Clarivate - Q3 2024

Transcript

Operator (participant)

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Clarivate Q3 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press Star, then the number one on your telephone keypad. To withdraw your question, press Star one again. I would now like to turn the conference over to the company to start the call. Please go ahead.

Mark Donohue (Head of Investor Relations)

Thank you, and good morning, everyone. Thank you for joining us for the Clarivate Q3 2024 earnings conference call. As a reminder, this conference call is being recorded and webcast, and it's the copyrighted property of Clarivate. Any rebroadcast of this information in whole or in part without the prior written consent of Clarivate is prohibited. 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 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 supplemental to and should not be considered in isolation from or as a substitute for GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are available in our earnings release and supplemental presentation on our website. With me today are Matti Shem Tov, Chief Executive Officer, and Jonathan Collins, Chief Financial Officer. After our prepared remarks, we'll open the call up to your questions. And with that, it is a pleasure to turn the call over to Matti.

Matti Shem Tov (CEO)

Good morning, everyone, and thank you for joining us today. Jonathan is going to cover our quarterly result in detail in just a few moments. Our financial performance has been disappointing, and not what we aim to achieve at Clarivate. What I would like to take away—what I would like you to take away from today's call is that while Clarivate has a lot to do to improve performance, we also have a lot of value levers and opportunities in front of us. And with that comes a possibility of a significant upside. I'm going to talk about how do we plan to reposition Clarivate to realize its potential. First, I would like to share a bit about myself and what brought me to this leadership role.

I have 19 years of experience as CEO, including 14 years at Ex Libris and five years at ProQuest, now a meaningful part of Clarivate. Under my tenure, Ex Libris grew six times into a SaaS education technology leader. During this period, we accelerated our focus on innovation, transforming the company from an on-premises technology to a SaaS technology provider by introducing the Ex Libris Alma cloud solution. We expanded our offering beyond library and invested in strategic acquisitions to deliver more value to our customers.

As CEO of ProQuest, I continue to focus on driving growth through operational discipline, product innovation, and strategic acquisitions. We introduced ProQuest One, bringing together our deep collection of academic content, eBooks, and videos into a single platform. We launched the Rialto Content Marketplace, the company's first ongoing solution in many years. We have acquired and integrated five companies, including Innovative Interfaces and public library software leader.

We delivered strong, sustainable growth, with revenue increasing from $750 million to more than $900 million and substantially increasing our EBITDA. This led to the acquisition of ProQuest by Clarivate in 2021 for more than $5 billion. Ultimately, my passion lies with people and products. I enjoy learning from colleagues, customers, and partners. I see innovating and challenging the status quo as a key to our success. I take a lot of pride in bringing major products to market, and I have a tremendous passion for what we do. These experiences will serve me well in my new role and will benefit Clarivate and shareholders. Slide 6. I've been Clarivate's CEO for 90 days now, and I'm starting to form my view on the current state of the businesses. First, I conducted detailed business reviews with over 100 leaders, including strategy, product management, sales, technology, and customer service.

I've spent time with our teams assessing our three-segment operations and go-to-market strategy. I've engaged with 2,000-plus employees in Ann Arbor, Kansas City, New York, Philadelphia, Jerusalem, and London. I've also started to meet with our customers, including some of our largest around the world, to strengthen my insights and learning. I've begun to better understand what we are doing well and where we need to improve. My comprehensive review was helpful to identifying and validating key strategic priorities, leading to the development of an initial value creation plan, which I will discuss in a few minutes. As you see on Slide 7, Clarivate has an exceptional foundation consisting of mission-critical solutions across the innovation value chain. Our flagship solutions are underpinned by best-in-class data and workflow assets. This includes ProQuest One, Web of Science, Derwent, CompuMark, Cortelis, Alma, IPfolio, just to name a few.

We are recognized as a trusted provider in the market we serve, and we have an impressive blue-chip customer base, leading academic institutions, top pharma companies, top-tier corporates, and leading law firms. Most importantly, we have an experienced and talented team of global colleagues with strong expertise across segments and across disciplines. Our people know our markets, know our customers, and our solutions inside out. A key learning for me is that Clarivate's decision to reorganize into three segments was the right one. It leverages our talent by aligning our people's deep domain expertise to our customers, and as a result, we are better able to partner with our customers to develop products to meet their evolving needs. Unfortunately, the company has become destructed over the last few years.

We have grown through acquisitions, which is an important value creation tool, but this represents challenges in terms of integrating different solutions and people at the same time. Additionally, it is easy to lose focus on product innovation and organic growth. We have also taken on product initiatives that were overly dependent on transactional revenue, which can be unpredictable and less profitable with weak cash flow conversion. This revenue is susceptible to micro headwinds. Our third-quarter results clearly reflect some of the challenges and inconsistencies from this unpredictable source of revenue. Also, the sales model and ultimate execution have been suboptimal. We have combined a generalist account management motion with an extensive portfolio of products, which undermines the ability to sell expert solutions. We have also underinvested in customer success, leading to lower renewal rates in some segments.

In addition, we have suffered from product technology debt, which hindered the pace of product innovation, disrupted focus away from new development. Certain non-core legacy solutions have led to insufficient management of product lifecycle and aging products, requiring significant levels of investment to refresh. While near-term challenges have impacted our ability to execute effectively and deliver results, we see meaningful opportunities to renew our focus and improve performance. Put simply, we have fundamental elements to significantly grow our business. We need to improve on execution. I have been down this road before at Ex Libris and ProQuest. I have a clear understanding of the steps and processes required to accelerate growth, along with strong passion to deliver and execute for success. Slide 9. In keeping with that spirit, the executive team and I developed an initial value creation plan focused on improving execution and accelerating revenue growth.

I plan to go into more detail on each of these initiatives on our year-end earnings call in February, but thought it would be important to provide you with a preview of our plans. First, we must optimize our business model by focusing on core subscription and recurring revenue. To achieve that, we plan to rationalize certain transactional product lines that are declining and have low profit margins and cash characteristics. We will also continue to look for opportunities to convert transactional sales to subscription through business model innovation. For example, we have an initial success converting our life science Disease Landscape and Forecast reports from transactional to subscription revenue. By focusing on subscription-first models across the business, we will improve revenue predictability and profitability and be better positioned against market headwinds. We must improve sales execution.

We plan to achieve this by strengthening our sales organization, putting in place better territory alignment, reviewing our incentive plans, and enhancing customer engagement. We will invest further and put more focus on customer success to ensure improvement in renewal rates. This will create more time for each sales rep to focus on a smaller number of products and better align their domain expertise with the customer's needs. I believe this will increase our ability to grow the pipeline and sales and revenues. I will be working closely with the sales leadership on this effort, and I'm confident we will receive improved results. From a product perspective, we will encourage a build-versus-buy mentality. We will work closely with our customers to validate interest and clear business use cases through more formalized development partnership methodology. I've used this model successfully before.

It will help ensure investing in the right places and being responsive to our customer needs. This includes accelerating innovation and leveraging AI as a key enabler. For example, our proven success introducing academic research assistance in both Web of Science and Primo is currently being replicated in additional NG products like PQIs and books. We are also extending IP and life sciences capabilities utilizing various AI technologies. Furthermore, our forthcoming Web of Science Research Intelligence platform is a next-generation software solution powered by AI. This product will empower researchers to accelerate breakthroughs and research institutions to better measure and showcase the impact of their research, and finally, we will seek to carefully rationalize our portfolio. This will likely involve divesting in non-core solutions that decrease our probability of success. The company is taking steps to simplify the organization, as seen with the divestment of ScholarOne and Valipat this year.

My experience has taught me that a simplified and focused organization is the first step to creating operational excellence. I also see a great opportunity to drive further cost rationalization to fund more product innovation and protect and expand our margins. Going forward, our goal is simple. We plan to deploy both human and capital resources towards our most attractive opportunities that will grow our subscription and recurring revenue. We are committed to implementing this growth initiative as quickly as possible as we embark on a multi-year turnaround. As we optimize the business, enhance sales execution, advance our product offering, and align our portfolio to core products, we are setting the stage for predictable long-term organic growth. That said, as I mentioned at the beginning of the call, we are disappointed with the third-quarter top-line results, particularly the revenue decline in certain transactional products.

As part of my transition and the strategic work we are currently focused on the value creation, we have decided to remove our full-year and long-range guidelines. Our entire focus needs to be planning and executing the value creation plan, which is expected to deliver shareholder value. In summary, I have reviewed the entire portfolio, and I plan to reduce Clarivate's exposure to more volatile transactional product lines that have been affecting our business. When we complete the initiative that I have laid out, assuming nothing else changes, we expect that we will improve our organic revenue growth, have a revenue mix skewed even more to subscription and recurring, have higher EBITDA margins, and have a better free cash flow conversion. I want to emphasize that I'm very confident in the initiatives underway.

Our team is energized for this journey, and we are excited to see this effort come to life in quarters ahead. I look forward to sharing more details on our next earnings call in February, and with that, I will turn it over to Jonathan.

Jonathan Collins (CFO)

Thank you, Matti. Slide 11 is an overview of our third quarter and year-to-date financial results compared with the same periods from the prior year. Q3 revenue was $622 million, a decrease of $25 million compared to the prior year, bringing the year-to-date to $1.9 billion. The third-quarter decline was largely organic but was also impacted by the Valipat divestiture. The third-quarter net loss was $66 million, $59 million lower than last year, largely attributed to a $40 million increase in FX losses due to the weakening of the U.S. dollar and a $14 million non-cash goodwill impairment charge recorded in the IP segment.

Adjusted diluted EPS, which excludes the impact of one-time items like the impairment, was $0.19 in Q3, a $0.00 decline over the same period last year due to lower adjusted EBITDA. Operating cash flow was $203 million in the quarter, an increase of $40 million over the third quarter last year, taking the year-to-date to over $0.5 billion, which is down $48 million over the prior year. The decline is almost entirely driven by lower adjusted EBITDA as higher working capital requirements were offset by lower one-time costs. Please turn with me now to page 12 for a closer look at the drivers of the third-quarter top and bottom-line changes from the prior year. We previously anticipated the business would return to slightly positive organic growth in Q3.

However, our results came in below those expectations at a decline of 2.6%, lowering revenue by $17 million versus the third quarter of last year. Our subscription business grew at just under 1%, which was slightly below our expectations, but in line with the prior quarter. Subs growth in A&G remains strong at 3% so far this year, but we continue to experience headwinds in our LS&H and IP segments as customer budget pressures persisted ahead of our new product refreshes. The vast majority of the shortfall of our expectations was in our transactional lines of business, which declined by 14% and was concentrated in our A&G and LS&H segments, where we experienced more market headwinds than anticipated, causing a lower pipeline conversion.

In the case of A&G, transactional sales of books and digital collections were off to a slow start in the new fiscal year in North America, and research and analytics backfile sales were lower than expected in Asia. Our LS&H project-driven sales and services that support drug commercialization were lower than expected as budget pressures persisted at our top pharma customers. Operating expenses were reduced by $6 million to mitigate the revenue shortfall, resulting in an $11 million decline in adjusted EBITDA on the organic revenue change. We experienced an inorganic decline of $9 million on the top line and a $6 million decline on the bottom line due to the Valipat divestiture, which was nominally affected by the acquisitions of MotionHall, Global Q, and Rowan. Foreign exchange had a negligible impact on the top and bottom line compared to the same period last year.

Page 13 provides an overview of the drivers of the year-to-date top and bottom line changes from the prior year. Our third-quarter results brought our year-to-date organic change to a negative 1.5%, lowering revenue by $30 million. Our subscription business growth was at just over 1%, which is in line with our organic ACV growth at the end of September. Our transactional lines of business had declined 9%, and while the declines in our A&G to LS&H segments are at or slightly below this level, driven largely by market headwinds, we did see growth in Q3 in IP, driven by a recovery in our trademark services, bringing the year-to-date decline in this segment to its single digits. Operating expenses for the first nine months of the year were essentially flat with the same period in the prior year, as cost inflation was largely offset by cost efficiencies.

The Valipat divestiture, net of a small offset by the acquisitions of MotionHall, Global Q, and Rowan, caused an inorganic decline of $17 million on the top line and a $10 million decline on the bottom line. Similar to the third quarter, foreign exchange had a negligible impact on the top and bottom line compared to the same period last year. Please turn with me now to page 14 to step through the conversion from adjusted EBITDA to free cash flow. Free cash flow was $126 million in the third quarter, an increase of $24 million over the same period the prior year, driven largely by timing differences in working capital.

This brings year-to-date free cash flow to $298 million, a conversion of 39% on adjusted EBITDA, and a decrease of $77 million over the same period the prior year on lower adjusted EBITDA due to the top-line headwinds and elevated capital spending aimed at accelerating product innovation. One-time costs, interest, and taxes for the quarter were generally in line with Q3 of last year. Working capital was essentially flat in Q3 versus a $64 million use in the same period last year, primarily due to timing differences in receipts from customers, and brings the year-to-date timing impact to $23 million compared to last year. Capital expenditures were up $15 million as we continued to invest in product integration to drive organic subscription growth. We used most of our free cash flow in Q3 to repurchase $15 million shares of common stock and to complete the Rowan acquisition.

As we move into the fourth quarter, we're working diligently to finalize our new value creation plan and are eager to share the more detailed roadmap and the impact it will have on our outlook for the business when we report our fourth quarter and full-year results in February. Thank you for listening in this morning. I'm now going to turn the call back over to Regina to take your questions. And as a reminder, please limit yourself to one question and then return to the queue for any additional. Regina, please go ahead.

Operator (participant)

At this time, I'd like to remind everyone in order to ask a question, press star followed by the number one on your telephone keypad. Our first question will come from the line of Owen Lau with Oppenheimer. Please go ahead.

Owen Lau (Analyst)

Well, I was thinking of my question. Could you please talk more about why the actual organic growth was so far off from the expectation? And I know you talk about transactional revenue and some weakness in all three key segments, but where was this disconnect and how do you plan to change it? Thanks.

Jonathan Collins (CFO)

Sure. I'll start with a little more color on the quarter, and then I suspect Matti will want to touch on how the value creation plan will help to address this. As I mentioned in the prepared remarks, the transactional performance compared to expectations in Q3 was largely concentrated in our A&G business and in our life sciences segments. IP was reasonably close to what we were expecting on transactional, on recovery, and our trademark services business. Within A&G, you'll recall we have a few different lines of transactional services. We're providing digital content and historical research and analytics information. In particular, in North America, we saw less spending on the digital content that is transactional in nature. The pipeline development and conversion was lower than is anticipated and would be normal for those lines of business.

And then, additionally, in Asia, where we still see significant market opportunity for historical research and analytics content, sales were lower there. The pipeline conversion was particularly low. In addition to that, on the life sciences side of the business, as we touched on, where we support our large pharmaceutical customers in commercialization products and services, a number of those projects that were anticipated did not materialize or push during the quarter as well, too. Those are the reasons I'll maybe let Matti touch on the things we're focused on.

Matti Shem Tov (CEO)

Basically, this is a great segue to what we're actually doing, and as part of my three-month journey talking to internal people, sales organization, product, and some of our customers, the volatility and exposure to one-time revenues, there's also we can see that during the last quarters and going forward, we are going to take away some of the volatility and rationalize some of the one-time transaction business. We're looking further into the one-time business. It's low margin. It's low profit. It's low growth. It's expensive.

It's very hard to predict, and part of the value creation plan we are currently contemplating is taking away this volatility and making room to focus more on product innovation, subscription, recurring, predictable profit revenues. That's where we're going.

Mark Donohue (Head of Investor Relations)

Thanks for the question, Owen.

Owen Lau (Analyst)

Thanks.

Mark Donohue (Head of Investor Relations)

Next question.

Operator (participant)

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

David Paige (Analyst)

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

Jonathan Collins (CFO)

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

Matti Shem Tov (CEO)

The several factors which relate to sales execution, I want to actually mention. We're all aware of the history of Clarivate One and the reversal of Clarivate One. Some of the existing sales setup within the different segments. And I want to reiterate the smart and right decision by previous management to bring back the three-segment approach. But still, there are some work to be done on the specific sales organization of the different segments. The concept of the sales generalist approach doesn't really work in some of the segments.

What we're actually going to do is actually introduce the sales. We're going to emphasize further on the sales specialist and trying to realign the customer buying, the customer actually buying our product with our sales expert. This is one of the drivers for the improvement on the sales organization. There are some other elements of the sales improvement that we are doing. The company somehow was underinvested in customer success in some of the segments, making sure that people are actually using our product to the fullest and understanding new functions and features coming on, and we have identified some shortage of staff that we will maneuver from other places of the organization to be closer with our customers and with closer engagement to make sure our renewal rates are actually going up and are going up in some of the segments.

Mark Donohue (Head of Investor Relations)

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

Operator (participant)

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

Toni Kaplan (Analyst)

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

Matti Shem Tov (CEO)

Maybe I'll start with the first question. I'm not here to comment on the previous management. I actually reiterated already. I think the previous management has done a good decision to realign the company with having three segments. They also started the investment into product innovation. I'm simply different. I come from a different background. I have my strong passion for people, product, and sales. I'm going to invest myself in making sure we have the right talent and we do have the right talent. We need to do some minor alignment with our talent. And I'm going to focus a lot into product. I'm talking to you, look at my bio.

I've been a product person since early in my career, so I'm going to put a much stronger effort and I go deeper into the product innovation lifecycle I've developed during my long career with a system and focus and methodology that work with our customers to develop product and then making sure that we align our product development with customers' needs and evolving needs, and lastly, the sales execution. I've been involved in sales throughout my career. I was focused a lot in sales execution and delivering the product, so I'll bring my three passions, people, product, and sales into a cloud-based environment, and I'm sure this experience has worked well for putting the company back on an organic growth trajectory, great value for our customers, and obviously great value for shareholders as well.

Mark Donohue (Head of Investor Relations)

Thank you for the question, Toni. Next question.

Operator (participant)

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

Andrew Nicholas (Analyst)

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

Jonathan Collins (CFO)

Based on our experience, I've been around for 90 days. I don't want to jump ahead of myself. I've been investing my time meeting our people and meeting some of our customers and trying to see what's working, what can be further improved. I have some very clear ideas about the way forward. Some of the changes will be up and coming pretty quickly. Some will take more time and evolve over time. Obviously, some changes in the middle in different levels of the management, some product innovation. It takes time to renew a product.

I would be expecting to give you more details in February, but it will evolve. Improvement will evolve over time. And one of the ideas that we have that we're actually going to give you some KPIs and some KPIs at some point that will allow you to track our progress against the plan. But this will come in February and beyond. We're not going to give any specific before the February. But we understand that you need to be able to track our progress, and we will address this in February and go.

Andrew Nicholas (Analyst)

Great.

Mark Donohue (Head of Investor Relations)

Thank you for the question. Next question, please.

Operator (participant)

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

Manav Patnaik (Analyst)

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

Matti Shem Tov (CEO)

First of all, let's talk about whether these three businesses belong together or not. All these three segments have some very similar characteristics. They're all enriched data, provide analytic insight, deliver workflow solution via SaaS to provide some expert services. This is one. There's also the three businesses that have the same abilities and the same technology infrastructure. We're talking about content. We're talking about technology. And we're talking about shared commercial channels to deliver efficiency and scale. And at the same time, I recognize what you're saying. We have some current thinking. It's too early to comment on what you said, but there are no sacred cows.

Mark Donohue (Head of Investor Relations)

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

Operator (participant)

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

Shlomo Rosenbaum (Analyst)

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

Matti Shem Tov (CEO)

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

Mark Donohue (Head of Investor Relations)

Thank you for the questions. Next question.

Operator (participant)

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

Peter Christiansen (Analyst)

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

Matti Shem Tov (CEO)

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

Mark Donohue (Head of Investor Relations)

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

Operator (participant)

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

George Tong (Analyst)

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

Matti Shem Tov (CEO)

First of all, it's a given that we are operating in three different segments. They're very good segments to be in. And I believe that the midterm growth of those segments, and I'm talking about, I'm being very careful. I'm talking about the segments themselves. I'm not talking about the company at the moment. I think those segments grow four, five, maybe even more on the life science side. That's our belief that those segments are growing. We have different characteristics or different situations in the three segments themselves. We see, to start with, the A&G, the current situation with the universities. We see less of an appetite to invest in capital expenses.

That's why we see some softness on the digital collection front. This is why we're also talking, we keep talking about the softness of capital expenditure on the A&G side, which impacts our one-time revenue. That's on the A&G side. On the IP side, we've seen, again, it's a 4%-5% growth on the market side itself. We do see currently some softness on the annuity side, not only from us. If you take the Dutch PTO as an example, we see from the Dutch PTO because the indication that our annuity is suffering, the entire industry is suffering on annuity, and we do expect this to come back.

And thirdly, the life science seems to be the most promising in terms of growth, but we see headwinds, especially on the commercial side of the life science, where we see that R&D is still doing well. On the commercial side of life science, we see some softness at the moment. But as I said at the beginning, there are all good segments to be in, 4%-5% growth as an industry. Life science may be even more.

George Tong (Analyst)

Got it.

Mark Donohue (Head of Investor Relations)

Thank you for that question. And Regina, We have one final question. Go ahead.

Operator (participant)

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

Colton Feldmann (Analyst)

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

Jonathan Collins (CFO)

Yeah, thanks for that, Colton. In our prepared remarks, we highlighted the fact that the subscription growth for A&G remains solid. Renewals in A&G continue to be very strong. Where we saw renewal pressure in the third quarter that had a small impact or smaller impact was within the life sciences and the IP segment. As we touched on, we know there's pressure on spending even for recurring revenues within the life sciences space, particularly our large pharma customers. And as Matti touched on, we do continue to see some pressure on spending in IP on our recurring business, but also within subscriptions ahead of the new Derwent launch that's happening as we speak.

Those are the two areas that we were a bit softer on in the third quarter. And obviously, the things that we discussed in the VCP between sales execution, being closer to the customers, making sure that we're driving strong usage of the product through training will help to alleviate that in addition to the product innovation investments we've made.

Mark Donohue (Head of Investor Relations)

Thank you for that question, Colton. Regina, that's our last question. I want to thank everyone for joining in this morning.

Operator (participant)

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