CLVT Q1 2025: Recurring Revenue Up Mid-Single Digits on IP Renewals
- Strong recurring revenue performance: The bull case is supported by robust organic growth in recurring revenue, driven primarily by improved patent and trademark renewal volumes that have shown mid-single-digit gains, indicating a sustainable revenue base.
- Contained government exposure risk: Clarivate demonstrated that the potential downside from U.S. government funding issues in the A&G segment is minimal and well-managed, with strong renewal rates even among U.S. academic institutions, suggesting resilient demand.
- Improved sales execution and incentive model: The company's recent changes in its sales incentive structure and leadership upgrades have already led to tangible improvements in customer renewals and new wins, which further supports a bullish outlook on revenue growth.
- Government Funding Exposure: Despite current renewals, there is inherent risk in the indirect exposure to U.S. government funding cuts in the academic and A&G segments, which may lead to budget tightening and potential revenue deceleration if funding trends worsen.
- Weak Transactional Revenue Performance: The company expects transactional revenue to remain soft, focusing instead on recurring revenue growth. This structural de-emphasis on transactional business could be a bear case if the shift fails to materialize faster than anticipated.
- Cyclical Nature of Patent Renewals: Although recurring revenue growth from patent renewals has returned to positive territory, the cyclical nature of these renewals, combined with potential macroeconomic headwinds, could dampen future volumes and impact overall growth.
-
Government Exposure
Q: Impact from government funding cuts?
A: Management noted that A&G has experienced minimal impact so far, with robust risk analysis and extended government contracts ensuring exposure remains contained within the guidance range. -
IP Renewals
Q: What drove strong IP renewals?
A: The strong performance was mainly driven by patent and trademark renewals, with improved volumes and some favorable timing factors contributing to a noticeable mid-single digit organic recurring revenue increase. -
Transactional Revenue
Q: When will transactional revenue improve?
A: Management expects positive inflection gradually as they focus on driving recurring revenue growth, while maintaining a cautious outlook amid the current macro environment. -
University Exposure
Q: How significant is revenue from universities?
A: The business in A&G primarily comes from higher education, with less than 50% of the US segment linked to universities, and strong renewals help keep any funding risks well managed. -
Sales Incentives
Q: What changes were made to sales incentives?
A: They restructured leadership across segments and revamped the incentive model to reward growth in recurring revenues while enhancing customer retention and new wins. -
Patent Renewal Cyclicality
Q: Are patent renewals affected by a macro slowdown?
A: While there can be some quarter-to-quarter variability, management is encouraged by the durable long-term trend in patent renewals despite potential short-term macro pressures. -
PE Interest
Q: Any comment on PE interest in IP?
A: Management declined to comment further on the recent Reuters article about PE interest in the IP segment, indicating that strategic evaluations are ongoing.
Research analysts covering Clarivate PLC.