Clarivate - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $663.0M, down 3.0% year-over-year; adjusted diluted EPS was $0.21 (vs $0.23 in Q4 2023), and adjusted EBITDA was $285.3M with a 43.0% margin.
• Management initiated a strategic review, including potential divestitures, and accelerated a pivot from low-margin transactional sales to subscription and re-occurring revenue; this is a notable stock catalyst given potential portfolio actions and improved predictability.
• 2025 outlook guides revenues to $2.28B–$2.40B with adjusted EBITDA of $940M–$1.00B and adjusted EPS of $0.60–$0.70, maintaining ~41.5% margin despite expected revenue declines from strategic disposals; free cash flow guided to $300M–$380M.
• Capital allocation was balanced in 2024: $200M share repurchases and $198M of term-loan prepayments; a new $500M repurchase program was authorized for 2025–2026.
• Street consensus from S&P Global for Q4 2024 was unavailable at the time of analysis; estimate comparisons could not be performed (Values typically sourced from S&P Global; unavailable due to API limits).

What Went Well and What Went Wrong

What Went Well

• “We are focused on driving subscription and re-occurring revenue growth and plan to discontinue sales of certain low-margin transactional products…which will improve our revenue predictability.” — CEO Matti Shem Tov, highlighting the Value Creation Plan and pivot to subscriptions.
• Academia & Government introduced ProQuest Ebooks (700K titles) and ProQuest Digital Collections as subscription offerings; Life Sciences launched DRG Fusion to shift RWD from transactional data brokering to subscription analytics.
• Adjusted EBITDA margin held at 43.0% in Q4 despite revenue declines, supported by cost controls; full-year margin was 41.5%.

What Went Wrong

• Q4 re-occurring revenues fell 6.0% (organic -5.4%) on lower IP patent renewal volume; subscription revenues were modestly down (-0.9%, organic +0.1%) and transactional revenues down (-6.4%).
• Free cash flow softened: Q4 $59.1M (vs $127.0M) and FY $357.5M (vs $501.7M), mainly due to lower operating results, higher working capital and increased capital spending.
• Organic revenue for FY 2024 declined 1.4%, driven entirely by transactional weakness; FX and divestitures (Valipat, ScholarOne) added top-line and profit headwinds.

Transcript

Operator (participant)

Thank you for standing by. My name is Kate and I will be your conference operator today. At this time I would like to welcome everyone to the Clarivate Q4 and full year 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 followed with the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mark Donohue, VP of Investor Relations. Please go ahead.

Mark Donohue (VP of Investor Relations)

Thank you and good morning everyone. Thank you for joining us for the Clarivate Q4 and full year 2024 earnings conference call. As a reminder, this conference call is being recorded and webcast and is copyrighted property of Clarivate. Any rebroadcast of this information in whole or in part without prior written consent of Clarivate is prohibited and the accompanying earnings call presentation is available on the investor relations section of the company's website.

During our call we may make certain forward-looking statements within the meaning of applicable securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the business or developments in Clarivate's industry to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Information about the factors that could cause actual results to differ materially from anticipated results or performance can be found in Clarivate's filings with the SEC and on the company's website.

Our discussion will include non-GAAP measures or adjusted numbers. Clarivate believes non-GAAP results are useful in order to enhance understanding of our ongoing operating performance, but they are supplemental to and should not be considered in isolation from or as a substitute for GAAP financial measures. Reconciliation of these measures to GAAP measures are available in our earnings release and supplemental presentation on our website. With me today are Matti Shem Tov, Chief Executive Officer, and Jonathan Collins, Chief Financial Officer. After our prepared remarks, we'll open up the call to your questions, and with that it's a pleasure to turn the call over to Matti.

Matti Shem Tov (CEO)

Good morning everyone and thank you for joining us. On this call, this morning we are going to provide additional details of our value creation plan, our 2024 results and our 2025 financial outlook. Our results demonstrate we have a strong foundation of products and assets and workflow solutions. They also show that we have work to do to deliver healthy organic growth and build for the future. We are underway to return to organic growth. We have already started to implement our VCP which I presented to you in November.

Today I will provide more details on this plan including some of the things we have already completed and will be doing in 2025. We also announced that we have retained financial advisors to help us in evaluating strategic alternatives to unlock value. This may include divesting business units or an entire segment. There is no guarantees that anything actionable will arise from this process. We will provide update when appropriate. I am confident this is the right plan to deliver shareholder value and return Clarivate to healthy organic growth. Turning to slide 7, let me give you a reminder of our Value Creation Plan. Our VCP is focused on improving execution and accelerating revenue growth. The first three pillars include revenue optimization, improving sales execution.

Accelerating innovation. These initiatives will improve our business performance, drive better revenue predictability and improve financial and operational efficiency. Our fourth pillar, Portfolio Rationalization, addresses opportunities to streamline our solutions portfolio through divestitures. Now let's talk about what was accomplished in the last three months in executing our plan and what lies ahead for the remainder of 2025. Improving the predictability of our revenue and driving costs. Subscription and recurring sales is key priority of the plan in academia and government. We recently announced that we are moving to subscription only strategy for ProQuest eBooks and digital collections.

This is a meaningful step change in our go-to-market strategy for this product line. ProQuest eBooks. It is the world's largest subscription of academic eBooks including more than 700,000 titles. ProQuest data collections offer more than 160 million primary source items plus scholarly journals, videos and audio files. With the launch of this new product offerings, we will phase out one-time transactional sales of eBooks, digital collections and print books by the end of 2025. The change will allow us to focus our growth on investing in subscription based solutions which will make up 90% of A&G portfolio.

In life sciences we launched DRG Fusion, a new modular subscription-based, real-world data analytics product. This will shift focus from transactional data brokering to new patient insight subscription products. We will dispose of the increasingly high cost high risk data reselling business model. We are positioning ourselves to offer broader set of complementary health care insight product which increase our value proposition to our life science buyers. We plan to exit real world data direct lines in market winding down by Q4 2026. As Jonathan will discuss, we expect benefit from moving in this strategic direction. It will reduce volatile transaction revenue by approximately $200 million, accelerate organic growth, make Clarivate more predictable by increasing our recurring revenue mix from 80% to 87% and potentially higher over time, improve our profit margin by approximately 150 basis points, and have a minimal impact on our free cash flow.

Now let's discuss what we've done on our sales execution. We have taken steps to improve sales execution in each of the three segments in the area of talent, organization, customer engagement and sales force incentive. starting with people, we are attracting and promoting experienced proven sales leader to lead specific functions. Second, we have optimized reporting structure to increase accountability and empower regional sales leader to drive new business.

This will strengthen our go-to-market capabilities and drive closer alignment with core strategic priorities. We have also realigned account management models around specialist solutions area to capitalize on in-house expertise and more closely in line with our customer needs. Third, we are scaling and investing in dedicated customer success team. We are enhancing our resources and tools to improve customer engagement and coverage. Ultimately this will help us to strengthen and grow retention rates while increasing our upsell and cross sell opportunities. And lastly we are refocusing incentive models across the company to reward success for driving subscription and recurring revenue growth.

There is more work to do in all this area but we have made substantial progress in a short time. Turning to our third pillar Product Innovation. In recent years we have made a lot of smart investment to harness the power of technology and AI. We are seeing growing adoption and positive usage trends. For example, Academic AI platform was introduced and developed in a number of A&G products including Research Assistant for Web of Science and Primo. It was also introduced in life sciences. It is also introduced within life sciences with our new product offering DRG Fusion and in IP with Derwent's AI Patent Search.

We continue to develop and enhance our product across all three segments which will drive improved customer adoption and usage. Across academia we are leveraging Academic AI which includes the use of large language models to drive innovation. A&G is also strengthening the Academic AI platform with advanced AI capabilities and will introduce a powerful AI agent builder and pre-built AI agents in 2025. Within life science, he team is rapidly enhancing the Cortellis R&D platform through integration of scientific AI research assistance. By leveraging the A&G AI platform we also started implementing of Cortellis Regulatory Intelligence conversational research within IP. We have series of exciting AI product launches in 2025 that will provide solutions across the IP life cycle. This includes enhanced AI patent drafting, a new AI patent monitoring product alongside of series of AI search capabilities trained on the Derwent unique proprietary data.

We expect this new product offerings to start to inflect in our ACV this year and currently expect most of the revenue benefits will come in 2026 and beyond. The fourth pillar of the VCP involves streamlining our solution portfolio to increase execution, optimize capital allocation and unlock value. Last year we completed the divestiture of two product lines, ScholarOne and Valipat. We intend to continue rationalizing our portfolio throughout the year. As I mentioned, we are already working with our financial advisor to help us evaluate strategic alternative for business unit or an entire segment. Since rolling out our VCP plans last November, we undertook several important actions and achieved several key milestones. We recently completed company-wide review of our teams, processes and operations to streamline and improve efficiency. This is an important step in the value creation plan to fund investment and lower cost structure.

Looking ahead, slide 12 outlines our expected cadence of new product releases. Advancing the disposal and transition certain transactional products to subscription during the second half of 2025, we expect to complete the disposal of. Transactional books business and the transition of digital collection from transaction to a subscription model. In summary, the VCP is well underway. We expect it will return the business to healthy organic growth and now include a review of strategic alternatives which will include the sales of a business unit or an entire segment. We are aggressively moving forward to improve operational performance, our financial results and create shareholder value. I look forward to sharing more details on future earnings, and with that I would like to turn it over to Jonathan. Jonathan, please.

Jonathan Collins (Executive VP and CFO)

Thank you, Matti. Slide 14 is an overview of our Q4 and full year financial results. Compared with the same periods from the prior year, Q4 revenue was $663 million, bringing the full year to $2.56 billion. The Q4 change was largely inorganic as a result of the ScholarOne and Valipat divestitures as the rate of organic decline improved from 1.5% September year to date to 0.7% in the Q4. The Q4 net loss was $192 million, an improvement of $671 million compared to the same quarter in 2023 and the full year net loss also improved by $319 million, both due to considerably lower non-cash asset impairment charges related to goodwill and other.

adjusted Diluted EPS, which excludes the impact of one-time items like the impairments, was $0.21 in Q4, bringing the full year to $0.73, which was within the original guidance range we provided nearly a year ago. Operating cash flow was $141 million in the quarter, taking the full year to $647 million. The change compared to last year is almost entirely driven by lower adjusted EBITDA and higher working capital. Please turn with me now to page 15 for a closer look at the drivers the Q4 top and bottom line changes from the prior year.

At the end of the Q3 our business had declined organically by 1.5% year to date. However, we pared the rate of decline by 80 basis points to 0.7% in the Q4 on increased transactional sales which grew just over half a percentage largely due to improved performance in our A&G segment. The transactional growth was offset by a 1% decline in our recurring revenue types subscription and recurring combined, which was largely driven by timing of year-end patent renewals compared to the prior year. The net effect was a $5 million reduction to organic revenue compared to the same period in the prior year, but careful operating expense management mitigated the revenue decline resulting in a $1 million increase in adjusted EBITDA on the organic revenue change.

We experienced inorganic declines of $15 million on the top line and $8 million on the bottom line due to the ScholarOne and Valipat divestitures which were nominally offset by the acquisitions of Global Q and Rowan. Due to the recovery of the U.S. dollar against a basket of foreign currencies, namely the euro and the pound. During the Q4, foreign exchange lowered the bottom line by $6 million as we recognized fewer transactional gains compared to the same period last year. Page 16 provides an overview of the drivers of the full year top and bottom line changes compared to 2023. Our Q4 results brought our full year organic revenue change to a -1.4%, lowering revenue by $35 million.

Recurring revenues were essentially flat organically as subscription growth of nearly 1% which was in line with our ACV growth was offset by recurring revenues. The entire organic change for 2024 was caused by our transactional lines of business which declined 6.5%. Operating expenses related to the organic change were down $5 million as cost inflation was more than offset by cost efficiencies. The Valipat and ScholarOne divestitures net of a small offset by the acquisitions of MotionHall, Global Q and Rowan caused inorganic declines of $32 million on the top line and $18 million on the bottom line. Foreign exchange lowered revenue by $5 million and profit $9 million compared to 2023 on the translation of foreign denominated subsidiaries and lower transactional gains. Please turn with me now to page 17 to step through the conversion from adjusted EBITDA to free cash flow.

Free cash flow was $59 million in the Q4, which brought full year free cash flow $358 million, a conversion of 34% on adjusted EBITDA. The changes versus prior year were driven largely by the lower adjusted EBITDA we just covered on the prior page, higher working capital largely due to timing of payments and higher capital spending. To accelerate product innovation in the Q4, we used a combination of the free cash flow we generated, excess cash on hand, and the proceeds from the ScholarOne divestiture to prepay $140 million of our term loan and repurchase another $19 million shares of common stock. This brought our full year capital allocation to near symmetry between deleveraging and share repurchases at about $200 million each.

Please turn with me now to page 18 where I'll mention the impact of the strategic disposals relating to the first pillar of the VCP business model optimization that Matti outlined just a few moments ago by illustrating the estimated impact these product lines had on our financial performance last year. A central tenet of our value creation plan is to concentrate our focus on recurring revenues, which is the combination of our subscription and recurring order types. In order to do this, we've strategically selected three product lines. We are exiting the transactional business model and are introducing new subscription-based offerings for select portions of each of these content sets.

We anticipate multiple benefits from this strategic decision. We expect the business will grow faster, will become more predictable, will have improved profit margins, will increase the focus on our core businesses, improving the probability of accelerating their organic growth, and will have a negligible impact on our free cash flow. These assumptions are based on our experience with these product lines over the last few years, which is illustrated in the chart on the page.

In the last column we remove the impact estimated from this decision would have had on last year's performance. Organic growth would have improved by 70 basis points due to a decline of 0.7%. Transactional revenues would have declined $200 million. Our revenue mix as defined by recurring revenues over total revenues would have improved by a full 7 percentage points from 80% to 87%, while our adjusted EBITDA would have been lower by approximately $45 million. Our profit margin would have been 150 basis points higher at about 43% and our capital spending would have been lower by $35 million, yielding a reduction in free cash flow of only $10 million with no impact on the conversion, which would have remained at 34%. As Matti highlighted earlier in the call, the vast majority of these revenue streams will cease by the end of this year.

As a result, the impact I just outlined will phase in over the next couple of years. Let's turn to page 19 for a look at our full year guidance for 2025 and then I'll highlight our assumptions for the impact these strategic disposals will have this year on the following page. Beginning at the top of the page, we expect our annual contract value to accelerate by approximately 60 basis points to 1.5% at the midpoint of the range as we begin to recognize the benefits of the investments we've made. Recurring organic growth will likely remain flat this year at the midpoint of the range. The organic growth improvement associated with the strategic disposals will primarily affect the transactional order type, which is excluded from this metric.

We anticipate revenue will approximate $2.34 billion at the midpoint of the range due to the strategic disposals, the divestitures last year and a stronger U.S. dollar as a result of the strategic disposals. We expect our recurring revenue mix will improve by about 500 basis points from 80%-85% this year, which will improve predictability and profit margins going forward. Moving down the page, we expect adjusted EBITDA in the range of $940 million-$1 billion and to maintain our profit margin of 41.5% due to aggressive cost management, we anticipate diluted adjusted EPS between $0.60 and $0.70, down $0.08 from last year at the midpoint as the inorganic driven adjusted EBITDA decline, which I'll detail on the next page, will be partially offset by lower interest expense as well as the benefit of a lower share count resulting from last year's stock repurchases.

Finally, at the bottom of the page, we anticipate free cash flow of about $340 million at the midpoint of the range as the adjusted EBITDA change will be largely offset by improved conversion from lower interest working capital and capital spending. Please turn with me now to page 20 for a closer look at the full year top and bottom line changes we're expecting compared to last year. The expected changes in revenue and adjusted EBITDA this year compared to last year are largely driven by three inorganic factors and we're aggressively managing our cost structure to maintain our profit margin at about 41.5%. First, the strategic disposals are expected to lower revenue this year by approximately $140 million, but we're implementing $100 million of cost actions which yield a profit impact of about $40 million.

We expect the remaining $60 million revenue reduction will take place next year and will have a small impact on profit. Our revenue guidance range is intended to accommodate for the potential variability in the rate of decline of this revenue stream and we will actively manage our cost structure to ensure we deliver the expected profit outcome. Second, the divestitures of both Valipat and ScholarOne last year will lower revenue by $40 million and profit by $20 million. And finally, we anticipate a $25 million foreign exchange translation headwind on the top line and a headwind of about $10 million on the bottom line as the U.S. dollar is expected to remain strong against the basket of foreign currency. These reductions to adjusted EBITDA will be largely mitigated in free cash flow. So let's turn to page 21 to step through the main drivers.

One-time costs are expected to remain flat this year as we invest to achieve the cost efficiencies associated with the value creation plan. We do expect cash interest to improve by about $20 million compared to last year as a result of the debt we prepaid in the Q4 and the outlook for base rates via the forward curve. Cash taxes are expected to remain in line with last year. We anticipate the change in working capital this year will be negligible, which will represent an improvement over last year of about $20 million. While we remain committed to investing in product innovation, the strategic disposals and cost efficiencies will improve capital spending by about $35 million.

The net impact of these changes is free cash flow of about $340 million at the midpoint of the range and will result in an improvement of the conversion on adjusted EBITDA of about 100 basis points. From a capital allocation perspective, we continue to have the flexibility between opportunistic share repurchases and deleveraging. In closing, we believe we have a strong foundation to build upon with best in class data and workflow assets that we deliver as a trusted provider to a blue chip customer base underpinned by a robust financial profile and powered by a talented team of 12,000 colleagues around the world. As Matti outlined, we believe the Value Creation Plan narrows our focus to increase our performance and will return the business to healthy organic growth in the next few years leading to profit and cash flow accretion.

We are committed to providing the near term progress on the leading indicators of success as we move through 2025. We have also acknowledged that there are multiple paths to create value for shareholders and we are actively engaging with our advisors to review and pursue strategic alternatives and that could accelerate the value creation by monetizing undervalued assets. I want to thank all of you for listening in this morning. I'm now going to turn the call back over to Kate to take your questions. And as a reminder, please limit yourself to one question and then we'll have you return to the queue for any additional questions. Kate, please go ahead.

Operator (participant)

At this time I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Manav Patnaik with Barclays. Please go ahead.

Manav Patnaik (MD, Equity Research Analyst)

Yeah, thank you. I guess, you know, I had a broader question just around your overall government exposure. You know, a lot of questions around that. I was hoping you'd help us frame, you know, what your direct exposures to the federal and state governments and also. I guess indirectly if they all get the you know, the academic and government solutions, especially if they get their funding cut in other areas, how you think you can manage that as well?

Matti Shem Tov (CEO)

So, hi. Matti here, I'm going to answer this one. Thank you for the question. So I've been in the academia business for almost over 20 years. I've seen the academia business going through a lot of different cycles and I remain optimistic that academia will prevail and will continue to grow in a certain although in a low-single digit to mid-single digit over time. Yes, we do have a percentage of our income coming from the U.S. Government spending. It's pretty small. But we do acknowledge the fact that if the federal fund will go down, we will be exposed to those. If the cuts are significant, we will be exposed. But as I mentioned earlier in my call, I'm optimistic about another trajectory and the future of this industry. I've been there for 20 years, gone through several cycles. I'm optimistic and positive about the future of the business.

Manav Patnaik (MD, Equity Research Analyst)

Thank you.

Jonathan Collins (Executive VP and CFO)

Next question please.

Operator (participant)

Your next question comes from the line of Andrew Nicholas with William Blair. Please go ahead.

Andrew Nicholas (Research Analyst, Global Services)

Hi, thank you for taking my questions. Wanted to focus on the incentive model changes for the Salesforce. Can you maybe spend some time talking about the evolution of those comp structures and maybe more specifically how you expect it to change execution and success on that front?

Matti Shem Tov (CEO)

Systematic without going too much detail into the score like this, you know, the models were tailored over years. With a certain focus on one-time versus subscription. They were focused on certain way with certain percentage on, you know, one-time retention and new business. So in all three segments we have used a portion of the salesperson incentive which goes into one-time retention and new business. And we change the model, we change a little bit. We kind of fine-tuned this model to, you know, our salespeople with our concept that we go strongly after subscription and recurring so that salespeople should be compensated accordingly and incentivize the customer retention, making sure that we are growing the retention rate and making sure we are selling more subscription as opposed to one-time business. That's what we're doing in all three segments.

Jonathan Collins (Executive VP and CFO)

Thank you Andrew. Next question please.

Operator (participant)

Your next question comes from the line of George Tong with Goldman Sachs. Please go ahead.

George Tong (Sr. Research Analyst - Equity Research, Business Services)

Hi. Thanks. Good morning. Recurring revenue in the quarter fell about 5% because of lower IP patent renewal volumes. You talked a little bit about timing at year end, but can you discuss initiatives under the Value Creation Plan that can help improve recurring patent revenue trends?

Jonathan Collins (Executive VP and CFO)

Sure. George. Yeah. To the first part of your question, the primary driver of the decline in Q4 on the recurring order type were patent renewal volume. They were lower due to the comparison with the prior year. We expected more of those to be renewed in Q4 earlier in the year and some of those now are happening in the Q1. So that's the primary driver of the Q4 change. To your point on the go forward, it piggybacks a little bit on Matti's last comment which is our sales incentive and focus for 2024 is more geared now towards the recurring order types. So by winding down some of these transactional business and shifting the pay mix towards the recurring revenue types, we expect to help build the book of business not only in subscriptions but also on our patent and trademark renewal business within the IP segment.

George Tong (Sr. Research Analyst - Equity Research, Business Services)

Got it.

Jonathan Collins (Executive VP and CFO)

Thanks for the question.

Operator (participant)

Again, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Your next question comes from the line of Owen Lau with Oppenheimer. Please go ahead.

Owen Lau (Senior Analyst)

Hi, good morning. Thank you for taking my question. So first of all, thank you for the detail on the VCP and 2025 guidance and I do have a broader question on this. So there's a trade off for your VCP revenue and free cash flow will be down in 2025 because of inorganic disposal and also divestitures. But you can drive high organic ACV and recurring revenue mix. Why do you think this is the right trade off and can return the company back to revenue growth trajectory in 2026 and beyond. Thanks.

Matti Shem Tov (CEO)

This is Matti maybe Jonathan can add later. So when I came in, I've done my study. I met a lot of the sales organization, I met the managers, I met customers. And the notion that I got through this and some of my prior knowledge of A&G, you know I've run ProQuest before. The amount of energy and effort and attention and the drain we got from those one-time deals like this business. Also understand that the real world data is kind of the same. It's a lot of effort to do one-time deal and it's a destruction. Add to this the low margin of the eBooks business. Very low margin of the eBooks business. It was kind of a very intuitive decision when we discussed the VCP with the management. This is a drain. This is just taking over time.

We have a great engineering and product capabilities within the company. We have some very great product. And we were also smart about transitioning the three and maybe we haven't spent enough time on this one. The three businesses we actually winding down, we didn't really wind them down. We actually we are transitioning them towards subscription. The ProQuest eBooks offering which is subscription-based, the largest in the industry. The ProQuest data collection. We are, you know this almost the only vendor that provides those kind of services. The real-world data products offering. This is all we are transitioning the business as opposed to just purely disposing the business. When I came here there was some mumbling about maybe we can sell this business, maybe we cannot sell this business.

The notion of we actually move those businesses and over time we have high degree of conviction that we believe we can transition this one-time business, maybe not one-to-one but over time will transition into more subscription, recurring subscription base. This is what we do. A big portion of our business is going subscription. I mentioned we are moving from 80% to 87% subscription recurring after this disposal and I believe we can go even higher.

Jonathan Collins (Executive VP and CFO)

Thank you. Next question please.

Operator (participant)

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

Shlomo Rosenbaum (Managing Director, Business & Information Services)

Hi, thank you for taking my question. I have a question. In terms of the rate of investment, in terms of new product innovation, like the key value driver in the company is really going to be moving organic revenue growth up, and you know the capital spending in 2025 is going down. You're keeping the margins relatively basically flat despite dropping $200 million out of revenue. I'm just wondering, is there enough investment going on into the company to drive a sustainable long-term organic growth rate that is going to be respectable.

Jonathan Collins (Executive VP and CFO)

Yeah, thank you for the question Shlomo. It's Jonathan. Just point out a couple of items. Our ability to maintain our margins and lower our capital expenditures this year in 2025 is directly correlated with the strategic disposals. So the way that we are thinking about this is we are continuing to invest in the core products. If it weren't for this we would see some margin pressure because as you know we firmly believe we need to continue to invest in the product innovation and the go to market motion to return to healthy organic growth. So our ability to maintain margins and the ability to maintain our cash flow are a result of these strategic disposals that Matti highlighted that will help us to focus on the core business and have a good execution on those investments.

Shlomo Rosenbaum (Managing Director, Business & Information Services)

Thank you.

Matti Shem Tov (CEO)

This is Matti, we have the right profile of investment into our business. And let's not forget Gil and his team before me. They were focusing on innovation as well and they've introduced some very great products. If you look at Academic AI that was introduced in the A&G segment which is empowering. Most of the A&G products, most of the product lines of Web of Science, Primo, eBooks business, we are using repurposing the same framework and technology.

One of the other things that I've introduced when coming in, I say why don't we just take whatever was developed, the infrastructure and technology within A&G and implemented in other segments, and what we're doing today is actually implementing the academic AI infrastructure capabilities and know how in two other segments, and the first one is obviously life science and we are going to implement academic AI infrastructure know how technology into Cortellis trying to expedite. On some of the improvement we need to do within Cortellis we are pretty optimistic about this one and we did sign or we are signing up some development partners for this. Changes that we are doing in Cortellis these days. More to come.

Shlomo Rosenbaum (Managing Director, Business & Information Services)

Thank you.

Operator (participant)

Your next question comes from the line of Surinder Thind with Jefferies. Please go ahead.

Surinder Thind (Equity Research Analyst)

Thank you. Just following up on the earlier question. Why not take margins down further at? This point to kind of maybe speed. Up investment at this point and then as you talk about, you know, taking technologies from one segment to another or you know, moving things across, does that make the what I call the divestiture process a bit more complex or how do we take those things into consideration as you do some of that stuff?

Matti Shem Tov (CEO)

First of all, maybe to talk a little bit about the divestitures. I think there is a lot of logic to have these three segments together. There's a lot of advantages, synergies, cost. But those three segments can also operate on a standalone basis. Yes, there will be some cost of separation of the segments if need be, I don't think. And yeah, when we make a decision to implement some of the technologies from A&G and others, yeah, we take into consideration that maybe in future those segments will not be together. I don't think this is a big issue going forward. I think we have the right level of investment. I'm not suggesting we take the margin down. For me, when I came in there was I would tend to do less number of projects or new products but be laser focused.

And that's my claim to fame and it's something we've done in previous life. I work with the customers. So we sign up. I mentioned that we are signing up development partnership for Cortellis, the implementation of AI with Cortellis. I find that we simply are doing in a company too many small things as opposed to go big or go more aggressive on certain initiatives. And this is where I fit in the company. I don't feel I'm pressured by the level of R&D or for innovation investment. I think we are in the right place.

Jonathan Collins (Executive VP and CFO)

Thank you. Next question please.

Operator (participant)

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

Peter Christiansen (Director)

Thank you. Good morning. Matti, I'm just curious, you know, you've reviewed the business, you've had a lot more time to look at it. And just thinking in the context of keeping all the three business lines together or potentially separating them, how should we think about the revenue synergy potential between these businesses? Are you more confident, less confident in the ability to drive that those additions and then just curious how you think about new products. Are they value added pricing kind of opportunities or TAM expansion? Thank you.

Matti Shem Tov (CEO)

They're both TAM expansions and also additional products. I can talk on the three different segments. First of all, I feel good about where we are in the Value Creation Plan. You know, winding down those one-times is going to give us a lot of freedom to focus on the new products. New products are expanding the TAM in some cases and some of them are just improving the product. For example, we take Web of Science. In Web of Science we do ongoing investment but we also introducing and we haven't talked about it today it's like the Web of Science Research Intelligence. Web of Science Research Intelligence is like AI enablement. It's an advanced version of Insights which basically this is after expanding the TAM we're going to offer new services to our new product to our existing customer base.

On IP, for example, we're also doing some new innovation, a product called IPCH which we are already sitting with a lot of law firm and a lot of corporate. There is a new product that we will be working on. We have Nestlé as a customer. We want to expand it and to go to the market aggressively with additional product, one specifically called IPCH, the IP Communication Hub. More on this area will come, but we are looking into customer base but also expanding the wallet share within the customers as well.

Peter Christiansen (Director)

Thank you.

Jonathan Collins (Executive VP and CFO)

Thanks Pete.

Operator (participant)

Our last question comes from the line of Ashish Sabadra with RBC Capital Markets. Please go ahead.

Ashish Sabadra (Information and Business Services Analyst)

Thanks for taking my question. So on the organic ACV inflection in 2025, how much of that is really coming from transitioning some of those transaction revenue more to subscription base versus an improved pipeline and demand environment? And so I was wondering if you comment on the pipeline and the demand environment and how what you're seeing on that front and then if I can just sneak in a question on the. Strategic review, I was just wondering if. You could provide any kind of high level color on what are the key strategic or financial criteria that you will use as part of the strategic review? Thanks.

Jonathan Collins (Executive VP and CFO)

Sure, Ashish. Maybe we can start with the latter question. So as we indicated in the script, what we'll explore is the opportunity to unlock value through potentially monetizing more valuable assets that you know, aren't commanding that value based on where the company is valued today. So that's going to be a key criterion. And as Matti highlighted, you know, we do believe that there are parts of our business, including entire segments that are separable and can survive and thrive, you know, separate from Clarivate. So that's how we're thinking about it in the criteria as it relates to ACV. It's going to be a combination of factors. As you note, there will be some conversion associated with some of these new products.

But the bigger benefit we expect to see are the investments in products that we've made over the last couple of years. So we've talked a lot about in each of our segments, continued investments we've made in the Web of Science and our research solution products within A&G. We think about the investments we've made in Cortellis in the Life Sciences Group and the investments we've made in Derwent with the new AI powered search just launching here in the last few months. So a combination of those with some potential benefit with the conversion to subscription products related to the VCP strategic disposals, that's what we believe will help to improve us into that 1%-2% range on ACV. Thanks for the question Ashish.

Mark Donohue (VP of Investor Relations)

Thank you all for joining us today. That will conclude our call. We look forward to updating you in the future on our VCP plans.

Matti Shem Tov (CEO)

Thank you.