-saving initiatives as well as new product introductions. Subscription revenue in 2019, which represented 82% of our total revenues, improved as a result of new business within both groups.

As expected, we delivered improved adjusted free cash flow of $100 million in 2019. We are clearly headed in the right direction and expect our adjusted free cash flow to more than double to $220 million to $240 million in 2020.

Our solid performance in 2019 is the direct result of executing on strategic actions and financial improvements. We streamlined and simplified our business by consolidating it into 2 product groups. We completed significant product improvements across our portfolio as we continue to build on delivering an exceptional experience to our customers, which will increase our price yields as well as retention rates. We also initiated 2 customer delight surveys, which provided us with actionable items that will help us improve our retention rates into the mid-90s range and improve our interaction with customers and drive price increases in the 4% to 5% range over the next few years. We'll be launching our first 2020 survey during the second quarter and look forward to sharing the results with you.

We started to optimize our portfolio through a series of tuck-in acquisition, including Darts-ip and SequenceBase, and divested our noncore brand protection assets within MarkMonitor. We took a series of steps to improve our margins and cash flow through organizational efficiency initiatives, actions which will deliver $70 million to $75 million of annual run rate cost savings exiting 2020. We completed the buyout of the tax receivable agreement, resulting in a significant savings of cash over many years, and we wrapped up the transition services agreement with Thomson Reuters 6 months ahead of the schedule. Our capital structure was enhanced by refinancing our debt to improve the weighted average cost and lower interest expense by approximately $18 million. We completed 2 secondary offerings in 2019, culminating in the sale of more than 89 million of ordinary shares previously held by private equity. There was a lot of work to be done, and we accomplished a lot, placing us in a much stronger position both financially and strategically compared to this time last year. We will exit 2020 in an even better position as we realize the benefits of these actions as well as the addition of DRG.

The strategic acquisition of DRG more than doubles the size of our life science business. The business is a complementary fit with our life sciences group and creates the leading information insight solutions provider to the life science industry. By combining Clarivate's leading preclinical products with DRG's commercialization solutions, we are positioned to deliver a complete data-driven solution across the entire life sciences, drug, device and medical technology value chain. DRG brings more than $200 million in annual revenue and $77 million in adjusted EBITDA, including our expected cost reductions and synergies of $30 million over the next 18 months. Our sales organization is very excited about the cross-selling opportunities in high-growth international markets. We will leverage our global footprint to maximize the benefits of this acquisition. We were very pleased at the overwhelming interest in our recent equity offering to fund part of the $900 million cash portion of the acquisition price. We thank our shareowners for their support. We issued 27.6 million shares in total, realizing net proceeds of $540 million. We also secured $360 million of funds through a senior secured Term Loan B issued at par with interest rates consistent with our existing term loan facility. Last week, we announced we will redeem all of the outstanding public warrants. Prior to the announcement, approximately 24 million public warrants were exercised, each entitling the holder to 1 ordinary share of Clarivate and yielding exercise premium proceeds [to us] for approximately $276 million. We will use the cash to provide the best return possible to our shareholders.

Turning to our updated 2020 outlook, which includes contribution from DRG and excludes the MarkMonitor assets that were divested on January 1 of this year, are adjusted revenue in the range of $1.16 billion to $1.19 billion, adjusted EBITDA in the range of $395 million to $420 million, adjusted EBITDA margins of approximately 34% to 35% and adjusted free cash flows in the range of $220 million to $240 million. We added a new metric, adjusted EPS with a range of $0.53 to $0.59 per diluted share. Our target to exit 2020 will be 6.8% organic revenue growth and adjusted EBITDA margins of 38% to 40%.

As a result of the virus, we may experience some modest fluctuations in revenues in the first half of the year due to the timing of new businesses and our renewals in China. We currently believe our business in the country will improve during the second half of the year and will have a minimal impact on our full year revenues. Before turning it over to Richard, I do want to thank again my colleagues at Clarivate for their continued hard work, dedication and commitment and their sense of urgency. I also want to thank our shareholders for their continued support.

We have many additional important initiatives underway that will move us closer to our vision of improving the way the world creates, protects and advances innovation. By focusing on our 4 strategic goals this year of continuing to improve our colleague engagement score, further increasing our customer delight score, delivering strong top and bottom line growth and providing superior investor returns, we will continue to drive improvement in our execution, our financial performance and our shareholders' return. 2020 will be, in fact is, another exciting year for our company. We look forward to sharing our progress with you.

Richard?

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Richard Hanks, Clarivate Analytics Plc - CFO [4]

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Thank you, Jerre.

Clarivate had a very solid fourth quarter, closing out our first year as a new publicly traded company on a high note. Reported revenues for the fourth quarter of 2019 increased by $10 million or 4% to $255 million compared to the prior year period. This represents growth of 4.2% on a constant currency basis.

For the fourth quarter, 79% of our revenues were U.S. dollar denominated, and there was minimal impact from foreign exchange as compared to prior year. In November 2019, we announced the divestiture of several MarkMonitor assets and completed the divestiture on January 1 of this year. Excluding the divested products, revenues for the fourth quarter increased 4.9% on a reported basis and were up 5.1% at constant currency.

Turning now to our revenue profile. Firstly, when looking at revenue by geographies for the fourth quarter, we have a consistent balance across the regions with 46% in the Americas; 31% in Europe, Middle East and Africa; and 23% in Asia Pacific.

Secondly and moving on to revenue by type. Adjusted subscription revenues increased by $11.8 million or 6% to $209.5 million for the fourth quarter. The increase in subscription revenues was driven in part by price increases as well as new business, with the largest dollar increases in the quarter coming from the Web of Science, life sciences, CompuMark and Techstreet product lines. Subscription revenues accounted for 82% of total revenues in the quarter compared to 80% in the prior year period. Annual contract value or ACV of subscription-based contracts at the end of 2019 represented growth of 3.5% at constant currency compared to the same period last year. Excluding MarkMonitor brand protection, as I said, divested with effect from January 1 of this year, the year-over-year growth in ACV on a pro forma basis was 4.5%.

Transactional revenues, which represented approximately 18% of total revenues in this year's fourth quarter, decreased by $2.2 million or 4.6% to $45.6 million for the quarter. Techstreet delivered another strong transactional quarter but was offset by a decrease in backfile sales within Web of Science, lower search volumes within CompuMark and lower IP services revenues.

Looking now at revenue performance across our 2 product groups. Science Group revenues increased to $146.5 million, a growth of 6.4% as reported. The increase in Science Group revenues was driven by subscription revenue growth due to new subscription business and price increases. The Science Group accounted for 57% of revenue in the quarter, with its weighting increasing by 130 basis points from the prior year period.

Intellectual Property Group revenues increased to $108.6 million in the quarter, resulting in growth of approximately 1%. IP Group revenues were driven primarily by subscription revenue increases at Techstreet and CompuMark as well as transactional revenue growth at Techstreet, partially offset by lower transactional revenues and other products. Excluding the divested MarkMonitor assets, IP Group revenues increased by 2.9% compared to last year's fourth quarter.

Turning now to adjusted EBITDA, which increased by $8.8 million or 11.6% to $84.6 million in the fourth quarter of 2019, which compared to $75.8 million in the prior year period. The increase reflects higher revenues, which converted to a strong flow-through of revenue growth to EBITDA of 90% during the fourth quarter. Adjusted EBITDA margin was 33.2% in the fourth quarter compared to 30.9% in last year's fourth quarter, an increase of 230 basis points. Expenses in the fourth quarter were essentially flat to prior year as we've seen the benefits of our cost optimization programs flowing through and contributing to improved margins.

Excluding the divested MarkMonitor assets, adjusted EBITDA increased by 13.9% for the fourth quarter, and adjusted EBITDA margin in the fourth quarter was 35.2%. As Jerre mentioned, we are focused on improving margins and expect to see them to continue to improve in 2020 as we deliver on our revenue targets and realize the benefits of our cost-saving initiatives.

Our adjusted net income was $42 million for the fourth quarter, an increase of 31% compared to the prior year period.

Weighted average diluted shares outstanding used to calculate adjusted EPS were 330 million shares in this year's fourth quarter compared to 219 million shares in last year's fourth quarter as a result of the merger with Churchill Capital Corp in May 2019. Despite a 31% increase in our adjusted net income in the fourth quarter, our adjusted diluted EPS was $0.13 per diluted share compared to last year's fourth quarter of $0.15 due to the higher share count. If normalized, the results for the fourth quarter of 2018 would reflect $0.10 per diluted share. In addition, excluding the divested MarkMonitor assets, adjusted fully diluted EPS in the fourth quarter of 2019 was $0.14.

As we did last quarter, we will continue to provide you with a slide in the earnings supplement explaining the diluted share count to assist you with your analysis. Please see the Investor Relations section of our website to find a copy of the supplemental presentation.

Turning now to our full year results.

On a full year basis, adjusted revenues in 2019, excluding the impact of deferred revenue adjustments and revenues for the IPM product line, which we divested in October 2018, increased $23.6 million or 2.5% on a reported basis and 3.1% for the year on a constant currency basis. The increase was driven by a 3.7% increase in subscription revenues due to price increases and new business, particularly within the Science Group. Adjusted EBITDA for 2019 of $294 million increased $21 million or almost 8%.

Adjusted diluted EPS was $0.53 per share compared to $0.58 in 2018. While adjusted net income in 2019 increased 22% compared to 2018, our full year EPS was impacted by a 32% increase in weighted average common shares used in the calculation. If normalized, the results for the full year 2018 would reflect $0.43 of adjusted EPS. In addition and excluding the divested MarkMonitor assets, adjusted fully diluted EPS for the full year 2019 was $0.56 per share.

We're required to report stand-alone adjusted EBITDA on a trailing 12-month basis pursuant to the reporting covenants contained in our credit agreement and indenture. And stand-alone adjusted EBITDA takes adjusted EBITDA; and includes 3 committed add-backs: firstly, an adjustment for stand-alone expenses. Secondly, it includes the impact of pro forma cost savings we have implemented; and thirdly, the impact of foreign exchange. Stand-alone adjusted EBITDA increased 8.1% to $336 million for the full year 2019 compared to $309 million for the full year 2018, an increase of $25 million.

Turning now to cash flows. Our cash flows from operations for the full year 2019 increased $118 million, which compared to a use of cash of $26 million in 2018. The significant turnaround in operating cash flows was driven by: firstly, a lower operating loss, which included the impact of a $39 million gain on legal settlement reported in the third quarter of 2019; secondly, a decrease of $47 million in transition, integration and other related expenses as a result of completing the carve-out from Thomson Reuters and the establishment of stand-alone company infrastructure; and thirdly, better management of working capital, with this being a source of cash in 2019 of $4 million as compared to a use of cash in 2018 of $27 million.

Capital expenditures for the full year 2019 were almost $70 million, up from $45 million in last year's same period. The increase was partially due to a shift in focus to new product development, whereas prior year activities focused on carve-out and separation activities. We also saw an increase in capital purchase in the fourth quarter. During 2019, $8 million was spent on capital projects within the MarkMonitor divested businesses. These funds can now be targeted towards the growth segments of our business.

Free cash flow improved to $48 million for the full year 2019, up from a negative $72 million use of cash in the prior year period, driven by a turnaround in operating cash flow. Adjusted free cash flow, which excludes the transition-, transformation-, integration- and transaction-related costs and the legal settlement, increased 23% to $101 million compared to 2018.

Turning to the balance sheet.

Cash and cash equivalents were $76.1 million at year-end 2019 compared to $25.6 million at year-end 2018. Our total debt outstanding at the end of 2019 was approximately $1.7 billion, which included a $65 million draw on our revolving credit facility during the fourth quarter to fund the Darts-ip acquisition that has been subsequently repaid in the first quarter of 2020. Accordingly, our net leverage ratio at the end of 2019 was 4.7x, an improvement from 6.4x at the end of 2018. The improvement in leverage was driven by the debt paydown in the second quarter as a result of the merger with Churchill Capital Corp.

A couple of weeks ago, in conjunction with funding the DRG acquisition, we also raised $360 million under an incremental Term Loan B facility due 2026, with an interest rate of LIBOR plus 325 basis points. In addition to the strategic and financial benefits of the DRG acquisition, we also expect it to be leverage neutral. On a pro forma basis, including DRG's adjusted EBITDA contribution of $77 million, our net leverage ratio would still be 4.7x.

In summary, 2019 was a year of growth and significant operational improvements, and we are on a mission to continue to deliver improving financial results for our investors.

With that, I'll now turn the call back over to Jerre.

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [5]

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Thank you, Richard.

This concludes our prepared remarks. We are very well positioned for success and really excited about the opportunities ahead of us to continue to profitably grow our business. Please do join us for our 2020 Investor Day to be webcast on May 19, when we will be sharing a thorough review of Clarivate and our growth strategies.

We're now ready to take your questions. (Operator Instructions) Operator, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Andrew Nicholas with William Blair.

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Andrew Owen Nicholas, William Blair & Company L.L.C., Research Division - Analyst [2]

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I wanted to ask you first the changes to 2020 guidance. It looks to me like at the midpoint you added about $215 million or so to the top line guide, which if I'm doing the math correctly, would imply 20%, 25% growth at DRG in 2020, if I annualize its revenue impact. So I guess my question is, first, can you confirm that DRG is the only change to your guidance in 2020? And then second, if that is the case, what gives you confidence in that level of growth acceleration this year?

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [3]

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Yes, good question. Just as -- and Richard will pick up in just a second, but remember we've only got 10 months built into the guidance for DRG. As I said, we expect to close in the next few days. We've assumed 10 months. But Richard, just pick up the rest because it's a good analysis.

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Richard Hanks, Clarivate Analytics Plc - CFO [4]

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Exactly right. So we've got 10 months of DRG included in 2020, and we also have a full year of contribution from the Darts-ip transaction that we completed at the end of November 2019. So those are the primary drivers of the year-on-year growth -- or the year-on-year change from the -- year-on-year change consensus -- year-on-year change in guidance given in -- on November 12 last year.

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Andrew Owen Nicholas, William Blair & Company L.L.C., Research Division - Analyst [5]

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Okay. So I...

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [6]

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No. Go ahead because you're going to ask part B, right?

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Andrew Owen Nicholas, William Blair & Company L.L.C., Research Division - Analyst [7]

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Well, yes. I know that we're limited to one here. I just -- I'm just trying to understand what -- how you get to that -- such a strong growth rate. Obviously, I think you had said that DRG was growing upper single digits to 9% in '19, and I don't think Darts-ip is a particularly large contributor. So I'm just interested in what makes you so confident in that stronger growth. Or what are the underlying drivers at DRG that gives you that confidence?

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [8]

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And then -- and if you go back and look at what we gave you guidance earlier for our base business at Clarivate, that's strong growth too. What I thought you're going to say, so I'll make it up for you, is question B is really strong growth in adjusted EBITDA. It's about 38% year-over-year, and that's 3 things: one, our commitment that we told you we would deliver as we've gone through all the cost reductions in 2019 and through 2020, as Richard talked about, where we'll exit 2020 with $75 million in total on that. It includes a small part. I think we publicly announced it would be $10 million with DRG for the first year and a balance of $20 million or more, $30 million, in 2021. So it's got a lot of growth. And if we can figure out a way to do that every year, we would, but let's do it for 2020. Thank you. Next question.

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Operator [9]

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It comes from Shlomo Rosenbaum with Stifel.

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Shlomo H. Rosenbaum, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [10]

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Richard, the guidance is really strong, particularly on the EBITDA side as well. But in the fourth quarter, I would say the EBITDA just seemed kind of lighter than expected. You guys came out for the full year towards the lower end of the adjusted EBITDA guidance expectation as of -- that you guys provided. Could you just walk through like what were some of the puts and takes? What were some of the things that happened with divestitures? And how did that kind of track through the year and then since the third quarter?

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [11]

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Shlomo, actually, it was a very strong fourth quarter in EBITDA, the highest EBITDA margin quarter that this company has ever had and even stronger with an EBITDA margin if you exclude the pieces of MarkMonitor that we sold. So sorry if you felt that was light, but it was not. It was right on the button we expected and sets us up well as we move into 2020. Richard?

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Richard Hanks, Clarivate Analytics Plc - CFO [12]

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No. I think that's right. I mean Q4 was essentially $85 million of adjusted EBITDA. That was up nearly 12% year-on-year. We had -- we kept costs essentially flat year-over-year for the quarter. We had great momentum on top line, particularly in subscription revenues which were up 6%. So all in all, we -- our view is we closed out the year strongly. And the -- we're starting -- we're seeing the benefits of the cost optimization program coming through. And I would add that the governance we have around cost management is very high. And so we are excited about 2020 and continuing to drive margins upwards.

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Shlomo H. Rosenbaum, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [13]

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I'm just comparing $294 million that -- versus the $290 million to $310 million. That's what I'm comparing there.

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Richard Hanks, Clarivate Analytics Plc - CFO [14]

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Understood.

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [15]

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And let me just add to that, Shlomo, because it's a fair question, for sure. That guidance was given on January 14, 2019, and we put that together about 6 hours before we announced the deal. And so I am very proud of what we actually delivered inside the range in both cases. So understand your question and -- but that's exactly what happened. And as I said, if you look back and -- you'll see that it was our best quarter in history, but more exciting is what you said about 2020. It's strong guidance, and we look forward to delivering against that. Thanks, Shlomo. Next question.

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Operator [16]

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And that comes from George Tong with Goldman Sachs.

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Keen Fai Tong, Goldman Sachs Group Inc., Research Division - Research Analyst [17]

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Your 2020 EBITDA margin guidance does imply material margin expansion from 2019 levels of 30%. You'd cited pricing increases, improved retention rates and cost efficiencies as drivers of the margin expansion. Can you just elaborate on these factors, where you expect to see the most contribution to margin improvement? And what going forward might cause the rate of margin expansion to potentially moderate from what you expect to see this year?

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [18]

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2 quick comments. I said that our goal when we exit 2021 was 38% to 40%. So don't expect us to moderate at this point because that's our goal, George. But great question. Richard, pick up the pieces, please.

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Richard Hanks, Clarivate Analytics Plc - CFO [19]

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Yes. I mean the key for 2020 is continuing to deliver improved top line performance, and that's really going to be driven by the strong momentum that we see coming to 2020 from the subscription book of business; the expectation and plans that we have around improving renewal rates given the product improvements that we've made over the last 18 months; and complementing that with additional price increases, again, associated with improving renewal rates. So the objective is to continue to drive the Clarivate core business revenues upwards in the way that we demonstrated sequentially during 2019. Ally to that is keeping, as I referenced earlier, a very tight grip on expenses. So as we know, as you know, we have very strong protocols around weekly head count approvals. Head counts and head count-related costs represent 2/3 of our expense base. We have a very formal PMO in place that is focused on cost -- the cost optimization programs that we have across the business, technology, content, facilities. We're continuing to execute well against that program. And that program will wrap up pretty much at the end of this year, other than in the technology space, where during the first quarter of 2021 we'll be rounding out the in-sourcing of application development activity. As you know, [only] 50% of application development work is done by third parties, who are expensive, and so we want to bring that work in-house. And so we will close out the execution of the cost optimization program for Clarivate core Q1, early Q2 2021. And then as Jerre referenced earlier, we'll be completing the DRG transaction in the next few days. And we have an integration team lined up that will be focused on cross-selling to continue to drive top line growth. We are tremendously excited about the assets which DRG brings to our life sciences business. And in addition, we've identified through our rigorous due diligence process some interesting and attractive expense synergies that we'll be executing during the next 12, 18 months. So combination of top line growth and very strong professional management, financial management, of the business. Thanks, Richard. Thanks, George. Next question, please.

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Operator [20]

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[And that comes from] Seth Weber with RBC Capital Markets.

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Seth Robert Weber, RBC Capital Markets, Research Division - Equity Analyst [21]

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I wanted to go back on the pricing commentary a little bit. It sounded like in the prepared remarks it's stronger on the science business versus the IP. I just wanted to kind of flesh out if that's the right message that you're trying to give. And I think, previously, you had talked about pricing for 2020 being up in the kind of like low 3%-ish range. Is that still the right way to think about it?

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [22]

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Yes -- no, Seth. Let me just pick up, and then I'll have Richard take the rest of the piece. But we -- as we've said consistently, almost no price increase in 2018; 2%, 2.1% in 2019; plan 3.1% to 3.2% in 2020. So you're right. We also said in our remarks that we expect to -- in the years ahead to see 4% to 5% pricing power as we sell value in the future. But Richard, just pick up on the split question that Seth had.

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Richard Hanks, Clarivate Analytics Plc - CFO [23]

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Yes. I think in terms of yield what we see is the price increases we're able to enjoy are slightly higher in the Web of Science portfolio because that is the suite of products that has the highest retention rate, and there's a correlation between our ability to get price yields and retention rates. So as the retention rates on our other -- across the rest of the portfolio improve due to the significant application development work we've done very focused on client experience, UI, UX, we will expect to see yields, price yields, from the other products also start to pick up. And that's the principal driver across the improvement in price yields we've planned for in 2020. As Jerre referenced, average price yield is 2.1% in 2019, looking to add at least 100 basis points to that in 2020.

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [24]

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Thanks, Seth.

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Operator [25]

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(Operator Instructions) And our next question comes from Zach Cummins with B. Riley FBR.

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Zachary Cummins, B. Riley FBR, Inc., Research Division - Analyst [26]

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I just had a question around your organic business. I mean, just given some of the concerns that you laid out here in the first half of the year, what's your confidence in really reaching that 4% to 6% organic growth target for this year?

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [27]

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Well, we built it into the plan and I don't miss plans. So our confidence level is very high, Seth. What we were saying, just to be -- I'm sorry, Zach. What we were saying, just to be clear, is with the uncertainty going on, particularly in China, right now, that we may see a shift of some of the renewals into second half of this year from the first half. What's really important, though, it's amazing. We've had our entire China team -- and remember we don't sell product of hardware, et cetera. We've had our entire team working out of their homes, and it's remarkable. Without forecasting Q1, we've done a remarkable job at this point of the renewals taking place, new sales, et cetera. So I feel really good. Our only caution was it's a bit of an unknown. What we emphasized, though, was that, the second half, we expect to pick all of that up, plus. But your question is a great one. And our confidence level of delivering -- and you're right. We said way back when -- January of last year, Richard and I said we do 4% to 6% exiting 2020, and we said we do 33 to -- no.

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Richard Hanks, Clarivate Analytics Plc - CFO [28]

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35% to 38%.

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [29]

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35% to 38%, thank you, of EBITDA. And I would tell you our confidence level on both of those is very, very high. And that's why we gave you our -- not guidance but our goals of the 6% to 8%, exiting 2020, on revenue growth...

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Richard Hanks, Clarivate Analytics Plc - CFO [30]

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2021.

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [31]

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2021. Thank you. And our 38% to 40%, exiting 2021, on EBITDA. And we told you, and we've said this consistently, this becomes a mid-40s business with time. So our target clearly is to try to exit 2021 with a 4 in front of it. Thank you.

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Operator [32]

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And we have a follow-up from Shlomo Rosenbaum with Stifel.

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Shlomo H. Rosenbaum, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [33]

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I just -- I wanted to just ask you a little bit about some of the new product development that you're doing. This is clearly a shift from the historical trajectory of the business, and there's a lot more focus on it. Can you just talk about what's gaining the most traction right now? What do you see kind of gaining more traction through the year? And then just as an aside, Richard, maybe you can just tell us how much revenue actually comes from China so people can just [kind of] put a box around that in their mind.

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [34]

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I'll help you with that. We don't, Shlomo. We don't disclose revenue by country. But I'm happy to have Jeff start and Mukhtar pick up on your question because it's a great question. We've got more new product being delivered, having been delivered in 2020 than this company has had in probably, I don't know, 10, 12 years. So Jeff, you start. You've got a lot to say. And then Mukhtar, you pick it up, please.

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Jeff Roy, Clarivate Analytics Plc - President of IP Group [35]

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Yes, sure. Thanks, Jerre. I mean I guess what I would start with is saying that there's 3 real themes here: one, continuing the theme that Richard talked about regarding the customer experience. So we're continuing to invest in the Derwent innovation interface. We expect that to drive growth and retention. We had a release earlier this year around the analysis tools in the CompuMark business which solves a lot of customer experience problems that were historically associated with the CompuMark business. We are working very, very hard around integration activities, particularly around the CompuMark and Derwent business with the Darts-ip content. That was a phenomenal acquisition of content that we think is going to help us expand revenues into both the trademark and patent space. And then lastly, I would say there's a fair amount of effort that we're focused on around analytics and what I would call the IP cloud. I think our products, as Jerre has mentioned in the past, are based on a phenomenal set of really difficult-to-replicate data assets. And our intent is to decouple those data assets from the legacy products in such a way that it allows our customers to have more flexibility in terms of how they solve business problems with the data. So as we integrate our content, streamline our applications to solve more customer use cases and then obviously focus on completing the integration promises we made with the Darts-ip acquisition, we expect that to start to accelerate growth in the IP space.

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [36]

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Thanks, Jeff. Mukhtar?

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Mukhtar Ahmed, Clarivate Analytics Plc - President of Science Group [37]

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Yes, just to pick up on this. There's really sort of 2 themes here, new products and then investment in some of our core products, which have real recognition as premier products within the markets that we serve. And just if we look at 2019, particularly Q3, Q4, we released a series of new products and enhancements for Cortellis, Cortellis digital health. We launched the new version of our integrity preclinical product under Cortellis. We also launched a "content as a service" offering which is essentially a "data as a service" offering for the marketplace. On our Web of Science platform, we released a number of -- or key offerings, publisher analytics, particularly for the publishing market through our ScholarOne product, and so forth. And all of those releases, we expect traction and further adoption of those during the course of 2020. And in addition to that, we do -- have planned a series of new products that we'll announce during the course of 2020 that really focus on going deeper with our existing customers and actually also perhaps being attractive to some adjacent markets that are extremely relevant to us.

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [38]

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Thanks, Mukhtar. Great. Thanks, both of you guys.

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Operator [39]

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So we have a follow-up from Seth Weber from RBC Capital Markets.

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Seth Robert Weber, RBC Capital Markets, Research Division - Equity Analyst [40]

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Just on the back of that question, I just wanted to kind of maybe, Jerre, get your sense for where you think you are in the kind of the sales force restructuring. Do you feel like you're most of the way through; you guys have -- the team has good footing, good traction at this point? Or do you think that, that kind of -- which inning are we in, in the sort of the sales force restructuring and going to -- having the team being fully loaded going to market?

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [41]

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No, great question, Seth. That's 2 steps to this question. We go into 2020 with a great sales force set up. We've been in all 3 of the regional sales kickoffs. Energy level is great. We've got great -- we delivered commission plans and quota plans on January 15 this year. Everybody at every meeting had them. So we feel really good about that. And we've come a long, long way. Flip side is, as you know, we are setting up 3 global centers of inside sales. And that is in process, and we'll close out as we go into 2021. That will be the next huge step because we'll take about 80% of our customers, a little less than 20% of our revenue and bring that into inside sales. Once we do that, we'll see retention rates increase in that long, long tail significantly. And most importantly, our existing field sales team will be able to focus as we start to put in global account teams based on industrial markets that we sell into. So that biggest impact will hit in 2021. So think about it as a 2-piecer. I feel really good about where we're kicking off the year. I know Jeff, Mukhtar, Richard and I all feel great about that. And then as the year transitions, we'll move more and more to where we give the load, if you will, of the smaller customer to inside sales. And we will see a positive impact in 2021 because of that, which is part of the reason we said 6% to 8% organic growth in -- at the end of 2021.

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Operator [42]

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And that concludes our question-and-answer session. I would like to turn the conference...

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [43]

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Okay. I'll just close with saying thank you all very, very much.

When we said we're excited, we are. The progress is so fun to see. We're eager to close RBC -- I forgot to tell you that, Jeff. You weren't even aware of that, were you, Mukhtar?

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Mukhtar Ahmed, Clarivate Analytics Plc - President of Science Group [44]

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No.

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Jerre L. Stead, Clarivate Analytics Plc - Executive Chairman & CEO [45]

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So we will close the acquisition in the next couple days. But I'm very eager to see you all on May 19. It will be a great day. And it will -- what we'll do is say here's what we said in -- November 12 and here's where we are and here's where we're going to go.

Thanks, everybody, very much.

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Operator [46]

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Thank you. The conference has now concluded. Thank you for attending today's presentation, you may now disconnect your lines.