Clarivate Plc Stock

Hello, everyone. Thank you for joining us, and welcome to Clarivate's Q2 earnings conference call. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions] I will now hand the conference over to Mark Donohue, Head of Investor Relations at Clarivate. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for the Clarivate Second Quarter 2026 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 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 business 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 and 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 a supplement 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; Jonathan Collins, Chief Financial Officer; and Michael Easton, Chief Accounting 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.

Good morning, everyone, and thank you for joining us. The key messages today are straightforward. We are delivering on our commitment, and now we have a building block in place to accelerate organic growth. During the quarter, we advanced our AI innovation road map, grew organic ACV year-over-year, maintained disciplined cost management and strengthened our balance sheet through delevering. These actions will deliver further long-term value to shareholders.

In the second quarter, we have continued progress across the business. Organic ACV growth improved to 1.5%, and profit margin has expanded to more than 42%. At the segment level, academia and government and life sciences and health each delivered 2% organic ACV growth. A sign of continued progress here is the shift from transactional to return revenue. we expect to see this continue in coming quarters as we focus on subscription revenue. In the intellectual property segment, reoccurring organic revenue improved to flat in the quarter, and we continue to expect a return to growth in the second half.

We advanced key innovation milestones, including introducing two new agentic AI products, Nexus Connect and IP-One, which I will discuss in greater detail later. And in early July, we announced the agreement to sell life science and health segment, sharpening our focus on AI-driven transformative intelligence and enhancing our financial profile. I will also share more here in a minute.

These results reflect the steady execution of the value creation plan, which we launched in late 2024. We are moving forward with urgency. Our progress is clear. We are investing wisely, operating with more discipline and directing resources towards the highest value growth opportunities. What differentiates Clarivate in this industry is our ability to apply AI to highly curated proprietary data sets that have been built and refined over decades. As a result, we believe that we are on a path towards accelerating our growth rate over the next couple of years.

Turning to AMG segment. Our strategy is to be the trusted layer between AI and research. That means using Clarivate's proprietary data, domain expertise and workflow solutions to help institutions make better decisions with confidence and transparency. This quarter, we launched Web of Science research intelligence globally. This is an AI-native platform for research strategy, impact and funding. It is shaped by more than 50 development partners and early adopters across 20 countries. Its inside are grounded in publisher neutral Web of Science data and it provides full editorial provenance. It has already generated a multimillion-dollar ACV pipeline, and we have secured 77 paying customers to date. This is a great example of incremental pipeline resulting from new AI-driven products.

We also introduced Nexus Connect, an AI-native gateway that provides a single university connector within AI chat agents such as ChatGPT and Claude. It allows students and researchers to access scholarly resources and services seamlessly integrating with their AI platform to enhance the research experience. The important point is that we are embedding Clarivate's proprietary intelligence into existing research workflow for the academic community. It is leading to new revenue streams.

We are applying the same innovation approach to the IP segment. We announced the development of IP-One, unified AI platform that combines purpose-built agent with private scholarly assets and unique expertise. This platform agentic AI capabilities allow IP professionals to efficiently solve both patent and trademark intelligence question as well as simplified daily complex workflow across the entire IP life cycle. IP-One is being developed in close collaboration with leading corporate IP teams and law firms. We look forward to discussing these in coming quarters.

We are seeing much market validation for our IP innovation. RiskMark was named the best AI tool for lawyers at the 2026 CODiE awards. It was recognized for its use of predictive and generative AI to lower trademark reassessment from hours to minutes. This marks the product's second industry recognition following its 2025 LegalTech predictive AI Solution of the Year Award.

In June, we were pleased to welcome Simon Webster as President of our IP segment. Simon is a proven leader in the global IP ecosystem with more than two decades of experience including as CEO of CPA Global, which Clarivate acquired in late 2020. During his time at CPA, the organization delivered compounded annual organic growth in the mid-single digits. Our priorities in IP are to improve customer focus and retention across annuities and software, increased commercial intensity and accelerate AR innovation supported by our proprietary data assets.

Importantly, our IP business has meaningful differentiators: scale, trusted relationship with leading law firms and blue chip corporate IP teams, a strong recurring annuity and renewal engine and differentiated proprietary content.

We believe this strength combined with disciplined execution under Simon's guidance position IP to improve its performance over time. As mentioned before, in early July, we announced an agreement to sell our life sciences and health segment to Altaris. This marks an important step in our portfolio rationalization effort and is a clear example of the VCP in action. This transaction creates a more focused company as a subscription, simplifying our operating model and allowing us to make more targeted investments in organic growth. It also improves the quality of Clarivate's revenue base. On a pro forma basis, recurring revenue mix increases from 89% to approximately 92%, improving predictability, retention and cash flow visibility.

We plan to use the net proceeds to reduce debt, which extend our average maturity, strengthen our balance sheet and enhances financial flexibility, enabling further shareholder value creation.

Let me bring to your attention, Slide 12. I will walk you through the progress we have made since launching the value creation plan in late 2024. It starts with business model optimization. We have meaningfully shifted our revenue towards recurring subscription-based model. This gives us greater visibility, greater predictability and higher quality base to build on. We have also improved our go-to-market by sharpening how we sell and how we serve customers we have improved the momentum of our recurring business and set a stronger foundation for future bookings.

At the same time, we have accelerated our AR innovation. Across the business, we have a robust and growing portfolio of new AI-powered products, deepening the value we deliver to customers and reinforcing our competitive position. We have rationalized the portfolio, we have taken deliberate action to divest noncore assets and nothing several disposal so that our capital and our attention are consolidated on our two major markets, which brings me to what is next, accelerating organic growth.

With a more focused portfolio, a higher quality recurring revenue base, a stronger go-to-market engine, exciting new product and a healthier balance sheet, we expect sequential improvement in recurring organic growth in the second half of 2026 and continued momentum into 2027. We are investing in the right opportunities, and we are more confident than ever in our ability to execute, accelerate organic growth and deliver long-term value to shareholders.

I will turn it over to Jonathan to discuss this quarter's results in more detail.

Thank you, Matti. Slide 14 is an overview of our second quarter and first half results same period last year. Q2 revenue was $587 million, bringing H1 to nearly $1.2 billion. The change in the quarter over the prior year was due to the inorganic disposals, lower organic transactional revenues and a modest foreign exchange impact, partially offset by organic recurring revenue growth. The second quarter net loss was $269 million. The change over the prior year was driven entirely by the noncash impairment charge triggered by the definitive agreement we reached to divest the LS&H segment.

Adjusted diluted EPS in the second quarter was up $0.01 over the prior year to $0.19, bringing the first half to $0.38 which is a 19% increase over the same period last year. Operating cash flow was $99 million in the quarter, the change compared to last year was driven by lower adjusted EBITDA from the disposals and foreign exchange as lower interest expense was offset by higher working capital requirements due to timing of receipts and disbursements. Please turn with me now to Page 15 for a closer look at the drivers of the second quarter top and bottom line changes from the prior year. The changes over the prior year were driven by three primary factors. First, organic revenues declined by $9 million as recurring growth of about 0.5% only partially offset lower transactional revenues. We mitigated the revenue impact through cost efficiencies, leaving a negligible impact to profit.

Second, the businesses we are disposing decreased revenue by $24 million, but was largely offset by cost reductions due to the wind-downs, yielding a net $7 million reduction in adjusted EBITDA. And finally, while the top line was essentially unchanged due to foreign exchange, we experienced an adjusted EBITDA headwind of $7 million due to the appreciation of a basket of foreign currencies compared to the U.S. dollar. In total, disciplined cost management allowed us to maintain our adjusted EBITDA margin over the same period last year despite the revenue decline.

Please turn with me now to Page 16 for the same analysis for the first half. While organic revenues are down $5 million over last year, cost discipline has completely mitigated the impact and contributed $8 million to adjusted EBITDA. The strategic disposals have lowered revenue by $49 million, but have expanded profit margins, yielding only a $10 million reduction in adjusted EBITDA. For the comparable period in the prior year, the U.S. dollar was weaker against the basket of foreign currencies which caused a foreign exchange tailwind of $12 million on the top line, but resulted in a profit headwind of $5 million due to transaction gains last year that did not recur this year. Overall, the strategic disposals and disciplined cost management drove margin expansion of nearly a full percentage point in the first half of the year, an improving trend we expect to continue in the second half of the year.

Please turn with me now to Page 17 to see how our adjusted EBITDA converted to free cash flow and how we continue to allocate our capital in a disciplined manner to further strengthen the balance sheet. Free cash flow was $44 million in the second quarter, which was $6 million lower than the same period last year. The change was due to higher working capital, largely due to the timing of collections and payments partially offset by lower interest and capital spending.

We use free cash flow and excess cash on hand to repurchase another $75 million of bonds due in '28 at a modest discount of about 3% and bringing the first half debt reduction to $218 million.

Please turn with me now to Page 18 for a look at our full year financial guidance ranges, which remain unchanged from the guidance we initially provided in February, affirmed in April and then refined a few weeks ago when we announced the agreement to sell the LS&H segment. Today, we're further refining our indications within these ranges largely to reflect the impact associated with the divestiture of the LS&H business which we expect to close by the end of the year.

For modeling purposes, rather than estimating the closing date, we've assumed the transaction will close at year-end. If it closes prior, we will modify the guidance accordingly at the time to reflect the impact.

We now expect our organic annual contract value to be in the lower half of the range entirely due to the fact that LS&H will be excluded from this metric in the second half as it will be moved to discontinued operations. Importantly, we expect AMG to approach 3% and the IP segment to return to growth by year-end to blend to about 2.25% growth. We still expect recurring organic growth of about 1.5%, near the midpoint of our range, which remains an improvement of nearly 1 percentage point over last year.

Our revenue is now expected just below the midpoint of the range at $2.35 billion due entirely to foreign exchange and our organic recurring revenue mix will be above the high end of the original range at about 92% as LS&H moves to discons. Adjusted EBITDA should remain at just over $1 billion for a profit margin of nearly 43% at the midpoint of the range. We still expect adjusted diluted EPS will grow about 9% at the midpoint of the range to $0.75.

Finally, free cash flow is now likely to be at the low end of the range as we have contemplated the full transaction cost to close the LS&H divestiture and have also incorporated additional restructuring costs to achieve incremental cost savings to recognize the full benefit next year.

Please turn with me now to Page 19 for a reminder of the full year top and bottom line changes we're expecting compared to last year. We continue to expect adjusted EBITDA margin will expand by about 200 basis points, driven by a return to organic growth, continued cost discipline and completion of the strategic disposals. We anticipate organic growth of about 1%, led by subscription revenue growth from continued ACV acceleration. We have plans in place to achieve cost efficiencies to fully offset inflation, driving $25 million of profit growth. This will account for about 1/3 of the profit margin expansion. The inorganic disposals are projected to lower revenue this year by approximately $125 million, and we are reducing operating expenses by about $100 million, which yields a profit impact of about $25 million delivering the remaining 2/3 of the profit margin expansion.

As a reminder, our guidance assumes we will own the LS&H business until year-end, and if the transaction closes earlier, a revision to our guidance will be made at that time. We now anticipate foreign exchange will be essentially flat compared to last year, comprising the only change to our revenue and adjusted EBITDA indication within their respective ranges.

Please turn with me now to Page 20 to step through the expected seasonality of our revenue and profits this year, which we have refined based on our first half results. We continue to anticipate the business will accelerate organically in the second half of the year led by improved retention and new business sales. The organic growth, further cost efficiencies and the benefit of the strategic disposals could inflect profit margins as we move through the balance of the year.

Revenue should be seasonally lower in Q3 and then higher in Q4 due to the normal cadence of patents and trademark renewals and transactional revenues.

Please turn me now to Page 21 to review how we expect the more than $1 billion of adjusted EBITDA will convert to free cash flow and how we plan to allocate this capital alongside the proceeds from the LS&H divestiture to reduce our debt this year by about $900 million. Due to the transaction costs we will incur at the closing of the LS&H divestiture, we now expect free cash flow will be flat compared to last year, but the vast majority of the onetime cost of nearly $70 million will not recur next year.

We continue to expect cash interest will improve by about $20 million over last year due to the debt we repaid last year and this year. Cash taxes are still expected to be $5 million to $10 million higher than last year, due largely to the new corporate tax in Jersey. We anticipate the change in working capital this year will be a use of approximately $25 million, primarily due to incentive compensation payments. We're also expecting a $10 million benefit associated with lower impaired contractual costs reflected on the other row.

And while we remain committed to investing in product innovation, the disposals and cost efficiencies will improve capital spending by about $20 million. From a capital allocation perspective, we plan to use the free cash flow we generate in the second half of the year and the proceeds from the LS&H divestiture for retired notes due in the next few years.

I will now turn the call back over to Matti for some closing remarks before Q&A.

Before we transition to Q&A, I want to touch on our other announcement today. Michael Easton has been appointed as our next Chief Financial Officer effective August 8. Many of you already know Michael, he serves as our Chief Accounting Officer, and he is a member of our senior leadership team. He is well regarded and brings more than 25 years of finance and leadership experience. Michael has a deep understanding of our business and has been key to strengthening financial discipline, governance and operational execution across Clarivate. He will be focused on accelerating growth improving profitability, strengthening free cash flow generation and maintaining disciplined capital allocation.

I want to thank Jonathan for his leadership. He has made many meaningful contribution to our company over the years. He oversaw the successful integration of the three acquisitions that today comprise Clarivate, setting up the segment operating structure we have today and transforming the finance organization. Personally, in the last 2 years, he has been an important partner to me advancing the VCP, working to improve profitability and strengthening our balance sheet. I wish Jonathan every success in the future.

Operator, we will turn to Q&A now.

[Operator Instructions] Your first question comes from the line of Scott Wurtzel with Wolfe Research.

Just wanted to touch on -- you guys cited some timing around renewals that may have impacted ACV growth during the quarter. Is there anything around that due to longer sales cycles and anything we should expect to persist at all in the second half of the year?

Scott, thanks for the question. We believe that our results for Q2 in the first half are in line with our original expectations, if I remind everyone, we pointed the equivalent of Page 20 in Q1 indicated we expected to see a pullback in recurring organic growth in Q2. Subscriptions were a part of that. So ACV, we continue to make progress over the last 6 quarters. It's not always going to be linear, but we continue to see strong renewal rates and good opportunities for the new products to convert to sales.

So the timing of renewals is something we see in the business from time to time. No, we don't think it's an elongation of the renewal cycle and the organic ACV growth of about 1.5% in the end of June is generally in line with our first half organic growth versus subscription revenues at about 1.2%. So we're generally where we expected. And as we indicate also on Page 20 in this quarter's tech, we expect the ACV and the organic recurring revenue to inflect in the second half of the year. We have good line of sight to that.

At this point in the year, the A&G business as of the end of July had 75% of this year's business in the bag, very similar to what we saw at this point last year, fall is an important renewal cycle, but we're already well on our way, and we have good line of sight for the second half of the year. Thanks for the question, Scott. .

Your next question comes from the line of Toni Kaplan with Morgan Stanley.

I was hoping you could talk about -- more about the MCP opportunity, where you think the -- like which client types are going to more gravitate towards utilizing your data over MCP, which segments, et cetera? And just how you're thinking about how it could contribute to growth? And is it included in the subscription? Or is there an up charge for it? And also just Jonathan, congratulations on your new opportunity.

Yes. So I'll take this one. Thank you, Toni. Maybe take a [indiscernible] on the AI innovation we are doing. We are very much focused. And since I joined us since we started the VCP, we are delivering on 19 different initiatives regarding external -- a new product that we are delivering. We are very, very pleased with the progress so far. We see the AI enablement of our existing product, it's a source for revenue for new logos, new products, improving retention. And I think also to allow us to have some AI specific pricing for new products.

So new revenue generation or revenue stream, the Web of Science Research Intelligence definitely a new revenue stream, [indiscernible] to a new revenue stream, IP-One, and I've been talking about and we are very excited about IP-One, definitely a new revenue stream. Sam will come Nexus Connect and another products from LNG, which involve MCP. And we see the customers in the three segments, including a large science, other want to consume our data, our proprietary data, so either directly to us with our UX or new AI-enabled product or using their own customers is a tendency in some bigger customer we would like us to embed our capabilities [indiscernible] into their respective corporate AI product, and this is why you see more of our product are embedded into Anthropic, ChatGPT and other generative LLMs.

By and large, a bigger customer would like to be able to embed through MCP, smaller customer, we want to use it in our environment, but this is just early days overall. We are very pleased with the momentum that we have in introducing AI either our own native or embedding our proprietary data into MCP environment of the customer [indiscernible] corporate AI infrastructure.

Your next question comes from the line of Manav Patnaik with Barclays.

Thank you congratulations, Jonathan, and Mike both for your new roles. I just had a question on the expectation for acceleration of organic growth. I think you said sequentially 100 basis points. Can you flush that out a bit if it's different between academic and government and in the IP side as well. And I think just going into '27, I guess maybe just -- is that 100 basis points for the full year as well in '27? Or how we should think about that?

I think we are pretty positive on both segments. We have a line of size the of momentum building up in IP as well. we are back to recurring reoccurring flat in Q2. We believe that we're going to improve reoccurring in the second half of the year for IP as well, with a great new momentum and here to re-mention the introduction of the rejoining of Simon to Clarivate. He's been in the industry for 20 years. He was kind enough to come back and support us. We will utilize all of his IP knowledge and expertise and accelerating the progress on the IP turnaround.

So we do believe IP will be -- will be turn around faster with Simon in place and with the great assets, annuity software and intelligence that we have with the AI innovation I've mentioned, I mentioned RiskMark as a product which was all and I also update about IP-One. IP-One is not just intelligence. IP-One is, in fact, an agentive environment enrich IP professionals. Basically, we're getting a different route, so we all know about the tailwinds, and the other one, which has been a little bit contracting. And basically, we are going to disrupt the market using both our agentic capabilities and expertise and our proprietary data. That's on the IP side.

On the AMG side, momentum is also building with the new Web of Science research intelligence with a few -- with a new [indiscernible] with obviously Nexus Connect and some of the new innovation coming out from the AMG product [ launch ]. So optimistic on both ends.

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

I wanted to dive more into transactional revenue performance. To what extent would you say the transaction revenue declines are due to industry factors versus idiosyncratic execution factors and what gives you confidence that there's a path for transactional revenue performance to improve? .

Let me start, and I will hand over to Jonathan. We are moving as part of my playbook or the playbook we've used in the VCP is to move away from transactions. So going into this VCP, there were certain businesses that we divested completely like the onetime books, the onetime parts, the [indiscernible], we divested these businesses completely.

But the divestiture of life science, we're also giving away -- some of the life science was a little bit higher on transaction. There's still a portion of transactional business that will stay with us and is supporting the onetime business we have. But still within this transactional business, there are still business that we have done ambitious to transform to subscription. Just one simple -- one example is the text files of Web of Science. This will gradually improve our subscription rates going in the beyond 92%. That I'll hand over for Jonathan for some more specifics about the quarter.

Thanks, Matti. Just a little bit of additional color on the quarter, George. The life sciences business is still in our organic results in Q2. We didn't reach the agreement until after the end of the quarter, but that business saw some headwinds in the quarter on transactional in particular, as Matti said, we are -- have been looking to migrate some of those things to subscription, that piece in, but also we just saw some hands in life sciences.

And the other two businesses, the business can be lumpy for the quarter. we knew we lapped a couple of things in Q2 in both of those businesses that were going to be a bit of a headwind, but we do expect that to ameliorate in the second half of the year. I think we have better line of sight into that. Our full year guidance does contemplate that transactional will be down slightly year-over-year, but I think we'll see some improvement on that in the second half.

[Operator Instructions] Your next question comes from the line of Shlomo Rosenbaum with Stifel.

This is Adam on for Shlomo. Was there any client losses as it might have impact to the life sciences business that drove the revenue clients in addition to the kind of transactional movement?

Yes, thanks for the question. No, there's nothing discrete or specific, as I mentioned. Matti talked about the fact that we've had an emphasis over the last year or so of really providing food subscription alternatives to migrate some of the transactional business away from it, so certainly, that's an item. But nothing specific that we would highlight on an individual basis other than just some headwinds in the transaction side.

Okay. And then the buyer of the life sciences division now is the performance in the second quarter when they announced the deal, I just wanted to verify what potentially trigger like a mac clause or anything like that?

No. Certainly, this is nothing to that level. And that process is moving exactly as we would expect to work through the process to reach an agreement and all of the approvals that are required or customary, and we expect those to occur in the coming months that we expect this to go toward the end of the year. .

We have reached the end of the Q&A session. I would now like to turn the call back to Matti for closing remarks. Please go ahead.

As we close, I will just repeat the key takeaways today are very, very clear. We have a building block in place to accelerate organic growth, and we will continue to deliver on our commitment to drive long-term shareholder value, and thank you for joining us.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Clarivate Life Sciences and Healthcare Divestiture Call. [Operator Instructions] I would now like to turn the conference over to Mark Donohue. Please go ahead.

Hello, everyone. Thank you for joining us for the announcement about the sale of the Life Sciences and Healthcare segment. As a reminder, this conference call is being recorded in 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. An accompanying 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 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 the press 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.

Good morning, everyone, and thank you for joining us. Earlier this year, we announced that we concluded the strategic review and decided to pursue the sales of our Life Science and Healthcare business.

Today, I'm pleased to share we have reached an agreement to sell the entire segment to Altaris an investment firm specializing in the health care industry. We expect the transaction to close by year-end, subject to customary regulatory approvals and closing conditions. Jonathan will walk you through the transaction details and the financial impact in just a few moments.

But first, I want to take a step back and explain why this is an important moment for Clarivate. This is a major strategic step forward. We will sharpen our focus, improve the quality of the business and position Clarivate for stronger long-term value creation.

About 18 months ago, I laid out our value creation plan around four key strategic pillars. Since then, we made solid progress. We have improved the quality of our revenue mix by increasing our focus on recurring revenue which is driving 900 basis point improvement in organic recurring revenue mix to 89%. We have enhanced sales execution with organic ACV growth improving 160 basis points. And we have moved quickly on innovation, especially with generative and Agentic AI. We have released 16 major products and AI-powered capabilities with thousands of customers using these AI capabilities on a daily basis.

Today's announcement marks an improvement step on the fourth strategic pillar of the VCP portfolio rationalization. Combined with our improving operating results over the last 5 quarters, this is a clear demonstration of delivering on our commitments.

We see four major strategic benefits to this divestiture. First and most importantly, this makes Clarivate more focused. It allows us to concentrate fully on the two segments where we are a leading global player. Academia & Government and Intellectual Property generates the vast majority of our profit and free cash flow. I believe we will reach our organic growth potential in both businesses more quickly when all our attention and resources are directed towards them.

Second, it gives us a simpler operating model with better alignment across the company. Third, it improves our financial profile in several ways. Recurring revenue mix goes up, profit margin expands and capital intensity subsides.

In total, this will improve the predictability of our business and sustain free cash flow after the transaction closes. Finally, the cash proceeds from the sale will give us another way to reduce debt and lower leverage over time.

Overall, this transaction give us more focus, clarity and financial flexibility as we move forward.

What excites me most about this transaction is the future. We will be more focused with a stronger position to deliver AI-powered solutions that drive the knowledge and the innovation economy. Our proprietary solution in intelligence, workflow and services are deeply embedded in the innovation life cycle. And with this sharper portfolio, we will be even better positioned to serve the universities, research institutions, corporation law firms and patent offices that rely on us every day. I'm more confident than ever in our ability to drive performance and create long-term shareholder value.

With that, let me turn it over to Jonathan to walk through the specifics of the transaction and the financial implications for our company.

Thank you, Matti, and good morning, everyone. Slide 11 provides an overview of the key terms of the transaction. The definitive agreement we reached with Altaris is to sell substantially all of the LS&H segment for a total consideration of $600 million, comprised of $525 million of cash and a $75 million seller note.

From an enterprise valuation perspective, this represents just over 10x the segment adjusted EBITDA, less capital spending which is an approximate three turn or more than 40% premium over the same metric for Clarivate as a whole. We intend to use the net cash proceeds to retire a combination of our 2028 and 2029 notes, and we expect the transaction to close by the end of this year, subject to customary regulatory approvals and closing conditions.

Please turn with me now to Page 12 for a view of the financial implications of the transaction. We are confident that the transaction will improve our key financial metrics, and importantly, will have a negligible impact on our free cash flow run rate moving forward. The chart on the page highlights what we would expect our results would be for this year without the LS&H segment. The first column represents the midpoints of our 2026 full year guidance ranges, which we are affirming today, except for free cash flow, which now reflects the additional transaction costs we expect to incur to get from signing to closing.

The right column estimates this year's projected results, excluding the LS&H segment for the entire year and highlights the impact. While we expect revenues and adjusted EBITDA would be lower by approximately $370 million and $120 million, respectively, we expect to maintain free cash flow as the entire adjusted EBITDA decline would be offset by lower capital spending, onetime cost, interest and taxes.

The LS&H segment has the highest transactional revenue, the lowest profit margin and the highest capital spending intensity in our portfolio. As a result, we expect our recurring organic revenue mix to improve by 300 basis points, our profit margin to improve by 200 basis points, our capital spending to decrease by $60 million and our free cash flow margin to expand by more than 300 basis points.

In addition to the capital spending reduction, the midpoint of this year's free cash flow guidance contemplated $15 million of onetime costs related to the transaction to get to a signing and we are now estimating an additional $20 million to get to closing for a total of $35 million related to the LS&H business that will not recur.

We also expect to use the cash proceeds to repay debt, which will result in about $25 million of interest savings. And there are also about $5 million of cash taxes associated with this segment. All told, we would expect free cash flow would be slightly higher this year, excluding the LS&H business, demonstrating our ability to maintain our strong free cash flow generation after the transaction is complete.

Please turn with me now to Page 13, where we illustrate the impact of utilizing the cash proceeds for debt reduction. As we highlighted on our first quarter earnings call, we expect to generate at least $400 million of free cash flow per year on average over the next few years as we have the last few years, and we do not expect this to change after the LS&H divestiture. We plan to use our free cash flow and the net cash proceeds from this deal to repurchase or retire the 2028 and 2029 notes in their entirety by their respective maturities. This disciplined capital allocation should result in lowering our net leverage by about 1.5 turns over the next few years.

In summary, this transaction represents continued progress executing on all four pillars of our value creation plan. As Matti outlined at the onset of the call, we've improved the predictability of our business by increasing our recurring revenue mix, we've accelerated our organic growth, we've delivered significant innovation in our products through the adoption of AI, and we've now rationalized our portfolio through the strategic sale of the LS&H segment.

The transaction will further improve our recurring revenue mix, expand our profit margins, lower our capital intensity and will maintain our free cash flow generation while allowing us to reduce our debt, leading to an enhanced financial profile for the new Clarivate moving forward.

I want to thank all of you for listening in this morning. I'm now going to turn the call back over to John to take your questions.

[Operator Instructions] Our first question comes from the line of Manav Patnaik with Barclays.

I guess I had a question on the process and maybe some color on how many interested parties, et cetera, they were to get to this decision?

And Jon, if I could just squeeze in from a modeling perspective, like will you start reporting this as disc ops in the next quarter? Or how should we be changing our model? Just curious on that.

Yes. Thank you for the questions, Manav. On your first point as it relates to the process, we ran a very robust process. We had a number of combination of both strategic and sponsors that expressed interest in the business. We ran a competitive process and ultimately believe we delivered the best deal for shareholders as a result of that process.

On your modeling question, you're absolutely right. Starting in the second half of the year, starting in Q3 between that point and whenever the transaction closes, the Life Sciences segment will be reported as discontinued operations. And for the same period, starting in the second half of the year, we will exclude it from our organic measures, whether that's organic growth or organic recurring revenue mix, those types of items. So we've reflected what we believe that will look like on the appendix slide that we included in the materials.

Our next question comes from the line of Scott Wurtzel with Wolfe Research.

Just on the pro forma recurring revenue mix, is this low 90s percentage, is that a good way to think about the -- just the mix of the business as we think about the medium term here? And then just as a quick follow-up, I would assume probably pretty minimal, but any potential like dyssynergies to consider associated with the sale?

Yes. Thank you for the question, Scott. So to your first point, that's absolutely right. So when we pull out the Life Sciences business and we look at the A&G and the IP businesses as the organic components of the business, we will now be over 90% or about 92% specifically of recurring organic revenue mix.

While we think there is still some opportunity to modestly improve that, this puts us in the zip code that Matti has indicated before would be our target. We want to be an over 90% recurring organic revenue mix business. So that's the highlight on that.

And then to your second point on dyssynergies, we are very comfortable that we will deliver the cost reductions associated with the transaction that are reflected on Page 12. So we do believe the adjusted EBITDA impact and the adjusted EBITDA impact less CapEx will be about $120 million and $60 million, respectively, on a go-forward basis.

Our next question comes from the line of Ashish Sabadra with RBC Capital Markets.

Just wanted to follow up on any potential for continued cross-selling opportunities even post the divestiture. So that will be one.

And then just a follow-up on the focus on AI. We've seen companies' token costs increase significantly. So I was just wondering your ability to continue to drive margin expansion and lower capital intensity for the rest of the business even with AI investments. Any color on that front?

I'll take the question, Jonathan, was for AI, right? So we are intensifying our use of AI investment, both internally and externally. And externally, as I mentioned over the call, we have introduced quite a number of new AI products of 16 or 18 products over in these three different segments.

Internally, we do have the notion of implementing AI across the company in different ways. We are making our GTM more efficient, the go-to-market more efficient. There are some opportunities on the tech development going to the market with products faster and then further automation, of course, is also the margin expansion opportunity is there for further AI automation internally as well. Jonathan, anything to add here?

Yes. Thanks, Matti. And just on your cross-sell point, Ashish, I think it's a fair point that the -- we do have shared customers between all three of our segments. We're committed to separating these businesses in such a way that prioritizes continued great customer service for all of those customers.

And I think on a go-forward basis, the emphasis on shared customers and opportunities there will be between the A&G and the IP segments.

Ashish, we have -- we're running three different segments for over, I guess, the last 3 years. And each one of its sales -- each one of the segments has its own sales organization, and we will continue to cooperate between A&G and IP, obviously, we will also continue to compete with Altaris as well as we go forward.

[Operator Instructions] our next questions is on the line of Shlomo Rosenbaum with Stifel.

I just have -- I want to focus on two things. One is the higher level and the other one is just kind of mechanical. The first one, I just want to understand, I understand very much how you're reducing the debt load and you're getting ahead of the issue with these bonds being due. In terms of accelerating the organic revenue growth, which is really the key value driver, I think, for the stock, how do you see this really playing out? And how is this going to really change how the company operates or how the management operates or how you're going to get that up?

And then on the second part of it is I'm trying to understand how divesting this business improves your free cash flow. If you take $120 million of EBITDA, you subtract $60 million for CapEx, another $30 million for taxes and interest expense, you still have $30 million of free cash flow, yet you're showing that the cash flow goes up without this business, and I'm trying to reconcile those numbers.

Yes, Shlomo, maybe I'll take that second one, and then Matti can comment on the higher level. So it's just a function of the fact that this year's free cash flow will include about $35 million of transaction costs. you're absolutely right. The contribution pre-transaction cost will be $30 million. But our indication of $380 million for this year's free cash flow includes $35 million of transaction costs that will not recur. And as a result, without this business, we would be just slightly higher.

With that, Matti, maybe I'll let you take the point on organic growth.

Definitely, it's a matter of focus, focus and more focus. Just remind ourselves A&G and IP are clear market leader. They are at scale. We have a very strong and deep customer relationship. We have strong content and technology platform, diverting attention to two segments, further focusing on those our advances of the two segments. We allow us to do better job in introducing new products, the go-to-market and other elements of the business.

And let's just remind ourselves that there is some benefit of having both IP and A&G together benefiting from technology platform, some commercial channels, scale and efficiency and customer reach.

Yes, so we believe that our target to improve and to grow the business will be better served once we have two segments rather than two leading segment rather than the three segments.

And moving to our last question for today. We have Andrew Nicholas with William Blair.

I wanted to just kind of follow up on the last couple on kind of the connectivity between A&G and the IP segments. I understand that with just the two now under the umbrella, you can commit a little bit more focus to them individually. But can you speak to kind of what the connectivity between those two segments looks like today and maybe what the road map is for enhanced collaboration in the new model, if any?

Maybe I'll take this one and talk a little bit about -- let's look back 20 months ago, we have started the value creation plan, putting our plan together. We did what exactly what we said we're going to do. We put the main theme would be improving the revenue mix and improved service execution, improved sales and improve AI innovation is exactly what we've done. And now with this Life Science divestiture, we are completing the strategic review.

We do see the benefit of having the two segments in place, as I mentioned, technology, know-how, AI capabilities. We share commercial -- some commercial channels and we are bigger together and better together. Still we can operate those two segments independently. And the main thing remains creating shareholder value. Jonathan, anything to add?

No, that was great. Thank you. And I think that represents our last question.

Yes. Thank you, everyone, for listening in this morning. And with that, that concludes our call. Thank you.

Thank you. Ladies and gentlemen, you may now disconnect.

Ladies and gentlemen, thank you for standing by, and welcome to the Clarivate Q1 2026 Earnings Conference Call. [Operator Instructions].

I will now hand today's call over to Mark Donohue to begin today's conference. Please go ahead, sir.

Thank you, and good morning, everyone. Thank you for joining us for the Clarivate First Quarter 2026 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 hold or in part without prior written consent of clarity is prohibited, and the accompanying earnings call presentation is available on the Investor Relations section of the company's website.

During our call, we'll 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 a supplement to and should not be considered nicely from or as a substitute for GAAP financial measures. Reconciliations of these measures to GAAP measures are available in 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.

Good morning, and thank you for joining us. Today, I will walk through our first quarter performance, progress against our value creation plan and how execution across the business is positioning Clarivate for improve organic revenue growth, margin expansion and stronger free cash flow generation. This is our fifth consecutive quarter of improved performance.

We are off to a solid start to the year, and I am pleased to report that our first quarter financial results have us on pace to achieve our full year guidance. Revenues were $586 million, supported by continued [ VCP ] progress and execution across the portfolio. From a growth perspective, the quality composition of our revenue continues to improve. Organic ACV growth was 1.6% with subscription organic revenue growth of 1.7% and reflecting increased adoption of subscription-based solution across Clarivate. We are encouraged by the underlying momentum we are seeing due to stronger alignment between commercial execution and product strategy.

Adjusted EBITDA was $241 million, representing a 41% margin, up almost 200 basis points year-over-year, highlighting the benefit of our subscription-first strategy and disciplined cost management.

Free cash flow generation was also solid at approximately $79 million which allowed us to retire $143 million of debt during the quarter.

Most important, the value creation plan is working. We are seeing positive execution across all pillars, demonstrated by accelerating product adoption, improving sales effectiveness and an expanding cadence of new product introductions. This quarter reinforces our confidence that the actions we put in place are beginning to translate into more predictable performance, expanding margin and strong free cash flow generation. As a reminder, we launched the value creation plan in early 2025 to sharpen focus, accelerate execution and unlock long-term shareholder value.

The plan is built around 4 core pillars: business model optimization, improved sales execution, accelerated AI innovation, utilizing our proprietary data assets and portfolio rationalization. You can see these pillars showing up clearly in the numbers through subscription mix, margin expansion and debt reduction.

Academia & Government continue to be a strong engine for recurring revenue growth. We are executing well across all 3 pillars of the value creation plan with clear evidence of progress. uses model optimization, we are accelerating the shift towards subscription-based offerings. Adoption of our progress subscription solution remains strong, with over 600 new subscriptions sold in the last 12 months, reinforcing the durability and predictability of our revenue base. Sales execution is also improving, driven by more effective cross-sell execution across content, research and analytics and software solutions.

During the quarter, we secured several key wins, including a multiproduct institutional deal with Fuyao University, a new research-oriented university in China. We are expanding our China footprint, and this demonstrates our ability to deliver integrated solutions and address broader customer needs. We are leveraging the power of AI, which is generating real measurable value for customers.

Clarivate Academic AI solutions are optimizing key library workflows resulting in 30% to 60% decrease in manual repetitive work and doubling or even quadrupling throughput. This demonstrates how combining AI with climate unique content and extensive domain knowledge leads to a significant operational improvement for customers.

Turning to Intellectual Property. Our attention remains firmly on execution and fundamentals. We are seeing encouraging signs that our increased focus on new subscription and renewal discipline is producing results. For the first quarter, renewal rates improved approximately 100 basis points, helping organic ACV trends improved to nearly flat. This represents a clear improvement versus prior trends and support our confidence that the IP business is moving forward and returning to sustainable recurring growth.

Sales execution continues to strengthen. For example, with national IP offices, including the U.S. PTO, where we secured major trademark analytics contracts and large-scale digitization programs. This wins or advancing patent and trademark operations globally and reinforce Clarivate's role as long-term strategic partner in IP ecosystem and analytics.

During the quarter, we released brand image search, adding advanced AI capabilities such as clustering and multilingual support. This enhancement are expanding our IT professionals uncover insights, assess risk and make faster, more confident decision at a global scale. Overall, the IP segment is operating with greater focus and discipline, and we believe this improvement positions the business to future growth.

In Life Science & Health we are seeing steady progress with the value creation plan. The shift from transactional sales to subscription is on track, supported by positive customer feedback and more consistent sales patterns. The successful changes we have made are reflected in an almost 1% rise in organic revenue during the first quarter.

Notably, we won a new top 20 global pharmaceutical customer for DRG Fusion, our new real-word data analytics platform. This reinforces the strength of our value proposition with large sophisticated customers. In addition, we secured 6-figure subscription wins with biotech company for OpEx, our platform for preclinical and clinical safety intelligence, demonstrated continued momentum across customer sizes and use cases.

On Innovation, we continue to expand access to our trusted regulatory and scientific intelligence through strategic partnerships. During the quarter, we integrated Cortellis regulatory intelligence with Anthropic Cloude Enterprise, combining Clarivate propriety data with advanced AI reasoning to deliver trusted insight directly within customer AI workflows. The collaboration underscores how Clarivate is extending the reach and relevance of this content across the broader AI ecosystem.

In February, we announced that we are actively pursuing the sales of the Life Science & Healthcare business as part of our broader portfolio rationalization efforts. This is consistent with our broader strategy to concentrate capital and management attention on areas where we see the highest returns. The process is ongoing. As always, there is no guarantee of the outcome, and we will provide updates as appropriate.

Our objective remains clear: maximizing value for shareholders while sharpening strategic focus on our remaining businesses. We have spoken over previous earnings calls about the investments we are making in product innovation. Today, I want to highlight how we are scaling AI enablement across Clarivate to drive efficiency and support acceleration of free cash flow. This is a core enabler of our value creation plan and a key lever for margin expansion as we return to healthier organic growth.

Let me provide some color and examples. Across go-to-market function, we are embedding AI within sales and customer care to accelerate revenue growth, streamline customer interaction, enhanced service quality and experience and increase retention. In technology, we are deploying AI throughout software engineering and content operation to accelerate innovation and shorten new product time to market.

Within corporate functions, we are leveraging AI across finance, human resources and legal functions to automate workflows and drive scalable efficiencies. We expect the deployment of digital agents will reduce manual effort, improve accuracy and create operating leverage. Taking together, this AI-enabled cost efficiencies reinforce our core messages. As organic growth improves, this AI efficiency give us confidence in sustained margin expansion and growing cash flow.

To close, the first quarter demonstrates that the action we put in place through the value creation plan are translating into stronger execution, improving fundamentals and clearer path forward. We are operating with greater focus, strengthening our business model, improving sales effectiveness and delivering innovation that matter to our customers, all while maintaining strong discipline around cost and cash generation. Thank you for your continued support, and we look forward to keeping you updated on our progress.

I will now turn the call over to Jonathan for a review of our financial results and outlook.

Thank you, Matti. Slide 14 is an overview of our first quarter results compared with the same period last year. Q1 revenue was $586 million, change over the prior year was due to the inorganic disposals, partially offset by organic growth and a favorable foreign exchange impact. First quarter net loss was $40 million. The $64 million improvement over the prior year was driven by a foreign exchange benefit as well as lower restructuring, income tax and interest expenses. .

Adjusted diluted EPS was up nearly 30% or $0.04 over the prior year to $0.18. The increase was attributed to adjusted EBITDA growth, lower interest expense, lower tax expense and a lower share count due to last year's repurchases, which each contributed about $0.01 to growth.

Operating cash flow was $135 million in the quarter. The change compared to last year was driven by higher working capital due to incentive compensation payments, partially offset by higher adjusted EBITDA.

Please turn with me now to Page 15 for a closer look at the drivers of the first quarter top and bottom line changes from the prior year. The changes over the prior year were driven by 3 primary factors: First, Organic revenues grew modestly as subscription growth of nearly 2% was partially offset by lower recurring and transactional revenues. We delivered a strong profit conversion on the growth as operating expenses were lower than the prior year despite the higher revenues as we achieved cost efficiencies across the business.

Second, the businesses we are disposing decreased revenue by $24 million, but was almost entirely offset by cost reductions due to the wind downs yielding a net $3 million reduction in adjusted EBITDA. And finally, the U.S. dollar remained relatively weaker against the basket of foreign currencies compared to the first quarter of last year, which caused a foreign exchange tailwind on the top line. The mid-teens profit conversion is due to transaction gains last year that did not recur this year. In total, disciplined cost management led to an adjusted EBITDA margin expansion of nearly 200 basis points, which is in line with our full year guidance.

Please turn with me now to Page 16 for a look at how the adjusted EBITDA converted to free cash flow and how we allocated the capital. Free cash flow was $79 million in the first quarter, which was $31 million lower than the prior year. The change was due to higher working capital as a result of incentive compensation payments, partially offset by the adjusted EBITDA growth. We used the free cash flow and excess cash on hand to redeem the remaining $100 million of bonds that were due later this year, repurchased $43 million of bonds due in '28 and '29 at a blended discount of about 10% and repurchased 7 million shares of stock to offset the dilutive impact of stock compensation investing.

Please turn with me now to Page 17 for a look at our full year financial guidance, which remains entirely unchanged from February. Today, we are reaffirming our full year financial guidance for all metrics. Beginning at the top of the page, we anticipate the acceleration of our organic annual contract value last year will continue in 2026 resulting in growth of between 2% and 3%, representing continued steady progress and an increase of about 0.75 percentage point at the midpoint of the range. We expect recurring organic growth of about 1.5% at the midpoint of our range, which is an improvement of nearly 1 percentage point over last year.

Due entirely to the wind down of the businesses we are disposing, we expect revenue to decline by about $100 million at the midpoint of the range to $2.36 billion and that our organic recurring revenue mix, which excludes the impact of the disposals will improve to between 88% and 90%.

Moving down the page, we expect adjusted EBITDA will grow modestly despite the lower revenue, increasing our profit margin to nearly 43% at the midpoint of the range. We anticipate adjusted diluted EPS will grow about 9% at the midpoint of the range to $0.75, largely due to the share repurchases we completed last year. Finally, free cash flow is expected to grow by about 10% to $400 million at the midpoint of the range.

Please turn with me now to Page 18 for a reminder of the full year top and bottom line changes we are expecting compared to last year. We expect adjusted EBITDA margin will expand by about 200 basis points at the midpoint of our ranges driven by a return to organic growth, continued cost discipline and completing the disposals.

We anticipate organic growth of about 1%, led by subscription revenue growth from continued ACV acceleration. We have plans in place to achieve cost efficiencies to fully offset inflation, resulting in a full flow-through of the approximately $25 million of revenue growth to profit. This will account for about 1/3 of the profit margin expansion. The inorganic disposals are expected to lower revenue this year by approximately $130 million, and we are reducing operating expenses by more than $100 million which yields a profit impact of about $25 million, delivering the remaining 2/3 of the profit margin expansion.

As a reminder, our financial guidance for this year assumes we will own the LS&H business for the entire year and if an agreement is reached to sell the business, a revision to our guidance for this potential divestiture may be necessary later this year. We continue to anticipate a modest foreign exchange translation benefit to the top and bottom lines of $10 million and $5 million, respectively, most of which we already experienced in the first quarter.

Please turn with me now to Page 19 to step through the expected seasonality of our revenues and profits this year, which we have refined based on our first quarter results. We continue to expect to make steady progress on the top and bottom lines as we move through the year. As we projected in February, we experienced a slight sequential pullback in our annual contract value organic growth in Q1 but anticipate steady acceleration through the balance of the year to arrive near the midpoint of our range.

Recurring organic revenue growth in Q1 of 1% was higher than we expected due largely to the timing of patent renewals. We do expect a slight pullback in Q2 as a result of this phasing, leading to accelerated growth in the second half of the year. We expect revenue will remain relatively stable over the next couple of quarters and then tick up in Q4 due to the normal seasonality of reoccurring and transactional revenues. We do anticipate profit margins will continue to expand as we move through the remainder of the year due to the organic growth and the impact of the disposals.

Please turn with me now to Page 20 to review how we expect the more than $1 billion of adjusted EBITDA will convert to about $400 million of free cash flow and how we plan to allocate this capital. At the midpoint of our range, we expect free cash flow to grow about $35 million or 10% over last year. Onetime costs are expected to abate primarily on lower restructuring costs. As noted a couple of pages ago, our guidance does not contemplate the sale of the LS&H segment. If we reach an agreement, this is an area we would update later this year. We expect cash interest to improve by about $20 million over the prior year as a result of the debt we prepaid last year and last quarter. Additional debt we plan to prepay the remainder of this year and some savings associated with the projected forward base rate curve.

Cash taxes are expected to be $5 million to $10 million higher than last year, due largely to the new corporate tax in Jersey. We anticipate the change in working capital this year will be a use of approximately $20 million primarily due to the incentive compensation payments in Q1. We're also expecting a $10 million benefit associated with lower impaired contractual costs. And while we remain committed to investing in product innovation, the disposals and cost efficiencies will improve capital spending by about $15 million. From a capital allocation perspective, we plan to use the free cash flow we generate in the remainder of the year for debt reduction.

Please turn with me now to Page 21 for more specifics on our deleveraging plan this year and beyond. The chart at the top of the page outlines our debt maturity profile. As you can see, we have a favorable runway with no near-term maturities. Over the past 3 years, '23 through '25, we generated $1.2 billion of cumulative free cash flow, just over $100 million per quarter on average. As I highlighted on the prior page, we expect to generate approximately $400 million this year at the midpoint of our range and we expect to generate at least this amount next year and the following. This outlook results in a similar average quarterly rate of about $100 million.

Given the current debt market conditions, we plan to use our free cash flow moving forward towards the early retirement of our bonds. Over the next 9 quarters, we expect to retire our secured notes in their entirety before their maturity in July of '28. Once those have been redeemed, we plan to use our quarterly free cash flow to begin to retire the '29 notes leaving only $0.5 billion of the $1.8 billion of mid-term maturities to be refinanced in the next few years.

It's worth noting that as with all of our forward-looking guidance, this outlook includes our LS&H business. If the potential sale does materialize, we expect it would eliminate the need for a future bond refinancing. We anticipate these debt reduction actions will lower our net leverage from 4 turns at the end of Q1 of this year to approximately 2.5 turns in a few years. We continue to be very encouraged by the improved results we are delivering as we implement the value creation plan and the durable cash flows we generate.

I'd like to finish by thanking all of you for listening in this morning. I'll now turn the call back over to the operator to take your questions. [Operator Instructions]

[Operator Instructions] Your first question is from the line of Toni Kaplan with Morgan Stanley.

Thank you you've talked about your new AI capabilities that you've launched and reducing some of the manual repetitive work through AI efficiencies. I was hoping you could talk about the traction of the new AI products, the reception from customers, how much growth you're getting from them at this point. And similarly, any ability to quantify the efficiency benefits that you can get from AI as well? That would be great. .

Thank you, Toni. I'll start and Jonathan will continue. So first of all, we are intensifying our investment in the last 15, 18 months, we invest more and more into AI. And it goes 2 ways. The first one that we started was a major product introduction and innovation around the 3 segments. And then now we are shifting or moving also to internal cost efficiencies is AI. So as with internal cost efficiencies, our opportunities in go-to-market customer support, sales operations, there are opportunities in technology to help us innovate and develop products faster with support of AI. There are also opportunities around the corporate to rationalize some of our corporate costs, whether it's going to be financed a general legal. So there's a lot of opportunities internally.

Externally, the product and this [indiscernible] patient, is delivering innovation to our customer what it really matter. So 3 buckets of product innovation that we have on AI. One is the first wave of product that we have improved or AI assistant. So product by product, many of our products, we have implemented -- we have implemented a research assistant. We have implemented in different products in ANG and then in life science, and we are doing the same with IP. That was Wave 1.

Wave 2 was agent. We are implementing AI agent capabilities across our product where it matters. And then just coming back from some of the feedback we get from some measurement that we've done in implementing agentic AI within our Alma Prime lab reporter. So basically, we have managed to reduce the manpower or to quadruple the throughput of some of our customers using agentic AI capability and it's just a start.

And the third wave is ecosystem implementation. Ecosystem implementation. We all know that this generation, especially student researchers, but also life science scientists and IT professionals are consuming AI through the major LLM providers. So we have started the journey. We announced about a month ago that we are collaborating with Anthropic to provide AI capabilities within Anthropic Enterprise Customers. Taking the CRI proprietary products that we have or CRI proprietary data that we have in collaboration with Anthropic, we are enabling the consumption of this data in Anthropic environment in a way, we are turning the LLM to our sales agent, meaning our customers where they are.

On top of this, we as -- yesterday, we have announced another product from the ANG called Nexus Connect, if you think about universities, they subscribe to a lot of different content. And again, students, researchers are consuming this content through different type of LLM and Nexus Connect is our new offering from ANG that brings the data into ChatGPT, copilot whatever you designated LLM using our technology will bring the content -- our content but also other people content very close to our customers.

So overall, a lot of energy going into and a lot of resources going into AI innovation. And you know that we've just been awarded from outside recognition that we are the fund leader in terms of AI innovation in the academic ecosystem. There's been a long answer for that, but I'll move it over to Jonathan to talk a little bit about the financials.

Yes. I appreciate the part of the question, Toni, with respect to the opportunity size in the AI efficiency internally. We outlined the areas that we're focusing on there. And at this point, we are confident that the opportunity set here gives us a really good opportunity to continue to expand our margins and grow our cash flows. I think we're likely going to look to further dimension this probably later this year. .

Your next question is from the line of Manav Patnaik with Barclays.

Matti, I was hoping you could just give us an update on how you see the competitive environment out there? Presumably they are using AI and enhancing their products as well -- and just curious if you've seen any change or way to compare your initiatives versus what you're seeing in the market? .

I think I've just mentioned that outside this recognize us as AI innovator, we see a great adoption for our AI product across the 3 different segments. We mentioned this. We have -- in ANG, we have more than institution using academic KI solution, I mentioned Nexus Connect, Lab Science over 10,000 researchers and users are using some of our -- some of our AI product innovation, including -- I mean, recently announced the Claude Anthropic collaboration. We're doing well with IT as well with the recent brand image that we have introduced. So we look -- we always look forward. We're trying to set the scene as opposed to look at our competition, but we feel good about our product innovation. We come from a background of products and engineering, many of us, and I say we see a lot of improvement and created from our customers across the different segments.

Your next question is from the line of Scott Wurtzel with Wolfe Research.

Matti, I think in your prepared remarks, you talked about sort of the China opportunity and expanding there. I'm wondering if you can maybe just talk about that China sort of ANG space more broadly in the port that presents to you guys?

Yes. China is a great contributor to our AI -- to our ANG capabilities and performance has been the -- we just came back from the meeting with some of our Chinese top sales executive. We have sold 15 new web science deals in China last year. So there's a lot of great momentum going for ANG in China, specifically in web science and more recently, also in [indiscernible] science research intelligence, some development and collaboration, we do. We feel very good about our ANG prospect in China, not only ANG also Life Science and IP. We have different ideas that we are currently contemplating, we see more than 1 we have, but we feel good about both the China market.

[Operator Instructions] Your next question is from the line of Ashish Sabadra with RBC Capital Markets.

This is Phil Chi on for Ashish Sabadra. Great to see kind of the continued sequential improvements on the organic sales metrics. I think IP kind of continues to execute in a bit of a more muted environment. I think you guys have noted in the past that there are some expectations for that to improve maybe in the back half of '26 into early '27 as some of those historical batch renewal cycles come back -- is that the general kind of trend that you expect for that segment? And you guys have had kind of great wins as well. How do you kind of combine all those together?

I'll start and then I'll ask Jonathan to add. So just a reminder that we are the market leader in IP. We tend to forget this. And we are the only company -- and this has been a lot of my focus and a lot of my discussion has been around. We are the only company that have all the 3 or 4 sub offering that we have in IP. We are very big in on OT. We have great IPMS products, and we have great intelligence products, both for the trademark and for the patent as well. We brought in a new management team [indiscernible] new manager, and we have an enhanced focused, very strong focus in 2 things. sales execution.

We've gone through some kind of changes or some changes into our sales organization, renewals, territory alignment and other things that we've done. -- in the self-execution is much stronger and much better focus and then AI innovation, very strong AI innovation momentum that we are building with the management of -- with the management team of IP, risk Mark, was one product we mentioned. We're now talking about brand image search, as I mentioned as well, we are confident in the return for IP back to future growth.

And Jonathan, if you can give some more color here?

Yes. As Matti highlighted, the continued investment in AI, we helped -- we expect to help accelerate growth in our subscription products there. So we noted that we've made some steady progress. We saw slight improvement in renewal rates in the first quarter, and we've got an organic ACV that it's getting pretty close to flat after a few years of decline. So steady progress based on the investments that we're making there.

The biggest part of the IP business, the reoccurring revenue stream, which is our patent renewal business, that's a business that 2 years ago, declined a few percent last year was flat. First half of this year due to the comps and some timing from the first half of last year will be down slightly. We do expect that business to return to growth in the second half of this year and a good trajectory heading into next year. Market conditions there, the patent stock growth has improved over the last few years, which is a good leading indicator.

And the team, as Matti said, has done a very good job on sales execution, improving our competitive position in that part of the market. So continued progress, and we look forward to a better performance from IP in the coming quarters and into next year. Thanks for the question, Will.

Your next question is from the line of George Tong with Goldman Sachs. .

Transactional revenues were down this quarter because of lower A&G activity. Can you talk a little bit more about what you're seeing there and what would need to happen for A&G activity to rebound?

Yes. Thanks for the question, George. Look, our transaction revenues were down a couple of percent in Q1. As you noted, ANG was the primary driver in the quarter. I will start by saying we do expect on a full year basis, our guidance does contemplate that the transactional business will be down slightly compared to the prior year. So it was as expected. In the quarter, some of that in AMG was due to the timing of software implementations. That can be a little lumpy quarter-to-quarter.

And then on a full year basis, as we continue to have success in Life Sciences, with the migrations to subscription, we will expect to see a little bit of a headwind there on the transactional side. But Q1's slight decline was in line with what we expected. -- and is in line with what we expect for the full year. As we move into next year, continue to build that sales pipeline -- on the software products, there's some opportunity to improve that heading into next year. But that was the primary driver in Q1.

Your next question is from the line of Andrew Nicholas with William Blair.

I was hoping to hone in a little bit more on AMG growth -- that's been a segment that's hung in there pretty well over the past handful of quarters. Within that 2% organic growth and the expectation for improvement in -- are there -- is research analytics and content aggregation kind of leading the way there? Or is it a software-led growth? Or are they all kind of around that 2% number? Just curious if there's an underlying kind of subsegment there, where you have more expectation for growth acceleration.

Yes. Thanks for the question, Andrew. I think the bright spot for us as of late in A&G from an organic growth contribution standpoint, has been the success in our research and analytics category, which is led by our flagship product, [indiscernible]. As Matti touched on in his comments around AI innovation. This is where we've seen a lot of the new innovation come into the product. So very encouraged by the adoption of the research assistant last year, some of the agents that we've deployed that we're getting great feedback on such as the literature review agent.

And then we're also very thrilled about this year's growth that will help to be driven from the web science research intelligence platform. So that's the new AI native multi-agent platform that helps to measure research success across the university ecosystem. So really encouraged by what we've seen there. The content business is held in that usually grows at or slightly below the average for AMG. And then the software business is doing well, very high renewal rates. We've got some new product innovation happening there that can help to catalyze further growth there. But those are the 3 main areas and really the strong performance has been in our research and analytics category. Thanks for the question, Andrew.

Our last question comes from the line of Adam Parrington with Stifel.

Calling on fish [indiscernible]. I apologize if I missed this, but in the slide deck, life sciences and health care, progressing ahead of schedule and the ship subscription -- what is the current subscription mix of the business? And how should this shift move organic move organic growth through the year? .

Yes, Adam, thanks for the question. This is our segment that has the highest proportion of transactional revenue. So just as a reminder, our consulting practice for commercialization, which sits in the Life Sciences business. is an important part of the go-to-market motion for this, but it creates a lower organic recurring revenue mix within Life Sciences.

What Matti touched on Slide 10 is that we have continued to invest in product innovation to migrate some of these solutions to a subscription. We started to see progress on that last year that continues into this year, and we expect to continue to make steady progress, making that business more predictable with a higher renewal base every year to help accelerate and return it to growth. So it's a combination of the commercial motion, where we're focused in the marketplace and the product innovation that's helping to lead that. So we expect to see continued traction there.

And as Matti touched on before, over time, we think we can see the recurring revenue mix get into the low 90s and life science will be a leader there. Thanks for the question, Adam.

Maybe just the last few words of wrap up, just as I mentioned over the call the BCP plan is working. This is the fifth quarter of improvement. Our subscription mix has gone to 89%. We have better execution on sales execution, and we are industry innovator in terms of. We're very pleased to be here today, and thank you for your time.

Thank you all for your time today. That concludes our call, and we look forward to speaking to you with any follow-up questions in the coming days. Thank you. .

This does conclude today's call. Thank you for joining. You may now disconnect your lines.

All right. Well, welcome, everyone. Good morning. Once again, I'm Scott Wurtzel. I cover info services here at Wolfe Research. Excited to be joined by Jonathan Collins, JC, the CFO of Clarivate for a fireside chat. So JC, thank you so much for joining us. I think there are some in the room who may be unfamiliar with the Clarivate story. So wondering if you could maybe start off by giving a quick overview of the business and the different segments that you operate in.

Absolutely. So thanks for having me, Scott, and good morning, everyone. Yes, just a quick overview of Clarivate. We are an indispensable partner for intelligence solutions, workflow solutions and tech-enabled services for institutions and companies that participate in innovation. So from a services offering, our intelligence offerings, we enrich data, we provide analytics and insights on that data and in many cases, industry-wide recognition around credentialing of the quality of the research in any given area. So that's our intelligence solutions that we provide. Those are over half of what we do from a services standpoint.

The second thing we do is provide workflow solutions. This is in the form of Software as a Service, where we're deeply embedded and entrenched in the workflows of our customers that are participating in the global innovation ecosystem. The final component is tech-enabled services. This is primarily within our intellectual property segment, and this is where we provide services to provide renewals of intellectual property around the world, leveraging our global agent network. And by agent there, I mean people that are on the ground all around the world. So those are really the 3 types of services that we provide.

We provide those to 3 distinct end markets. Our largest end market, which makes up about half of our business is academia and government. This is where virtually all or 99% of the world's top 400 institutions use our intelligence and workflow to manage the research process and the learning process within that end market. The second market is intellectual property. It's our second largest market, which makes up about 1/3 of our business. And the Intellectual Property segment is servicing both in-house legal departments as well as law firms that specialize in intellectual property, providing those solutions to them.

And then the third is the Life Science and Health Care. This is where we are providing all of the top 20 pharma companies around the world and all of the top 10 Medtech companies around the world, solutions that help to provide enabling the research and development process all the way through to the commercialization and protection of that innovation that's occurring within that segment. So those are the solutions we provide intelligence, workflow solutions, tech-enabled services, and we provide that across those 3 end markets: academia and government, life sciences and the intellectual property ecosystem.

Yes. That's a helpful overview. And if we go back to 4Q earnings a couple of weeks back, I mean, the company reported pretty solid results. You had better-than-expected results, I think, in the A&G segment and a guide that implies some organic revenue acceleration. And so just wondering if you can discuss some highlights of the quarter and also talk about your assumptions underpinning guidance for the year.

You got it. So when we look back at 2025, we really see this as an inflection point in the business. All of our KPIs started moving in the right direction. And I'll start with the one that we've really focused on as of late, which is our ACV or our annual contract value. This is the leading indicator of our subscription organic revenue growth that we would expect to see moving forward. That inflected from being at just below 1% growth in 2024 to approaching 2% growth in 2025. So we saw a nice inflection there. We saw an improvement in our renewal rates, which is a key measure of the stickiness of the solutions as we continue to invest in embedding AI tools, both assistance and agents within our products to help enhance the value proposition for our customers. So a nice inflection in ACV last year.

Just to touch on how we think that's going to play out this year, we're guiding to about 2% to 3% growth on that metric as we move into 2026. So we expect a nice improvement, about 0.75 percentage point over the prior year at the midpoint of our range. Maybe if we touch on the organic recurring revenue growth, we delivered about 0.5% of growth last year. We expect that to accelerate to between 1% and 2% as we look forward to this year as we see that ACV continue to improve. We expect modest improvement in our reoccurring revenue type. That's that agency business that we have within the IP segment, where we're renewing IP around the world.

We saw that part of our business improve from a decline in 2024 to being about flat in 2025, and we expect modest improvement on that as we move into this year. And then the other thing that we're pleased with is the profit trajectory of the business. So we delivered over $1 billion of adjusted EBITDA last year. We expect about 200 basis points of profit margin expansion as we move into 2026, really driven by 2 things. Number one, we have a few businesses that we disposed of that we started last year and we'll finish disposing of this year. Those are going to add over 100 basis points of margin expansion as we exit those lower profitable, less predictable parts of our portfolio.

And then the second part is a strong profit conversion on that organic growth. So we're anticipating about a total organic growth of about 1% this year. We anticipate that, that's going to flow through to our bottom line. We have really good cost efficiency measures in place as we move into this year to offset inflation and other things and let that profit growth drop right to the bottom line. The last thing I'd touch on is our cash flow. We generated $365 million of free cash flow last year, which was up slightly over the prior year. This year, we anticipate free cash flow will grow to about $400 million at the midpoint of our range. That's going to be based on lower onetime costs, lower interest expense and lower capital spending helping to move us towards that $400 million. So we think 2025 was a really good inflection point, and we're expecting a slight improvement in all of our metrics as we move into this year.

Got it. And then on earnings as well, you also announced that the company was kind of beginning the process of looking to sell the LS&H business. And obviously not asking for specific numbers or anything like that, but can you maybe just discuss the strategic rationale of looking to sell that specific business versus others that you have?

Sure, of course. So about a year ago, we announced that we were embarking on a strategic review. And for us, what that meant was evaluating each of the 3 parts of the business that we operate in from a solution standpoint as well as our end markets to identify if there was a business unit or a segment that would make sense to seek a divestiture of in order to accelerate value creation for shareholders.

In the first part of last year, we worked on a project, didn't talk about the specifics, but acknowledge that we moved on to another alternative in the second half of the year. And just at earnings a few weeks ago, we announced that we've done a lot of prep work with our Life Sciences business, and we are pursuing the sale of that segment. And we outlined the rationale for that on a couple of dimensions. So it's important to note in all of our disclosures that the majority of our profit contribution and as well as we've indicated, a significant majority of our cash flow contribution comes from our A&G and our IP segments.

We believe the potential sale of the Life Science business could help us to focus on both of those segments. We've acknowledged that we think the markets are growing a bit faster than where we are. So there's room for us to accelerate our organic growth. And we think that the sale of the Life Sciences business could help us to focus on both of those.

The second thing that it could do for us or a secondary benefit would be the ability for us to take those proceeds, repay some debt and accelerate our deleveraging. And that's a great opportunity for us, we believe, in the near term to help catalyze improving the quality and the strength of the balance sheet as we move through the balance of this year. So that's a little bit of the history on how we got to where we are. And as you indicated, I don't have any update -- a detailed update to provide on that other than what we said a couple of weeks ago. But as we get closer on that, we'll provide more color.

Yes, that makes sense. And this and I guess, some of the other capital actions that you've taken over the last year, as you said, has been a part of the strategic review the company has done as well as the value creation plan that you've set out to kind of look at and execute on in the last year. So can you maybe give a recap of some of the important milestones of like the strategic review or the VCP and how you believe Clarivate is emerging from this process in a better place than it was entering in?

Yes, it's a really fair point. So the strategic review is one of the 4 pillars of our value creation plan that we outlined over a year ago. And just to run through those again. The first element is what we refer to as business model optimization. So this is where we committed to focus more investments on our recurring businesses, and that's our subscription business and our reoccurring business with the deemphasizing of our transactional business. So the metric here that we are focused on is taking our business from about 80% recurring closer to 90%. We made great progress on that last year with initiating the disposal of our transactional book business in A&G. Our transactional digital collections business within A&G and then also where we were reselling real-world data within our Life Sciences business.

We identified each of those that we were going to wind down starting last year and then ultimately completing those at the end of last year and as we move through 2026. So business model optimization, we're making great progress on our organic recurring revenue mix moved from about 80% to 88% towards the end of last year, and we expect that to tick up another point or 2 as we move through 2026. The second element was enhancing our sales execution. So this is partially enabled by that first pillar. We are really focusing our field sales teams on the subscription business and the reoccurring revenues within the portfolio, deemphasizing that transactional business.

What we have left in transactional is our consulting business, implementation services, things that will enable the growth of our recurring revenue stream. So made really good progress there, and we measured that by accelerating our annual contract value, which I mentioned before, which went from just under 1% to just under 2% organic growth from 2024 to 2025. The third element is continuing to accelerate our innovation within our product. And this is really enabled by the cutting-edge AI technologies that are enabled. And just a few weeks ago, we put out a webinar before earnings that identified the ways that we're taking this technology and putting it into our products. And there are really 3 principal ways. The first is we are embedding research assistance in all of our intelligence solutions. You can think of this often as conversational discovery, but our customers are looking for authoritative answers to research questions, and we have the ability now rather than having the old structured search taxonomy where you put something into a search bar and get a list of results.

We're now engaging with all of our researchers on a conversational discovery basis. So that's an example of embedding the research assistance in the product. The second area is what we refer to as workflow agents. And this is where -- think of these as more complicated use of LLMs where it's multisteps and the ability to really provide efficiencies in our workflows. So we continue to invest in that. An example of this would be in our academic products where we have our literature review agent that has the ability to take a process that used to be done by a human. It can now leverage the citation database and the proprietary content that we have to provide a very high-quality literature review, and we have customers that are now using that in our products.

And then the third is in ecosystem access. So this is where we expose our content in whatever AI environment our customers are working at. And we actually announced this morning a pretty exciting new development here where we have made in our Life Sciences business, our Cortellis regulatory intelligence products for subscribers of that product. They can now use that in Anthropic's Claude LLM tool that's available. So for customers that are subscribing to both of those, they have the ability to take our proprietary data, embedded into that workflow combined with other data to accelerate efficiencies in regulatory.

So we have regulatory affairs groups. We have pharmacovigilance groups within our customers that are now able to use this tool inside of that ecosystem. We're meeting them where they're doing that research and where they're doing that work. So that's really that third pillar around accelerating product development, and we've made really good progress there. And then the final pillar was the strategic review, which we touched on, which has culminated in the pursuit of the Life Science and Healthcare segment sale.

Got it. Got it. And then you kind of led really well into sort of the next topic because it wouldn't be information services company fireside chat without an AI discussion. And so wondering if you can maybe just talk a little bit more about the opportunities associated with artificial intelligence, how you see it impacting the business over the near, medium, long term, whether you're looking at revenue growth or margins? Just any color would be great on that topic.

Yes. We continue to believe that the vast majority of the solutions that we provide are proprietary in nature and are essential or mission-critical for our customers in each of our segments. So in academia, just to talk a little bit about that business. Our flagship product there is the Web of Science, which is the premier credentialing tool for the quality of peer-reviewed academic research. So we're not a publisher. We are independent, and we have a very time-tested and true editorial review process to identify the quality of research. And our journal impact factor is the authoritative standard around the world for the quality of that content. That data is unique and proprietary to us. We have the ability to take the underlying citation content combined with the analytics that we provide and deliver that to our customers. This is an area where we're investing in AI.

So our first AI native platform that we're launching within the company sits in this area. So it's the Web of Science research intelligence. And what research intelligence is, is a multi-agent platform to aid our customers, universities in understanding the availability of funding and the investments that are made in research and the outputs that are demonstrated there, not only from an academic perspective, but also societal impact is being measured as well, too. So this is an example where we're taking new AI technology from the ground up, building an AI native platform to provide an analytics layer using Agentic AI capabilities that is really unparalleled with the content that we have. So that's an example within our academic business. Maybe another example within academia. We provide the world's leading solution for academic research libraries to manage their digital and physical collections that they deliver for their patrons. That product is referred to as Alma. A significant majority of the premier institutions in the world use that solution to manage their library collection.

We are rolling out Assistant and Agentic capabilities on that platform, and we're seeing really exciting advances in efficiency for our customers in that area. So this is embedding agentic capabilities within those workflow tools. There was an independent study done within the last couple of months that identified meaningful efficiency improvements based on the implementation of these assistants and agents that we've put in those platforms. And then within A&G, we have content and those content are -- we're an aggregator of high-quality content across journals, periodicals, newspapers for customers.

This is information that you can only access behind the paywall. And we're embedding these agents in these tools to be able to enhance that experience. And we've seen very encouraging signs simply since we've implemented these research assistants where we're getting higher recurrence. So the traffic that we see each month, we have more and more users coming back, more and more users engaging with the content because the assistance, the AI assistance help to uncover more information that was harder to find before as they embark on their research process. So really good implementation in our A&G products.

And then we talked about the AI assistance that we're putting in the Life Sciences segment. So our Cortellis R&D suite of products now have research assistance in those. And then we just talked about. I just mentioned the fact that we're now exposing that in multiple ecosystems for our customers. And then in the IP side of the business, we are using AI and our intelligence there within our products, Derwent Patent search and Derwent Patent Monitor. We have the most authoritative content around patent data in the world within the Derwent World Patent Index, and we're using new AI search capabilities and infringement monitoring capabilities to serve up to our customers for both patents and trademarks on the CompuMark side of the house as well, too. So these are areas where it demonstrates that by investing in this new technology in the application layer, we're surfacing really valuable content for our customers in each of these areas.

Yes, that makes sense. And then I think on earnings a couple of weeks ago, you disclosed that you guys believe that 97% of your revenue is derived from proprietary data sources and workflows. And just wondering if you can provide maybe some more detail on the different kind of pieces of that 97%.

Sure. So we do acknowledge there's a few percent that is easier to replicate, but the vast majority, we believe, is very difficult to replicate and is proprietary based on information that we have that others do not. So the biggest piece of that are our intelligence solutions. So I touched a little bit on the Web of Science as the flagship product within A&G. The key intelligence solutions within life sciences are the Cortellis platform, where we offer regulatory intelligence, drug discovery intelligence, competitive intelligence around which molecules are available in the marketplace as companies look to develop therapies. So a very robust set of solutions there in intelligence.

And then on the intellectual property side, we have, I think I mentioned both Derwent and CompuMark are the flagship products for patents and trademarks, respectively, where we have a rich set of enriched information so that when a customer needs to do a proper prior art search or needs to understand the freedom to operate as they innovate, they can be sure that they uncover all of the intellectual property that's been registered in each of those areas. So that's the intelligence part, which makes up over 50% of the solutions that we have.

The next is tech-enabled services. So we have the largest agent network in the world for intellectual property. The company -- the world's most the largest companies in the world and largest IP law firms trust us to ensure that the IP that's registered around the world is renewed in a timely fashion. We use a combination of technology with humans in the loop to help make that as efficient as possible. We can do it much more efficiently for our customers than they can do it for themselves. And that's all based on decades of proprietary workflows that enable that process and ensure that they can trust us to make sure that, that's done correctly and on time everywhere.

And then the final piece is workflow solutions. So this is the Software as a Service that makes up the last piece of this 97%. And I shared the example of Alma within our academia business. I think within IP, a good example here is our IPfolio product. So this is managing workflows for our customers as they -- all the way from an idea through to drafting and docketing and filing and then ultimately, the renewal of that intellectual property to protect it in the marketplace. So another workflow tool. And these are things that we've developed, understanding our customers' workflows at an intimate level, being able to apply the technology and now enabling that with Agentic capabilities to further enhance the value that, that provides for them. So that's a sense of what it is that we have in that 97%.

That makes a lot of sense. If we kind of move along here, I mean, you touched on this a little bit earlier, but talking about the shift from transaction-based revenue to more recurring revenue up to 88% now. I'm just wondering if you can discuss how this impacts the business model, the predictability of revenue growth going forward and how high can recurring get as a percent of total revenue over time here?

Yes. It's a really important point from a predictability perspective. So we identified that there are parts of our business that were exposed to funding within budgets that was a bit up and down year-to-year and also some of the economics of these transactional business, the unit economics were less attractive. So what we really did is pared down to focus on the core part of our business, increasing to almost 90% what is recurring in nature. And really, it's very important for our sales teams as well to be able to focus them on that part of the business where we believe we deliver the most value for customers and ultimately, for shareholders in focusing on that part of the business.

So -- it really enhances our predictability. It's going to help improve our margins. We were able to exit these businesses with a negligible impact to cash flow because both of them were a bit more capital intense. So this is an area where we think it makes us more predictable. It's going to help us grow faster, and it's going to put us in a position where we can generate a higher cash flow conversion on our profit and ultimately better margins as well.

Okay. Makes sense. And then I guess we move over to the A&G segment now specifically. On your recent earnings call, you talked about how you were seeing an improvement in some of the end markets that A&G serves. And so can you maybe just talk about, maybe start talking about maybe some of the headwinds that we saw over the last year? And then what could be improving about the market in 2026?

For sure. So about a year ago, there was quite a bit of concern around the potential of funding pullback, particularly here in the U.S. And we navigated through the end of the first half of last year was also the second half of the academic calendar year. And then when we turn the corner into the late summer and early fall here in the U.S., we begin to work with our customers and our belief proved out to be true, which is that our solutions that we provide are mission-critical in nature. So the research and analytics that we provide on the quality and value being derived from academic research, the software to help enable and manage the libraries collection and the content it serves up to the patrons as well as the software that we're embedding to help discover the content that we're delivering on that part of the business.

So we had an improvement in our renewal rates in A&G last year, and we saw a slight uptick in our annual contract value as we move through the year. So we were able to navigate some of that uncertainty here in the U.S. And we continue to see strong funding for academic research around the world, and we feel good about what that looks like as we move into 2026. So we -- 2025 turned out to be a solid year and demonstrated the mission-critical nature of our products.

Yes, makes sense. And one of the big questions we get from investors within the A&G segment is around the differentiation and the competition within the space. I think one of the potential competitors people cited is like a Google Scholar, right? And so just wondering if you can talk about within your sort of solution set of A&G, like how do you guys differentiate versus others in the market?

Yes. So for a very long period of time, there have been a series of highly curated and paid for solutions and then also some freely available solutions like you've referenced. Our differentiation within the Web of Science also rests heavily on the credentialing that we provide. So the journal impact factor is undoubtedly the gold standard in the market for the quality of academic research within publications. We're independent, which is also a benefit for us against some other competitors that offer credentials for research.

So we continue to see broad acceptance by the market that you look to our content not only for citation relevance, but also for the credentialing around the quality of the research. We also recognize that continuing to innovate here is a really important part of enhancing that value proposition. So we invested heavily in the Web of Science. That was one of our first projects to -- or products to have a research assistant, which we rolled out over a year ago. We followed that with Agentic capabilities. I think I mentioned the literature review service that we have that customers are now paying for to embed for their patrons or the researchers within the community.

And then we're also building our first AI native platform for multi-agent capabilities on top of the Web of Science data, and that's the Web of Science Research Intelligence. So continuing to innovate with the newest technology, combined with best-in-class data and that high credentialing gives us a very good position here. And this is a product that we acknowledged a few years ago. Its growth had stalled, but it's been reinvigorated and it's leading within the A&G segment from a growth perspective.

Got it. And then if we move over to the IP segment, just wondering if you can talk about sort of the main growth drivers within that business between new customer adds, volume increases. One of the things that we have been wondering is like if -- could this AI innovation cycle, is that something that if it is sustained over a long period of time, could that potentially be a benefit to the IP business and the growth there?

We think so, Scott. We certainly look to the overall patent in-force market as a leading indicator of where volumes will be largely for our renewals business, but it's also a help to the other components of our business. So as a reminder, we provide intelligence here, that's Derwent, Innography, incoPat and CompuMark. We also provide the platform for managing the workflows like IPfolio. And then we have our tech-enabled services business for renewing intellectual property around the world.

And it's on that last one where we do really think we're going to have some wind in our sales as we move through this year into next year. If you look at the global patent in-force data that's added each year over the last 5 years, excluding the domestic market for China, which has a different value proposition, we saw coming out of COVID, patents in force were essentially flat for a couple of years. In the last couple of years. Following that, we've seen it return to a healthy growth between 3% to 4%. We've had a couple of years of solid growth there. That tends to be a good indicator of where renewals will be a couple of years later.

And we think that's really going to put some wind in our sales in that business as we move over the course of the next couple of years. So I think our guide for this year has been a little bit cautious in that regard, but we expect some benefit there. And we certainly have acknowledged last year that the continued investment in innovation and AI across all industries, we believe, is going to lift patent filings around the world. We're starting to see that, and we think that's a trend that's going to continue for years to come.

Got it. And I think another thing you've talked about is sort of seeing maybe some steady improvement driven by improved commercial execution. So just wondering if you can elaborate on some of the changes you are making or have made to the go-to-market approach within IP and how that's potentially driving incremental sales within the business.

Yes, Matti, our CEO, has talked about this pretty extensively, and I would focus in on a few key areas. We've made some leadership changes in the last year in the sales group, brought in some high-quality talent and promoted some high-quality talent to help lead those groups. And then second, we've been tweaking our incentives to really focus our teams on annual contract value and that recurring revenue. So a combination of both of those, coupled with that significant investment in product technology to really have leading-edge technology capabilities within our stack as we take to our customers is a really important part to enable that as well, too. So a combination of those, we think, is what helped to accelerate our annual contract value and our recurring organic growth last year, and we expect that to continue into 2026.

Got it. And then if we move on to capital allocation, you talked about this a little bit at the beginning. You're guiding to free cash flow, I think, around $400 million this year, around 10% year-over-year increase at the midpoint. Can you just talk about sort of your top allocation priorities here, where you're looking to deploy that free cash flow and talk about -- I think you mentioned a little bit on how your potential LS&H sale could impact your capital allocation priorities going forward?

Sure. We indicated when we put our guide out at earnings that we're really going to skew more towards deleveraging in the near term. So we repaid $100 million or prepaid $100 million of debt in Q1. We indicated that we're going to generate, as you said, about $400 million of cash. You should expect us to use most of that, if not all, to continue to strengthen the quality of the balance sheet and pay down debt. We also acknowledged, and I mentioned one of the catalysts or rationale for pursuing the sale of the Life Sciences business is not only the execution focus that it provides, but the ability to take cash proceeds there -- potential cash proceeds there and put those towards deleveraging. So I think in the near term, that's really where you'll see our focus be.

Yes. Makes sense. And then I guess one more before we end here. If we were to be back sitting up here 12 months from now and discussing what a successful year it was for Clarivate. What would you point to maybe the top 3 things you would have achieved over the course of 2026 that would have made this year successful?

Yes. I certainly think it starts with the products and how it's enhancing value for our customers. So continuing to see improved engagement with our solutions as we roll out AI into those platforms is a key measure. We look at that on a usage basis, and we are seeing significant improvements in recurring usage in parts of our business that are adopting this technology as well as efficiency improvements from the workflow agents that we provide. I think the second aspect is the execution of our financial objectives for this year. So continuing to accelerate our organic ACV growth, our recurring revenue growth, the margin expansion and the delivery of the cash flow improvement. I think a combination of both of those would put us in a really good position a year from now.

Awesome. Well, JC, really appreciate the time, and thanks for being here.

Thanks for having me, Scott.

Appreciate it.

Thank you for standing by. My name is Carlie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Clarivate Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Mark Donohue, Vice President, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for the Clarivate Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, this conference call is being recorded and webcast and is copyrighted property of clarity. 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 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 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 a supplement 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 lease 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.

Good morning, everyone, and thank you for joining us today. We are at a positive inflection point in the Clarivate journey. In 2025, we delivered on our initial full year financial guide for the first time since 2019. The value creation plan is working as evidenced by improved performance and forward outlook. We have accelerated organic ACV organic recurring revenue and enhanced our free cash flow conversion.

Looking ahead to 2026. Our guidance calls for 10% free cash flow growth and continued improvement in our KPIs. With strong cash generation, stable revenue retention rate of 93% and a business that generates 97% of its revenue from proprietary solutions enhanced by AI, we see tremendous opportunity in front of us.

Last February, we announced a strategic review of our business portfolio, which involves evaluating multiple options. After an in-depth analysis, we have launched a process to sell our Life Sciences & Health business which if the deal is concluded, could accelerate value creation for shareholders. We believe selling this segment will allow further emphasis on the A&G and IP markets and strengthen our balance sheet through reduced leverage.

We are currently engaged in active discussions with interested parties. There are no guarantees. We will reach an agreement. We will update the market when appropriate. While we understand the market's concern around AI disruption for software and information services companies in general, we believe our business is highly proprietary with significant moats.

A few weeks ago, we launched a webinar title Clarivate Intelligence Amplified in the Age of AI. If you're not viewed it yet, I encourage you to do so. For us, AI is not a disruption to our business model. It is an amplifier of what already sets us apart. Today, 97% of Clarivate revenue come from proprietary assets including intelligent solutions, workflow software and tech-enabled services. This reflects decades of strategic investment in proprietary content, expert enrichment and curation and the development of software products embedded across customer workflows. This strong and proven foundation provide us with a significant advantage in the age of AI. Our customers operate in high-stake environments such as research, intellectual property and highly regulated life science industry when provenance, accuracy and trust our essential and nonnegotiables.

Let me explain our AI strategy. We are leveraging AI to capitalize on our strengths. By combining our proprietary data and deep domain expertise with cutting-end technology, we are delivering what we call intelligence amplified. This shows up in three ways. First, AI research assistance provide a conversational contextual search and discovery, a front door to our trusted intelligence where customers can simply ask questions in natural language and get a precise answer backed by our proprietary data. Second, AI workflow agents are embedded directly into customer workflows, acting as digital analysts that enable execution at speed. [indiscernible] used to take hours or days to now happen in minutes. Imagine a patent analyst who has an AI engine can monitor thousands of patent identified relevant prior as and flag potential conflict automatically. That is the power we deliver. And third, through AI ecosystem access, we are expanding our gold standard intelligence across the broader AI ecosystem via secured integrations such as MCP service. By expanding our reach beyond cloud at boundaries, we are ensuring that our assets remain available to user as they develop new ways of working.

For example, we recently introduced Nexus, which exemplify our ecosystem access strategy. As students increasingly begins their research in general purpose AI tools Nexus meets them where they are embedding our gold starter curated content such as web of size directly into public -- tools. This is how we extend the value of our proprietary assets beyond our own platforms, turning AI adoption into a distribution opportunity rather than a displacement risk. We will continue to capitalize on the benefits of AI by enhancing and developing solutions that are trusted by more than 45,000 customers globally. We see this new technology as a legitimate accelerant to our organic growth.

Now let's turn to 2025 results. I am proud of the results we delivered in 2025 which lay a strong foundation for 2026. We delivered nearly 2% organic ACV growth at the high end of the range. We also improved the mix of organic recurring revenue to 88%, clear evidence of continued progress towards a more predictable subscription-based model. We delivered more than $1 billion of adjusted EBITDA and $365 million free cash flow. As Jonathan will cover in more detail, we expect approximately 10% free cash flow growth in 2026.

Our value creation plan has built strong momentum and better focus across the organization which has improved our operational and financial performance. We optimized the business model, which has led to an improvement in our recurring revenue mix. We improved our sales execution and as a result, delivered nearly 2% organic ACV growth, representing approximately 90 basis point improvement year-over-year. We drove innovation forward by introducing 12 major products and AI-powered fishers, strengthening our unique position in the market. Our strategic review has led to the initiation of a process to sell our Life Science business. If successful, this will focus our organization and strengthen our balance sheet. Let me take you through each of our business segments where we have made meaningful improvements starting with Academia & Government.

This segment delivered solid performance in 2025 achieving 2% organic ACV growth despite funding headwinds in the U.S. academic market. On the innovation front, we launched 10 AI assistance and AI-native agentic solutions, and these are being used by over 4,000 institutions today. And here is the foundation that makes this all possible. 97% of our A&G revenue is generated from proprietary solutions. Last year, we successfully transitioned the business model away from transactional revenues. This increased our organic recurring revenue mix to 93% with mid-90s retention rates. Looking ahead, we expect organic growth acceleration as our AI innovation continues to materialize, supported by improving market dynamics.

Now let us talk about the Intellectual Property business. It is powered by the industry's largest agent network and a comprehensive portfolio of solutions covering the full IP life cycle. This includes patent and trademark created proprietary data, decision intelligence, tech-enabled services, IP management software and the largest annuity book in the market. This gives us scale, reach and competitive advantage no one else can match with a new leadership team, including the President, CTO and the Head of Software and clearer priorities, we are confident in returning RFP to growth. On the innovation side, we launched 5 Gen AI and AI native products and enhancement last year. 2026 will bring additional AI product launches across the IP landscape. The changes we have implemented are starting to show up in the results. We delivered 270 basis points of year-over-year improvement in annuities revenue, reflecting stronger execution. The outlook for IP is increasingly positive. The fundamentals are there that [indiscernible] is aligned and the AI-led innovation and products are relating positively with our customers.

Turning to Life Science & Health. Life Science & Health is anchored in expert created highly enriched data, which is optimized for compliance critical workflows where accuracy provenance and trust are essential. We now have 11,000 global active users, leveraging our AI research assistance and workflow agents. That is incredible adoption in a market where accuracy and trust are nonnegotiable. And we are not slowing down. We are due to release more than 10 additional AI solutions this year. We have reached a clear inflection point. Cortellis, DRG and [indiscernible], our 3 major product lines are now moving in the right direction with consistent quarterly ACV growth. Based on this we closed last year and our current pipeline visibility, we expect a return to organic revenue growth in 2026.

Now let's talk about where we are headed and why we are confident in the outlook. For 2026, we are guiding to 2% to 3% organic annual contract value growth. That is a meaningful acceleration or where we were just 2 years ago. On recurring organic revenue, we are targeting 1% to 2% growth for 2026 an improvement of almost 100 basis points compared to last year in the middle of the range.

Finally, free cash flow is expected to grow to about $400 million, that is approximate 10% increase over last year. I am optimistic that we can achieve our target in 2026 because we have built the foundation. We have optimized the business model. We have strengthened sales execution. We are accelerating innovation, and we are rationalizing the portfolio.

In closing, 2025 was a turning point for Clarivate. In 2026, we expect to continue to improve our key financial metrics. Under my leadership, we have built a more focused accountable and performance-driven culture, and we will maximize shareholder value through portfolio simplification and disciplined capital allocation.

I will now turn the call over to Jonathan for a review of our financial results and outlook.

Thank you, Matti. Slide 17 is an overview of our fourth quarter and full year financial results compared with the same periods from the prior year. Q4 revenue was $617 million, bringing the full year to $2.455 billion. The change in the quarter and the year was entirely inorganic as we disposed of and divested businesses over the last year. Fourth quarter net income was $3 million. The $195 million improvement over Q4 of the prior year and the full year improvement of $436 million was driven by the noncash impairment charges recorded in the prior year that did not recur in 2025 as well as lower income tax and interest expense. Adjusted diluted EPS, which excludes items like impairment, was up $0.02 sequentially at $0.20. The changeover last year was entirely inorganic. Operating cash flow was $160 million in the quarter. The $19 million improvement compared to last year is driven primarily by working capital and lower interest and taxes.

Please turn with me now to Page 18 for a closer look at the drivers of the fourth quarter top and bottom line changes from the prior year. As expected, the changes over the prior year were driven by 4 primary factors: First, while organic subscription revenues continue to grow at 1% followed the continued acceleration in our ACV and Total organic revenue declined by about 1% as the subs growth was offset by reoccurring and transactional. Fourth quarter operating expenses were higher as we continue to invest in innovation and incurred higher incentive compensation expense as we delivered our full year guidance, resulting in a $16 million profit decline.

Second, during Q4, the businesses we are disposing decreased by $43 million over the prior year, but was largely offset by cost reductions in these businesses, yielding a net $10 million reduction in adjusted EBITDA. Third, as we have seen in the last couple of quarters, we experienced a modest inorganic impact from the Scholar 1 divestiture. And fourth, the U.S. dollar remained relatively weaker against the basket of foreign currencies, which caused a foreign exchange tailwind on the top line that was partially offset by fewer transaction gains than the prior year, resulting in a small profit impact. We exited 2025 with a Q4 profit margin run rate of just over 41%, which was about 50 bps higher than the full year results.

Please turn with me now to Page 19 to review how these same drivers impacted the top and bottom line changes on a full year basis compared to 2024. As Matti noted in his remarks, our full year revenue and profit results were above the high end of the original guidance ranges we provided a year ago. While recurring organic growth approached 1%, this was offset by organic transactional revenues, resulting in essentially flat organic revenue. Full year operating expenses were higher than the prior year as we continued to invest in growth and incurred higher incentive compensation expense as we delivered our full year guidance. The entire revenue change and the vast majority of the profit difference came from the combined impact of the disposals and divestitures which lowered revenue by about $116 million and adjusted EBITDA by about $44 million compared to the prior year. Both the top and bottom lines benefited from foreign exchange translation as the U.S. dollar weakened compared to a basket of foreign currencies.

Please turn with me now to Page 20 for a look at how the Q4 and full year adjusted EBITDA converted to free cash flow and how we allocated the capital. Free cash flow was $89 million in the fourth quarter, bringing the full year to $365 million towards the higher end of our guidance range, which is about 2% growth over the prior year has lower adjusted EBITDA and higher onetime costs were more than offset by lower working capital, capital spending, interest and taxes. We use the free cash flow we generated to buy back $225 million worth of stock and we called $100 million of the bonds that were due later this year and then called the remaining $100 million in January of 2026. This balanced deployment of capital allowed us to maintain net leverage at approximately 4 turns while retiring $56 million or 7% of our outstanding shares.

Please turn with me now to Page 21 for a look at our full year financial guidance ranges for this year. Beginning at the top of the page, we anticipate the acceleration of our organic annual contract value last year will continue in 2026, resulting in growth of between 2% and 3% and representing continued steady progress and an increase of about 0.75 percentage point at the midpoint of the range. We expect recurring organic growth of about 1.5% at the midpoint of our range, which is an improvement of nearly 1 percentage point over last year. Due entirely to the wind down of the businesses we are disposing, we expect revenue to decline by almost $100 million at the midpoint of the range to $2.36 billion and that our organic recurring revenue mix, which excludes the impact of the disposals, will improve to between 88% and 90%.

Moving down the page, we expect adjusted EBITDA will grow modestly despite the lower revenue, increasing our profit margin to nearly 43% at the midpoint of the range. We anticipate diluted adjusted EPS will grow about 9% at the midpoint of the range to $0.75, largely due to the share repurchases we completed last year. Finally, free cash flow is expected to grow by about 10% to $400 million at the midpoint of the range.

Please turn with me now to Page 22 for more details on the full year top and bottom line changes we are expecting compared to last year. We expect adjusted EBITDA margin will expand by about 200 basis points at the midpoint of the ranges, driven by a return to organic growth, continued aggressive cost management and completing the strategic disposals. We anticipate organic growth of about 1%, led by subscription revenue growth from continued ACV acceleration. We have plans in place to achieve cost efficiencies to fully offset inflation, resulting in a full flow-through of the approximately $25 million of revenue growth to profit. This will account for about 1/3 of the profit margin expansion. The strategic disposals are expected to lower revenue this year by approximately $130 million and we are reducing operating expenses by more than $100 million, which yields a profit impact of about $25 million, delivering the remaining 2/3 of the profit margin expansion.

As Matti highlighted, we are pursuing the sale of our LS&H segment. However, our financial guidance for this year assumes we will own this business for the entire year and if [indiscernible] reached a revision to our guidance for this potential divestiture may come later in the year. We continue to anticipate a modest foreign exchange translation benefit to the top and bottom lines of $10 million and $5 million, respectively, as the U.S. dollar is expected to remain slightly weaker against other foreign currencies compared to last year.

Please turn with me now to Page 23 to step through a high-level overview of the expected seasonality of our revenues and profits this year. Broadly speaking, we expect to make continued progress as we move through the year. However, it's worth highlighting some timing differences that will affect our trajectory. First, in our annual contract value, we often see timing differences with renewals in the first quarter and as a result, we anticipate a slight sequential pullback in Q1, but steady acceleration through the balance of the year. Second, last year, we saw mid-single-digit organic growth in our reoccurring revenues in Q1 due largely to patent renewal accelerations in the U.S. that will not recur this year and will unwind in the first half. The combination of these 2 factors should result in recurring organic revenue growth that is essentially flat in Q1 and will result in a profit margin that's similar to Q1 of last year with the margin expansion occurring in the balance of the year. Finally, it's worth noting that our transactional books revenue will cease this summer, resulting in a sequential step down from the first to second half. But as I noted on the prior page, this disposal will expand our profit margins.

Please turn with me now to Page 24 to step through our expected path to delivering approximately $400 million of free cash flow this year. At the midpoint of our range, we expect free cash flow will grow about $35 million or 10% over last year. Onetime costs are expected to abate primarily on lower restructuring costs. As noted a couple of pages ago, our guidance does not contemplate the sale of our LS&H segment. If we reach an agreement, this is an area we would update later this year. We expect cash interest to improve by about $20 million over the prior year as a result of the debt we prepaid last year and last month, additional debt we plan to prepay this year and some savings associated with the projected forward base rate curve. Cash taxes are expected to be $5 million to $10 million higher than last year due largely to new corporate tax in Jersey. We anticipate the change in working capital this year will be a use of approximately $20 million compared to last year's source of just over $10 million, primarily due to incentive compensation payments early this year.

We're also expecting a $10 million benefit associated with lower impaired contractual costs. And while we remain committed to investing in product innovation, the strategic disposals and cost efficiencies will improve capital spending by another $15 million following last year's savings of more than $25 million. From a capital allocation perspective, we plan to lean more towards deleveraging this year and started last month by retiring the final $100 million of bonds that were due later this year.

In closing, on Page 25, I want to draw attention to the consistent free cash flow we have generated over the past 4 years. Last year's free cash flow of $365 million resulted in a 4-year cumulative average growth rate of 6%, with expected accelerated growth this year of 10%. At the current stock price, our stock is yielding a free cash flow return of 30%. Over the past 4 years, we generated a combined $1.9 billion of free cash flow and asset sale proceeds which we used to repay $1.2 billion of debt, lowering our net leverage by more than 1 turn and to repurchase about $700 million of stock, lowering our share count by 13%, and we expect to generate another $400 million this year and may generate proceeds from the potential sale of our LS&H business to further strengthen our balance sheet. We continue to believe executing the value creation plan will lead to healthy, sustainable organic revenue growth, further accelerating our free cash flow growth in the coming years, delivering meaningful value for shareholders moving forward.

I want to thank everyone for listening in this morning. I'll now turn the call back over to the operator to take your questions.

[Operator Instructions] Your first question comes from Toni Kaplan with Morgan Stanley.

I was hoping you could talk about your monetization model for your subscriptions and for the new AI products. I think, historically, some of your subscriptions at least were based on seat licenses and which products were being used by clients as well. So is that still the model that is underlying the subscriptions? Or have you been changing that? And I guess, approximately what percentage of revenue is based on seat licenses.

So, thank you, Toni. This is Matti. We continue to use AI to our advantage with protecting and growing the base of our subscription revenue. We have an upsell opportunities upselling some of the AI innovation for existing products. And then we are constantly introducing new products, we are totally new revenues. In terms of the business model, we have quite a number of different products with different pricing models. We have rationalized some of our business model, for example, web of science, we have actually streamlined went to be more and more subscription-based product as opposed to onetime. I'm not sure we can share the numbers. Maybe Jonathan can add to this in terms of the breakdown.

Yes. Thanks, Toni. More broadly, for example, within the A&G segment, as Matti highlighted, the pricing of the subscriptions is based on the size of the institution, so not necessarily the exact amount of students or researchers. But the size of the institution certainly affects that model. As we think about the adoption of AI, we believe that as we bring those features and capabilities into the products, whether it's the researcher assistance, the workflow agents or access to our content via the broader AI ecosystem. There's an opportunity to continue to harden the renewal rates, demonstrate more value and drive better pricing and offer new AI-type solutions such as the researcher intelligence that we just featured in that market.

In our corporate markets and in the law firm markets, similar, it's based on the size of the company and based on the size of the law firm is effectively how the pricing grid works for the subscription products. We expect that to continue based on the the institution will be broadly how we price the subscription products.

Just for clarity, there are some products that are also based on the combination, combination of the size of institution and also the actual FTE that actually -- the actual end user actually using it just for clarity and full transparency here. I don't see this as a major concern at this point of time. I know where the question is coming from. We don't think this is concern. We have quite a good -- if we look at our renewal rates going up, usage is going up. If you look at -- maybe you can talk about -- slightly about where we are in Q1.

Yes, we continue to -- early in Q1, we continue to see progress across our key metrics. And when we're out with our Q1 results in just a couple of months, we think we'll continue to demonstrate that we're on the right path. We continue to remove in the right direction, and that's the best demonstration of the value we think we can capture the technology shift.

Your next question comes from Scott Wurtzel with Wolfe Research.

Just wondering if you can explain or give a little bit more detail on the 97% of revenue coming from proprietary data and specifically on how the tech-enabled and workflows kind of fits into that would be great.

Basically, these are two questions. There is the AI question and there is the workflow question, which is kind of different for us. Just to remind users 97% of our business derived from proprietary data -- about 60% is information services. We do have a component at about 20%, which come from enterprise software. I can address both of them. So let's talk about -- start with Information Services, our data is originated in 3 sources: public license and some which are exclusively and internally generated -- the value we deliver is regardless of the source of the data, almost entirely the value lies with our curation enhancement, harmonizing and embedding the data reach the right algorithm in the workflow ecosystem of end customers.

I want to give you just 2 examples. Some life example, we will make it a bit clearer. Let's take, for an example, Web of Science in Academia & Government. The curated harmonized data is then embedded directly into research and valuation, funding allocation publishing decision and National Science policy workflow. Transparency and auditability are very, very essential this. This is why Web of Science underpins decision such as well researchers publish, how government allocate funding and now universities assess performance. General purpose AI tool, which lacks the Providence government and governance cannot substitute this high stake workflow.

Let me give you another example. When pharmaceutical company use general purpose LLM to ask about drug safety profile, it returns publicly available information that is useful but incomplete and potentially outdated. When customers use Clarivate's Cortellis platform, to access 3 million safety and toxicity alerts that have been expertly created linked across Cortellis data sets and continuously update by our in-house scientists. This is not just better data. It is a different category of intelligence that directly impact billion-dollar decision in the drug and medical device development. At the high level, it's positioned us very, very well, 97% and this is why we are continuing to see an improvement in our renewal rate of 93%.

And I can also go and talk about the workflow element of the business. It's 20% of our business. Just remind ourselves, the IPMS business -- the IP business is driven also by strong recurring and growing IPMS software business. Within IP, we have also a major component of software within A&G and the Alma product, the Polaris product. And I can speak here from a vast experience I've been in the enterprise software space for almost 30 years. We hear out the issue of -- like AI sweating up by commoditizing the coding, but I do believe that we are in the best position here. It's not for AI to develop cost. I understand we actually use it ourselves accelerating our development process, but we have some inherent competitive advantage as enterprise software vendor, including the commercial channels that we have developed and supported over years. The switching and implementation dynamics, the workflow integration.

And I think the most important one is security and governance. That is why we believe the 93% of our business is proprietary, and we will continue to demonstrate this in quarters to come. Thank you for the question. Yes.

Your next question is from George Tong with Goldman Sachs.

What were the considerations that led you to initiate a sale process of Life sciences & Healthcare business. Why did you deem LS&H's nonstrategic and A&G and IP is.

So first, as we -- as I mentioned, when I joined the company, I think the first earnings call was late 2024. Our ultimate goal is to create shareholder value. We have initiated the value question plan with pillars. The fourth pillar was the strategic alternative one. We -- I think we've demonstrated the success of the value creation plan. We've gone from 80% recurring to 88% execution of the sales execution. We see tremendous momentum on the AI innovation. We do believe there is also shareholder value that we can pay it through the strategic alternative side. We've run a process. We look at our different alternatives, and we have concluded that Life Sciences segment is the one that we will -- that's the one that we have the opportunity to increase to sell, and then we will increase our focus and operational execution across A&G and IP segment to further strengthen our balance sheet.

It makes sense for us to keep IP and A&G together because we benefit tremendously from the share content assets, technology platform, commercial channel scales and strengthen our innovation. If any time in future, we feel better off separating them. We will definitely keep you keeper informed.

Your next question is from Manav Patnaik with Barclays.

I just want to follow up on that last comment, Matti, in terms of the, I guess, the strategic synergies between IP and academic and government, I guess. Could you just elaborate on what you said towards the end there? Like how do those two segments potentially you work with each other?

I think it makes sense to keep IP and A&G together because we benefit from shared content. We have some -- there is some content flowing between the two different segment. We're using technology platform. We see -- I mentioned already on the call that IPMS is software. Alma is software, we do have agenting capabilities that we are currently building in Alma, we're definitely going to take advantage of the advanced stage of the expertise around Alma and Polaris. And -- we are working together. We have a new -- I mentioned we have a new add of a new CTO and a new Head of Software in IPMS. So first, a collaboration between the software expertise that lies within A&G and the IPMS software arm of IP, which running behind the scenes is a major, major part of the business. So far, we haven't seen much of a collaboration between the two. Definitely an opportunity. There are commercial channels. We have some customers that buy both from IP and from -- and buy from both IP and Academia in last year, we've seen some major universities, tax transfer accounts. I can't mention the names, but we were actually taking over the annuity business.

So we expanded the market and sold the annuity services, some of the top universe in the U.S., definitely innovation. We see the academic AI capabilities of A&G definitely going to help accelerate AI innovation even further -- there are some common projects that will run on cost cut out that is in collaboration with the three segments going through some further opportunities. So there's a lot of opportunities. And at the same time, we can run the company as we can run the three segment independently. We are currently and we will continue to take the benefits of being together but we will maintain strategic flexibility to operate separately in the future just to create more value for shareholders.

Your next question is from Shlomo Rosenbaum with Stifel.

Can you talk a little bit about the IP segment and what it will take to really return that business from -- to organic revenue growth from the declines? And what's going on behind the scenes that's going to make that happen? And what's a realistic time frame for investors to expect that to happen? That's probably the biggest value driver from an operational standpoint for your company.

Yes. So let me start and then Jonathan can join later. So first of all, let's just remind ourselves, we are the biggest player in IP. We have the greatest assets. We have -- we are in a unique position, and I mentioned this on the call, we have the largest annuity book. We have IPMS technology behind the scene, and we keep winning new more and more IPMS customer. We have the patent search, and we have the trademark services. Yes, there are some -- in the recent years, we've noticed some weaknesses I think we are -- but we are coming from this from a position, from a very strong position. It's almost ahead of $800 million business. We have vast majority of -- we have an amazing customer base, and we have some tremendous assets. I think with Maron joining with the new CTO, the new Head of Software -- we just -- we need to be much more focused on innovation, execution, subscription, recurring -- and I have very confident. I believe we can turn this company this IP segment around was -- and we're starting to see the initiation of this turnaround. We've grown in 2025, 200 basis points year-over-year improvement in the annuity books -- we've done different surveys about the annuity book, the worldwide annuity book, the overall patent is growing. We will take -- we'll definitely take our share back and we have outlook of IP is increasingly positive fundamentals out there. The team is very aligned. And I think I'm very optimistic about this IP turnaround. It will take time. It's not going to be done overnight. Jonathan?

Yes, Shlomo, two things I emphasize that Matti touched on. The first is the commercialization and adoption of new product innovation is definitely going to be a driver for the intelligence offerings within IP. So we launched the new Derwent patent search last year. went live early in the market, darwin patent monitor came to market using Agentic-AI capabilities to look for potential infringements and help companies in the process of protecting their -- so the adoption of those tools and driving growth in the patent intelligence. We're really excited. Matti touched on it earlier in the script about the the new risk mark product on the trademark side, which leverages AI capabilities and native AI development to help companies protect their brands and their trademarks as well too. So certainly, product innovation is a big piece, as he said.

And I think the second piece is the continued market recovery. So as Matti touched on, this is a business -- annuity business that in 2024 declined by a few percent. It returned to about flat last year. in the leading indicators there, as we've said before, our growth in the overall patent in force around the world. And we've seen a couple of years in a row where that has returned to a more healthy growth level. Usually a 2- to 3-year lag on that before it really starts to affect the annuity business. but we feel good about the market recovery in global IP. And we touched on last year that the AI boom, we think, is also going to continue to drive more new patent filings around the globe and be a healthy win in our sales for that business. So it's definitely a combination of the things that we control and the market recovery.

Your next question comes from Ashish Sabara with RBC.

Solid free cash flow generation in the quarter and the guidance also reflects on robust free cash flow generation. My question was more focused on capital allocation priorities. You talked about leaning more towards deleveraging, but at the same time, talked about stock trading at 30% free cash flow. So I just wanted to better understand the rationale for deleveraging or buyback this year. And just if you could provide us incremental color on when is the debt due? My understanding is it's not due until 2028. So any color on those capital allocation priorities.

You got it, Ashish, this is Jonathan. Yes, I'll just touch on that second point. You're right. We have a patient capital structure. We don't have any maturities for the next couple of years. But our current judgment is that just based on the overall market environment, we will best serve all of our investors by focusing on deleveraging this year. So we noted in the materials that we've done a balance over the course of the last 4 years. Most of it's been deleveraging, but we've also lowered the share count in the business by 13%. And we do think that the stock is yielding a very attractive free cash flow return. But on balance, we think leaning more towards repaying debt. Over the next 2026 time frame makes the most sense. So we'll continue to look at conditions in the market, but our judgment right now is leaning towards deleveraging is the best way to to create value.

Your final question comes from Andrew Nicholas with William Blair.

Thanks for I just wanted to ask about price realization. Can you speak a little bit to the composition of both ACV and recurring revenue growth in '25. How much of that came from price and what your expectation is in terms of price realization going forward?

Yes. Thank you for the question, Andrew, it's Jonathan. Just a couple of points here. The headline is our price realization has been pretty consistent over the last couple of years, where we are seeing improvements in our ACV and in our recurring organic growth is really from volume. So we're seeing improvements in our renewal rate. We're seeing acceleration of new subscription sales. That's what's driving the improvement there. We continue to see opportunities to monetize investments that we make into the product through the price increases, but we do expect that it's that volume component of our subscription and reoccurring organic growth that's really going to help us to continue to accelerate through this year, monetizing the investments that we've made into the products with fewer cancellations in downgrade, more new subscription sales, and we think that's really what's going to help propel us to an improved outcome in 2026.

There are no further questions at this time. I'll now turn the call back over for closing remarks.

Yes. Thank you, everyone, for listening in this morning.

This concludes today's conference call. Thank you all for participating. You may now disconnect.

Sabadra, and I cover information services companies here at RBC. Matti -- we are excited to host Matti, CEO; and Jonathan CFO of Clarivate. Thanks for giving us this opportunity.

Yes. Thank you. Happy to be here.

We'll kick off with the #1 question that we are getting across our coverage universe. It's all about GenAI. GenAI, GenAI, GenAI. So GenAI first from the top line, how do you think about -- one of the concerns is disintermediation risk. So can you talk about how proprietary is your data? How deeply embedded are you in your client workflows? And if you can go through all your segments, like all 3 of them at a very high level, talk about why is -- how do you think about GenAI, but also from not only disintermediation risk but also monetization opportunity, how it's going to open up newer ways for you to monetize.

Yes. Sure. First of all, thank you for hosting us today here. Definitely, AI is not going to displace Clarivate. In fact, AI is a great opportunity for us because of the unique nature of our proprietary data and I'll talk about it in general and then I'll talk about segment by segment.

Our data is unique, and we are in a very unique position to strive in the era of AI because the foundation of the company is built on proprietary created trusted data assets that cannot be replicated by public AI.

While the generative AI and open LLMs offer very convenient. They lack the depth, they the lack accuracy and the governance that our customers, in fact, demand -- our customers such as research, intellectual property customers and life science.

Beyond the data, the unique data that we have, we have IP protected SaaS platforms. Our expert services embedded into the intelligence into a mission-critical processes, the combination of proprietary data and workflow solution that we own and expert services, AI will find it very difficult to displace.

In fact, as I mentioned, it's an opportunity of ours to go forward and to further strengthen the company. Let's take some example from the different 3 segments. On the A&G side, the vast majority of our organic revenue is protected by the proprietary data we have and workflow solutions that we have. These assets, just to give you some examples, include the biometric database, for example, Web of Science; it includes research and analytics, for example, the Impact Factor; enrich AI-enabled aggregation product that we license with partnership with other vendors, ProQuest offering; and proprietary library solutions that we have developed over many years, Alma and the like. These are all deeply embedded in a customer research environment and workflow.

All of this cannot be replicated. This data is not open for ChatGPT, LLM. They don't simply have the access for this proprietary data. This is on the A&G side.

Let's move to Life Science. The vast majority of the revenue from our Life Science segment come from proprietary data. I'll just give you some example. These assets include our own primary market research, licensed and semi-exclusive data of health care, journal content, data partnerships, proprietary predictive analytics and forecasting model and proprietary taxonomies metadata and created -- and creation policy applied to public and licensed data. It's unique, and we own the data.

And then the IP segment as well, we have a series of proprietary data. I'll just keep reminding us, Derwent World Patent Index; Darts-IP litigation intelligence; and Innography proprietary data, which control, which is covering over 190 jurisdiction. On top of this, we have our own internal tools in IP, the workflow solutions that takes advantage of the proprietary data, plus the proprietary workflow solution, and we definitely position us ahead of generic AI solution. That's on the proprietary of the data.

I can then go ahead and talk a little bit about what we've done, what are the type of innovation that we're actually doing with using and utilizing our proprietary data across the 3 segments, academic AI or in the academic and government landscape, we have empowered many of the A&G product with AI research assistant.

But not only that, we have empowered and we're actually deploying agentic AI across our solutions. We have literature review agentic AI in the Web of Science. We are now deploying agentic AI around the Alma workflow solutions. So there are a lot of AI innovations using our technology and our proprietary data, automate and we are monetizing these capabilities in A&G and other segments in different ways.

On the IP, we're also leveraging the AI capabilities. We introduced a number of new products, utilizing our products. Some of them we can mention RiskMark and other products that we have introduced over the years. Life Science as well, a lot of energy going to AI empowerment of our proprietary content, something that AI will find it difficult to do just by having an open data. So that's a long answer. We are encouraged by the opportunities that AI brings to the company. Sorry for the long answer.

No, this was very helpful. I think this was a very detailed response, and I appreciate you going through each segment and talking about the products and proprietariness of the data set. So that was very helpful. I think it was very clear the amount of AI investments that we've already made in the business to help position you very well for the future.

I was just wondering, as you think about going forward, any color that you can provide. Do you need to -- do you anticipate any material ramp-up in investments going forward?

Yes. Thanks for the question, Ashish. Our current perspective is the level of capital spending that we've ramped up to over the last couple of years is adequate for the level of investment that we need to continue to make. As a reminder, a lot of our capital investment is on the development of these solutions that Matti just highlighted. So more and more of our capital spending has been allocated or dedicated towards these types of efforts.

But I think for the foreseeable future, over the next couple of years, we think we'll probably remain at about that level. We do think longer term, there'll be some opportunities as we leverage AI internally to help drive some efficiencies, even on the investment that we're making. But we're encouraged by the results that we're seeing, and we want to continue to invest. We think that's a very big driver of the growth acceleration we've seen this year in 2025.

That's great color. And maybe if I can just drill down further on the efficiency part. Can you also talk about how do you think about efficiencies coming from AI? Can you give some anecdotal examples?

So, so far, we've been very focused on AI around innovation. So a lot of product innovations, lot of AI energy is going into -- and investments going into our product lines. At the same time, we've done some tactical moves around efficiencies using AI. We have -- we are deploying Copilot across organization. We are deploying Copilot in our software development process. We've also done some tactical moves around efficiencies in the content operation environment.

But we believe that we should go to a more comprehensive move and trying to have a robust plan, and we will be doing this in 2026, have a robust plan to deploy AI internally into the company to drive our margin to drive our margin up, specifically in the area of content operation and customer place and customer care, there is a room for us to do better deploying internal AI tools in order to improve our margin. That's our plan for 2026.

That's great. That's fantastic. I know we covered a lot about the proprietariness of the data and the new product suite that you're adding. I was just wondering if you can add any more color on terms of how do we think about AI contributing to ASV growth? Any other color that you would like to add on?

AI contributing to?

To the -- like your subscription growth or recurring revenue growth, if you have any incremental. Obviously, you talked a lot about the new products you're launching, but anything that you would like to add on top of it, the ACV growth, sorry, my bad.

No, definitely, AI is front and center in everything that we do. Like if you look back at our value creation plan, AI innovation is central to what we do. We believe AI is helping us in 3 ways. One is to improve our recurring -- our retention rate or renewal rate by us going into the customer -- into the existing product lines, empower them and enable AI-enabled existing products, increasing our competitive in the market and increasing our retention rate. We went from 92% to 93%, one.

Secondly, there is also an upside opportunities. So many of our -- a lot of our AI innovations is going within the existing fee that the customers are paying, but there's also an upside certain AI capabilities. It's coming at additional price. So AI innovation into the customer base, into the existing customer -- into the existing product with some upsell opportunities. And more important, we also have the notion of introducing -- using our existing data assets, introducing new completely new products and going after new money.

Two examples, RiskMark, which is a new offering from our IP segment is a product that we are charging. It's new money. Web of Science Research Intelligence, which is a new product, which is complement. It's analytics tools around Web of Science. It's a new product that we have currently introducing. We have 25 customers already subscribing to this product. That's a new opportunity for us with AI. So going into existing products, upselling existing products and new money coming from new products, which are native AI, that's an opportunity for us as well.

That's great color. Shifting gears here, value creation plan. That obviously has been a lot of investor focus on value creation plan. I think it's been in place for a year now. Can you just provide us an update on the progress?

So we are very pleased. So far, I'm very pleased with the product -- with the progress. We have announced a detailed plan in February 2025 definitely working. I've been in my job for 15 months. The value creation plan is working. We do have -- we do plan to do some minor adjustment for 2026. But obviously, this is going ahead, it's going well.

Subscription has gone from very strong focus on subscription. We went to 80% to 88%. We do have the ambitions to take the company from 80% to 90%. We are already 88% of our organic revenue is on subscription. We are moving more and more of our offering towards the subscription. And we are going to discontinue.

We have mentioned before that we will discontinue certain products at the end of '25, some products at the middle of '26 and some at the end. We are on plan to discontinue this product. And I think the smart way, if we can complement ourselves, the smart way that we did that, we are stopping the onetime, but we also came back with some alternative subscription back office -- subscription-based offering. I want to mention 2.

One is the ProQuest e-books notion, which we have about 100 customers already buying the subscription business. And the other one, which we are very, very pleased with is in Life Science, a product called DRG Fusion, which is replacing our data brokerage business. We're already pleased to announce that we have 6 customers that acquired subscribe for DRG Fusion, including 2 of the top 20 or 30 pharmaceutical. It's going well, the transition to subscription.

Sales execution, the second pillar of the value creation plan is going well. We have adjusted some of the sales organizations, putting more energy towards customer success. We've replaced some of our management team in sales execution. So most of the sales execution is already in effect.

And then lastly, product innovation. I think we've spoken a lot this afternoon about product innovation, but it's a strong, strong focus of us. And lastly, the solution rationalization. The strategic review is still going, and we will be in a position to -- in February to give -- to provide an update about the solution rationalization exercise.

Yes. That's great. Yes. No, I think the investors are definitely focused on the strategic review, and we look forward to that decision in Feb.

Just moving on to renewal rates. As you talked about renewal rates have improved 100 basis points. Maybe if you can point to what are some of the key customer initiatives that are contributing to that improvement in retention rates?

I have to twist a little bit the answer here. For me, the increased renewal rate is number one is product. But the fact that we go and invest in the product and we show AI and some of AI we give at the existing fee, it's working very, very well.

On top of it, I mentioned already, we have increased the number of our customer success team. We work with the customers periodical, depends on how strategic is the customers, more touch points, more accountability for the CSM for the Customer Success Management. It's a combination of putting more people, more attention and the right product investment.

No, that's great. And maybe the follow-up there would be like a lot of the things that you talked about on product innovation, a lot of the success on VCP that you talked about, but which inning are we in, in moving towards the -- back to the market growth rates? How do we think about Clarivate where we are in that process of moving towards the market growth rate by segment?

Yes. We're making really good progress. I think what's most encouraging about 2025 is the fact that the momentum is headed in the right direction. ACV is accelerating. We plan to end the year towards the upper end of the range that we indicated, approaching a 2% exit rate that bodes well now as Matti highlighted with 88% of our organic revenue coming from subscription and recurring products for the revenue growth acceleration moving into next year.

Just as a reminder, the perspective we take on the markets, we think A&G market that we operate in grows in the 3% to 4% range. We're currently growing at about 2%. We think that's the one where we are the closest to achieving the market growth rate. It's going to be a combination of continued improvements in retention with the investments that we made as well as some of the new products that we're bringing to market. We've talked about research intelligence, the exciting new AI native tool that's going to be available to support those research projects. Also new projects like Alma Specto that are coming to market. So encouraged by the contribution that those will make.

When we move into the life science business, this is a market that we think probably has the highest growth potential of any market we're in. It is our smallest business, but we think it grows mid-single digits. This is an area where our subscription business had declined over the last couple of years. We returned to a healthy level of growth at 2% as at the end of third quarter.

A lot of the investments that we've made in the Cortellis suite of products have driven that. So that one is progressing towards that mid-single-digit growth. And I think the one where we still have work to do is in the IP segment. This is a part of the business that has been essentially flat, slightly down as of late. And we think it's going to be a combination of the investments that we're making in products, combined with some market recovery will help that one to get to kind of that 4% range that we talked about for the IP segment over the course of the next couple of years. So that's the progress in each of those, and we think this is an effort that's going to happen over the next couple of few years.

Okay. That's very helpful color. And maybe I was going to drill down further on the last point you made on the IP side, you talked about some of the market forces. I was wondering if you could provide some more clarity on how is the IP or patent in-force end market shaping up? Any color there?

Sure. Some more encouraging signs are out. We've referenced before a third-party data source that the World Intellectual Property Organization published. They just published the data for 2024, which confirms some of our thoughts there that the market is recovering. So new patent filings were up 5% last year. It was very close to the number that we were expecting. That's the highest new patent filing year that we've seen since before COVID.

So we believe and we highlighted this at Q2 earnings -- the significant investment in AI is driving increased filings around the world. That number I cited excludes the domestic China market, which is higher. But without that, it's a better representation of the value of our business.

The patent in-force metric that we've talked about before was flat for a couple of years coming out of COVID. 2023, it grew about 4% for that same geographic distribution I just gave in 2020 -- just last year, it was about 3%. So we're in that 3% to 4% growth range, 2 years in a row, that bodes very well for volumes for our annuity business or our patent renewals. So we are seeing signs there that, that market is recovering and on a lag that's going to have a benefit to our business, particularly in the area of the annuities or the patent...

Makes sense. And then just sticking with IP. Obviously, Matti, you talked about a lot of product innovation, some of the new product launches that you have in there. But just as we think about the competitive environment, I was wondering if you could comment on, has there been any change in the competitive environment? And how with these new product launches, your competitive positioning has improved?

Definitely have a unique position in the market, the fact that we have a comprehensive suite of products, which I don't know that our competition have the same. So we are doing both patent and trademark. But not only patent trademark, we are doing -- we have a comprehensive portfolio. Obviously, our leading IPMS solution, IPfolio, the annuity and trademark renewal business.

And then we also have a risk -- the trademark business and also the Derwent business. So we are providing a comprehensive solution, something the competitors cannot do. And also the databases, again, the databases that we have, whether it's Derwent World Patent, whether it's Darts-IP, Innography Proprietary PatentStrength indicator, which also is all combined of this -- the fact that we're having a very comprehensive solutions, that's a major strength of us, which differentiates us from most of the competition we have.

That's helpful. And then, Jonathan, going back to your point around A&G, switching gear to A&G, you talked about like where you're further ahead in the transformation process. You've already achieved 2% growth there. How do we think about the drivers? And maybe, Matti, this goes back to the product questions that you -- or product innovations that you talked about. How do we catch up from 2% to the market growth of 3% to 4%?

I think it's constant influx of new product innovation, and we have a lot of new products that we already launched. We talked about -- Jonathan spoke about Alma Specto. We spoke Web of Science Research. Intelligence, we have another product, we don't talk about it enough, we call it Vega community engagement product. We have 70 or 100 -- 70 or 80 customers already. There is a constant influx. The A&G has a good trajectory of ongoing introduction of new products into the market. I believe we will go to market that A&G will be the first to reach the market growth rate out of the 3 segments.

That's very helpful. And one of the questions that we get a lot on A&G is particularly the sales pipeline, the state of the consumer -- customer budgets. But also, do you expect any implications from the shutdown or any of those things affecting any of the library budgets, any color on that one.

Yes, the shutdown impact for us was insignificant. We had a few delayed payments, but nothing material. I think from an overall library funding status, we started this year a bit cautious around North America and the impacts that, that would have. The renewal cycle at the beginning of the academic calendar year, late summer, early fall, was very encouraging. The business continued to grow at 2%. Renewal rates were very strong. So we feel quite good about that. Funding in other jurisdictions around the world continues to be solid. And as Matti said, this is a stable market and by continuing to invest in innovation, we feel really good about the ability to reach the market growth rate relatively soon.

That's very helpful color. As we think about geographies, are there any particular geographies which from a growth perspective that you would flag having more outsized or places where there's still more room for turnaround?

Not necessarily. We see it as a relatively mature market. We've had some nice growth in developing nations with new solutions, particularly on the research and analytics side. So we pointed to a deal earlier this year that we were quite encouraged about where we were cross-selling between a couple of segments. But I think what we're generally seeing in most major geographies is stable budgets and we're encouraged by the performance so far this year in North America.

Okay. That's great. That's great. Moving on to the next segment, Life Sciences and Healthcare, can you just talk about the underlying growth in the market there? Anything that you've seen from like underlying growth perspective?

Maybe I want to just start with reiterating the 2% growth we have in Life Science. It's been a while. We also see the renewal rates going up 300 basis points, which is great. There is a strong demand. We feel there is strong demand of digital and research advanced data analytics solution. And our pharma and biotech clients are increasingly focused on personalized medicine, genomics and integrating AI into the drug and discovery launches.

It give us an opportunity to demonstrate our capabilities and help our customers with our -- both R&D products and also commercialization product and that we see an ongoing improvement in the Life Science business, and we anticipate this to be something we will pursue further in years to come. And we are confident that the market is coming back at least for us, and it shows in our numbers.

That's great. And so maybe a follow-up question on Life Sciences would be just the transition, as you mentioned, from transaction to subscription revenue. And particularly, you obviously flagged the DRG Fusion and the success that you're having in signing up new customers. I was just wondering if you could drill down further on that transition.

Maybe just kind of reframe or talk a little bit about the Life Sciences segment. Life Science is basically 2 subsegments. One is the R&D Cortellis, which is powered by Cortellis. This business is 97% subscription business. It's an amazing business. It's 97% recurring.

And then there is also the DRG business, the commercialization business, which is less of a subscription base. But we believe that both combined -- this Cortellis and the DRG business or commercialization will grow to be a 90% subscription business. This is currently 85% recurring. And then there is also the consulting business, which is the third component, which is obviously one time, but the product side of the house of the Life Science business, 85% subscription going to notion and there is a strong emphasis within the company to move more and more of our business to subscription and reoccurring. Just like we did with A&G. And A&G, we are now at 93% recurring. We see the path for life science to become a 90% business and then we still have -- obviously, we will continue to have the consulting business as additional subsegment for life science.

That's great color. We spoke about the efficiencies that you're planning for next year. Some of the margins headwind, tailwind as we think about investment. But as we think about the midterm -- as we think about some of the other things as we go for margins, I was just wondering if you could, Jonathan, provide any more color on the margin front that we need to be cognizant of?

Yes. I think we've indicated a few times, we do see the opportunity for near-term margin expansion. As we turn to 2026, we will complete the business disposals that Matti mentioned as those business leave, those were subpar margin businesses that had a negligible cash flow contribution. So they've helped buoy our margins moving into next year. We expect some improvement there. In addition to that, that's helped on the CapEx front.

So our CapEx on a dollar basis has certainly come down this year. There's a little more opportunity there as we finish those disposals. So that's going to help. And we think that sets us up well for continuing to be able to improve our cash flow conversion as we step forward as well too.

That's great. And that was going to be a good segue into my next question around cash flow conversion, always had really robust free cash flow generation. How do we think about the cash flow conversion going forward but also allocation of capital, particularly with stock having pulled back so much. How do you think about buyback -- opportunistic buyback, but also deleveraging and balancing those?

Yes. I think the things I mentioned on the margin profile are going to help on the cash flow side. Below adjusted EBITDA, the opportunity to have our onetime cost abate as we get through some of the restructuring that the VCP brought along and we complete the strategic review.

There's certainly an opportunity there. We have some other costs that are running out related to those businesses that we've disposed of. We don't need a working capital investment as we return to growth given the nature of the business. So those drivers with some continued deleveraging can help to improve that conversion as we move forward.

On the capital allocation front, we've been -- continue to be pretty balanced so far this year. At the end of the third quarter, we had repurchased about $150 million worth of stock and it paid down $100 million of debt. You'll continue to see us be a reasonably balanced between those 2 as we move forward.

That's great color. With that, we'll keep it there. Thank you again. Thanks, everyone, for joining. And thank you, Matti.

Thank you, have a good rest of your day. Thank you.

Thanks for having us.

Thank you for standing by. At this time, I would like to welcome everyone to today's Clarivate Q3 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Mark Donohue, Head of Investor Relations. Mark?

Thank you, Greg. Good morning, everyone. Thank you for joining us for the Clarivate Third Quarter 2025 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 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 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 supplements 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 on 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 to your questions. And with that, it's a pleasure to turn the call over to Matti.

Good morning, everyone. Thank you for joining us today as we review Clarivate's performance for the third quarter 2025. On Slide 6, I'm pleased to share that our results this quarter reflect continued progress in our value creation plan, improve operational and financial results and strong commitment to deliver value for our shareholders.

Our forward-looking metrics such as annual contract value continued to improve to 1.6%, making a 30 basis point sequential improvement, driven by 2% ACV growth across Academia & Government and Life Sciences & Health.

Our renewal rate of 93%, an important indicator was up 100 basis points year-over-year. Our free cash flow generation continue to support our balanced capital allocation, including $115 million of opportunistic share repurchases year-to-date as well as $100 million of debt pay down. These results are a testament to our team's dedication and the ongoing progress of our value creation plan.

Jonathan will cover the quarterly results in more detail shortly. Our VCP on the Slide 7, our VCP is driving improved focus, growth and innovation across the business. We are accelerating product and AI development by investing in proprietary assets and collaborating very closely with our customers. Over the past year, we have launched 12 products and AI-powered capabilities across our segments. We expect this R&D investment to result in higher organic growth and improved renewal rates in the future.

Our sales execution has improved, supported stronger customer engagement and revenue retention and helping us achieve our organic growth outlook through the first 9 months of 2025. We remain committed to optimizing our business model with a focus on increasing our core subscription and reoccurring mix to improve predictability as evidenced by the 8% improvement this year compared to last year and our portfolio rationalization is enhancing our execution focus and capital allocation, which is expected to unlock greater value.

Turning to A&G segment. Positive sales performance, including 2% ACV growth is contributed to predictable top line results driven by our transition from transactional sales of digital collection and books to subscription-based revenue streams. This transition has resulted in our A&G subscription mix now at 93% compared to 81% last year. I believe this was clearly the right decision and I want to acknowledge our teams for the great work in assisting our customers through this transition.

We are pleased with the progress to date as we have secured more than 100 contracts for our new content subscription framework, driven by the new offerings such as progress data collection and progress e-books. We continue to see strong renewal patterns with 90% of global A&G subscription for the full year successfully renewed through October 27.

We are also pleased to share with you that our complete -- we have completed a multimillion dollar renewals of Web of Science with the largest library consortium in the United States. Considering the increased constraint on high education research funding, especially in the U.S., these renewals underscore the continued value that our solutions deliver to major research institutions nationwide.

Our global reach is unmatched, as evidenced by just some of the large international deals, we have shared with you this year, including the British Library, Canadian Research Knowledge Network and CAPES in Brazil. Recently, we finalized an agreement with the University of Melbourne, Australia's premier university. The deployment includes library workflow solution, which provides comprehensive support for library management, resource discovery, resource sharing and reading list creation.

Moving to the Intellectual Property segment. For the first 9 months, the patent and trademark maintenance services reoccurring revenue was flat compared to the same period last year. We are encouraged by this as it represents 3% improvement in the organic growth rate relatively -- relative to the full year of 2024. While these results show improvement, we are committing to returning the segment to sustainable growth.

With Maroun Mourad as our new President of IP, we are confident we will drive continued progress across the business by increasing agility and streamlining processes as well as market recovery. We continue to invest in AI-based products and service innovation while maintaining a leadership position in the global IP ecosystem. For instance, IPfolio introduced an AI-powered product taxonomy that automate product patent mapping.

It enables companies to better identify which product correspond to their patent, a valuable tool for large patent holders making strategic portfolio decision. We continue to make improvement to the Derwent platform with cutting-edge AI innovation which is being integrated throughout the patent management workflow. An exciting addition in this -- an exciting addition is the Derwent patent monitor an AI threat rating feature, empowering clients to identify potentially high-risk competitor filings. This achievement allow users to proactively safeguard their intellectual property portfolio and help mitigate risks.

During the third quarter, we were chosen to supply China petrochemical cooperation, mainly China's largest oil and petrochemical supplier with intellectual property solution and the Web of Science platform. This cross-sell collaboration is a testament to our ability to leverage expertise and provide customers with solutions that meet all IP and research needs.

Moving to Life Science and Health segment. I am personally excited it has returned to 2% ACV growth this year. The business has demonstrated strong performance by introducing new products and advancing AI integration through improved offering and specialized expertise within our Life Science platform. We recently launched DRG Commercial Analytics 360, a data analytics tool aimed specifically at the medtech sector.

We were pleased to partner with Bioventus, a global auto biologics leader to leverage this new offering. This comprehensive analytics platform will assist Bioventus in making more informed decisions to enhance product adoption, improve patient outcomes and strengthen its position as a global leader.

In September, we introduced our AI-powered regulatory assistant in Cortellis Regulatory Intelligence to help professionals manage global requirements more efficiently, developed with customer feedback and tested by industry partner, it meets the needs of biopharma, medtech and clinical research organization. With new features such as conversational AI with referenced answers and multilingual capabilities, it allows users to search and interact in preferred languages.

We also embedded additional -- we are also embedding additional AI agents across key existing life science offering as well as launching new AI native products. We expect this offering to help us expand ACV going forward.

On the next slide, I am pleased with the significant progress we have made by executing our value creation plan across all 3 segments. We introduced AI-powered solutions, including Web of Science Research Intelligence, AI agent, trademark opposition assistant, RiskMark and search and regulatory functionality within Cortellis.

We have also driven internal cost efficiency, scaled our customer success teams and improved sales execution. This action have optimized our business model and accelerated innovation across our portfolio. As we look ahead to 2026, our focus remains on executing our robust value creation plan while driving innovation and operational excellence across Clarivate.

We will continue the rapid deployment of Agentic AI, embedding it across customer workflows and segments. Building on our momentum, we will release new AI native solutions and extending AI-powered capabilities across our flagship portfolio. Accelerating AI innovation at scale is a top priority as we're driving organic ACV and recurring revenue growth through focused sense execution.

We will aim to continue to boost sales productivity by focusing on our people, processes and tool, leveraging AI insight, engaging customer to support ongoing account growth and improving commercial execution. We believe operational efficiency and margin expansion will be achieved by utilizing Agentic AI and embedding organization-wide AI adoption for cost efficiencies.

Finally, we are streaming our business model and making focus -- and market focus by completing our exit from A&G transactional book sales and the life science real-world data resell market -- reselling market.

Strategic alternatives early this year, we have highlighted that we are actively progressing through a comprehensive review and assessment of strategic alternatives as we communicated to you in July, we are making good progress and expect to share more details with you when we report our fourth quarter results in February 2026.

In closing, our performance this year is starting to demonstrate clear and positive momentum across our core financial metrics. We remain on track to deliver our 2025 financial guidance. We have achieved sequential and year-over-year improvement in organic ACV to 1.6% and renewal rate to 93%. Recurring organic revenue growth has improved to 0.6% for the first 9 months of 2025 compared to 0.1% last year and organic revenue mix has risen to 88%, up from 80% in 2024.

These results reflect our commitment to driving sustainable growth and operational excellence -- as we look forward, we are confident that our strong foundation and ongoing momentum position and ongoing momentum position us well to create shareholder value. Thank you for your continued support and interest in Clarivate. We look forward to updating you on our progress in the quarters to come.

And I'd like to now to turn the call over to Jonathan for a review of our financial results. Thank you.

Thank you, Matti, and good morning, everyone. Slide 16 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 $623 million, essentially flat over the same period in the prior year, bringing the year-to-date to $1.84 billion. The third quarter net loss was $28 million. The improvement over Q3 of the prior year is driven by higher foreign exchange gains and the noncash impairment charge recorded last year that did not recur this year.

Adjusted diluted EPS, which excludes items like the impairment, was flat sequentially at $0.18. The change over last year is entirely attributed to the divestiture of ScholarONE. Operating cash flow was $181 million in the quarter. The change compared to last year is driven by adjusted EBITDA and working capital.

Please turn with me now to Page 17 for a closer look at the drivers of the third quarter top and bottom line changes from the prior year. The top line was essentially flat in the third quarter, yet margins were lower as expected as we continue to invest for future growth and remain on track to deliver our full year guidance.

The changes were driven by 4 primary factors: First, while organic subscription revenues continued to grow at more than 1% following the continued acceleration in our ACV. Total organic revenue was essentially flat as the subs growth was offset by modest recurring and transactional declines.

Operating expenses were higher in the third quarter as we continue to invest to drive growth and incurred higher incentive compensation expense as we remain on track to deliver our full year guidance. Second, during Q3, the businesses we are disposing actually increased slightly over the prior year due to multiple large onetime yet low-margin e-book sales, which more than offset continued declines in the other products. This is a meaningful contributor to the raising of our full year guidance range on revenue, which I'll come to in just a few moments.

Third, as we've seen in the last couple of quarters, we continue to experience the inorganic impact of the ScholarOne divestiture. And fourth, the U.S. dollar remained relatively weaker against the basket of foreign currencies which caused a foreign exchange tailwind on the top and bottom lines.

Please turn with me now to Page 18 to review how these same drivers impacted the top and bottom line changes on a year-to-date basis compared to the same period in the prior year.

Year-to-date, revenues have declined by more than $50 million. However, margins are within 30 bps of the same period in the prior year. Let's step through the major drivers of this change. As Matti noted in his remarks, year-to-date organic growth has improved by 160 basis points over where we ended last year. This modest top line growth over last year is offset by higher operating costs as we continue to invest to grow the business while offsetting some of the cost inflation with efficiencies. The combined impact of the disposals and divestitures lowered revenue by nearly $70 million and adjusted EBITDA by just over $30 million compared to the same period last year.

Both the top and bottom lines benefited from foreign exchange translation so far this year as the U.S. dollar remains weaker than a basket of foreign currencies and the profit conversion on the change is high as a result of multiple transactional gains.

Please turn with me now to Page 19 for a look at how the Q3 and year-to-date adjusted EBITDA converted to free cash flow and how we allocated the capital. Free cash flow was $115 million in the third quarter, bringing the year-to-date to $276 million. The change so far this year over the prior year is driven entirely by the adjusted EBITDA impact outlined on the last 2 pages as higher onetime costs are offset by lower capital spending.

We incurred $13 million of onetime cost in Q3 and $55 million so far this year, largely driven by restructuring-related outflows associated with the implementation of the value creation plan. Capital spending was $11 million lower than last year in Q3 as we begin to recognize the savings associated with the disposals. We used a combination of free cash flow we generated in the third quarter and cash on hand to repurchase another 11.7 million shares, bringing the year-to-date buybacks to $150 million and we call the $100 million of the bonds that are due next year.

The balanced capital deployment this year has allowed us to maintain net leverage of about 4 turns while retiring nearly $35 million or about 5% of our outstanding shares. We also took the opportunity during the third quarter to extend our interest rate protection on our floating rate debt by 4 years by entering into $500 million of interest rate swaps through 2030.

Please turn with me now to Page 20 for a look at our full year financial guidance ranges for this year. Beginning at the top of the page, based on the continued acceleration of our organic annual contract value in the third quarter, we are raising the indication from the midpoint towards the higher end of our range as we expect continued acceleration in the fourth quarter.

We continue to anticipate recurring organic growth in the upper half of our range. As a result of the better-than-planned organic performance, combined with a weaker U.S. dollar and slower-than-anticipated attrition in the business disposals. We are raising our revenue guidance by $50 million from our last indication near the upper end of the previous range to $2.44 billion at the midpoint of our new range.

Due to the slower-than-expected decline in our revenue of the businesses we're disposing, we now anticipate recurring revenue mix will likely be towards the low end of the range. It's worth reiterating what Matti indicated earlier, our organic recurring revenue mix, which excludes the disposals, is already at 88% year-to-date, and we expect will remain at this level through the end of the year.

Moving down the page, we now expect adjusted EBITDA at the high end of the range and our profit margin at approximately 41% due to higher revenues from the disposals and FX, which have lower profit conversions. We continue to anticipate diluted adjusted EPS and free cash flow near the midpoint of the ranges.

Please turn with me now to Page 21 for more details on the full year top and bottom line changes we're expecting compared to last year. The full year guidance for the top and bottom lines is based on our expectation that Q4 revenue and adjusted EBITDA will be about $600 million and approach $250 million, respectively. The anticipated changes in revenue and to a large extent, adjusted EBITDA for the full year compared to last year are largely driven by the disposals targeted at optimizing our business model and the divestiture of noncore products and services.

We continue to expect organic growth will be essentially flat as the growth in recurring revenues will offset the originally anticipated decline in our remaining transactional business. This represents about a $10 million improvement over our initial indication at the midpoint of the original revenue guidance range. We continue to expect a profit headwind in this area of about $20 million as cost efficiencies will not fully offset inflation and higher incentive compensation expense.

The strategic disposals are now expected to lower revenue this year by approximately $90 million, and we are reducing operating expenses by $60 million, which yields a profit impact of about $30 million. We expect most of the remaining more than $100 million revenue reduction will take place next year. The divestitures of both Valipat and ScholarOne last year will lower revenue by about $40 million and profit by about $20 million.

We continue to anticipate a modest foreign exchange translation benefit to the top and bottom lines of $10 million and $5 million, respectively, as the U.S. dollar has remained slightly weaker against other foreign currencies compared to the prior year.

Please turn with now to Page 22 to step through the components that will lead to more than 1/3 of the adjusted EBITDA converting to free cash flow. As I mentioned, we continue to expect free cash flow near the midpoint of our range. Onetime costs are expected to be elevated over last year as we invest to execute the value creation plan. We expect cash interest to improve by about $10 million over the prior year as a result of the debt we prepaid last year.

Cash taxes are expected to be in line with 2024. We anticipate the change in working capital this year will be negligible, which will represent an improvement over last year of about $25 million. And while we remain committed to investing in product innovation, the strategic disposals and cost efficiencies will improve capital spending by about $30 million. The net impact of these changes is free cash flow of $340 million at the midpoint of the range and will result in the same conversion on adjusted EBITDA last year at about 34%.

From a capital allocation perspective, we continue to have the flexibility between share repurchases and deleveraging as we move into the fourth quarter.

In closing, on Page 23, I'd like to draw your attention to the consistent free cash flow we've generated over the past 4 years. Delivering free cash flow at the midpoint of this year's guidance range will result in a 4-year cumulative average growth rate of 4%. During the same period, our free cash flow conversion on adjusted EBITDA will be about 35%. At the end of Q3, our stock was yielding a double-digit free cash flow return of 13%.

By the end of the year, we'll have generated $1.5 billion of free cash flow over the past 4 years, which we've used to repay over $1 billion of debt, lowering our net leverage by a turn and to repurchase more than 0.5 billion of stock, lowering our share count by 10%. We believe that executing the value creation plan will lead to healthy sustainable organic revenue growth and further improve free cash flow, delivering meaningful value for shareholders moving forward.

I'd like to finish by thanking all of you for listening in this morning, and I'm now going to turn the call back over to Greg so that we can take your questions. Greg, please go ahead.

Great. Thanks, Jonathan. [Operator Instructions]

All right. It looks like our first question today comes from the line of Toni Kaplan with Morgan Stanley.

This is Greg Parrish on for Tony. I thought maybe we could dive into the patent renewal business there. Obviously, it's been under a little bit of pressure over the last couple of years due to market volume headwinds. Hoping you could provide some color on the competitive landscape and where your product stacks up with some other products in the market like an aqua and how you're positioned?

And then some of the more recent pressures, say, year-to-date, how would you characterize that in terms of market headwinds versus competitive headwinds?

Yes. Thank you for the question, Greg. I'll touch on the numbers a bit, and then Matti will probably want to add some color on the market positioning. So just as a highlight, the reoccurring order type for us is predominantly or almost entirely our patents and trademark renewal service that you highlight.

Last year, that part of our business declined by about 3%. And on a year-to-date basis, we're about flat. So the trajectory is headed in the right direction. And we believe, in the coming years under Maroun's leadership and with the rest of the team, we can return that business to a healthy organic growth.

And it's really a combination of 2 factors. It's the improvement of our competitive position. We continue to make meaningful investments in our workflow software that we deliver to the market, which is an important tool in driving this part of the business.

But in addition to that, we expect the market to continue to recover and move in the right direction. So I think the message for us is we're moving in the right direction. Improved year-over-year change compared to what we saw last year, but there's still room to improve here as we move into 2026.

Maybe coming back on the value creation plan. I mean we have the value creation plan in place for just about a year. We're making headways and progress on the A&G side and Life Science side. We are introducing also some changes into our IP segment with renewed sales structure and processes with some upcoming new products.

Products that we have launched already like trademark RiskMark, Derwent patent monitor, IPfolio. And we are very confident that in the same way we've improved performance with Life Science and A&G with Maroun coming on, Maroun Mourad coming on. I think we have all the confidence we will turn IP into a growing segment as well.

All right. Thanks, Greg. And our next question comes from the line of Scott Wurtzel with Wolfe Research.

Just on the value creation plan and some of the updates there. I noticed that you added a couple of new innovations, whether it's on the Specto or the AuthX AI Research Assistant. Just wondering if you can talk a little bit about those products that you've sort of added to your road map here and what you sort of see those kind of creating for the business as a whole?

Overall, I just refer to my background. I'm a product person by business. This is me. I am very, very upbeat about introducing product. So we have, when I joined, and part of a fundamental piece of our value creation plan is product innovation. So we went 2 ways in the 3 products. One is AI enablement of the existing product portfolio, both to protect the retention rate and to be more competitive in the market. This is evidenced by growing ACV and by a better retention rate.

At the same time, we are also implementing changes or introducing products, which were native for like AI-born -- native AI-born. One example is a RiskMark product from trademarks on the IP segment. And other product is the Web of Science Research Intelligence which is an up-and-coming product. We have already closed about 20 contracts and the product was only going to be launched in the first quarter 2026.

There's a lot of energy focus going into AI innovation, both existing and a new AI-native product. We are utilizing some of the processes that we have developed in the A&G being in my background being CEO of Ex Libris and ProQuest, a lot of collaboration with our customer base, which will help -- which are working well for us.

So there are a lot of different product innovation all over the segments, renewed energy around product. This is the way we will continue to do -- to conduct our business in years to come. Thank you for the question.

And our next question comes from the line of Shlomo Rosenbaum with Stifel.

I had one quick one for Jonathan. And then I want to ask you something Matti. Jonathan, it looks like there were some multiple large book transactions that occurred in advance of the company shutting down that area. Could you quantify for us the impact of those transactions versus what you were expecting, both for revenue and EBITDA?

And then after that, Matti, maybe after a year on the job over here, could you just give us an idea as to what you think the potential of this business is after working on it, trying to put in your new plan, making some -- a lot of strategic changes in it. What do you think the potential is versus when you joined over here? And if you could just give us some thoughts about how we should think about this business longer term?

Yes. Happy to take the first part, Shlomo. So in the quarter, we've had multiple larger e-book type transactions without those in the quarter, we would have seen disposals be down over $20 million. So the impact was material in the quarter. We didn't have anything like that in Q3 of the prior year.

We did have a pretty sizable deal in Q4 of last year that will lap, which is why when we indicated revenue in Q4 should be around $600 million. That will be down versus prior year.

So -- these are ones that from a top line standpoint are material. Margin is not very high on those given the nature of the transaction, but that's a little bit of color on that.

Thank you for the question, Shlomo. Again, I'm really enjoying the journey here. There's a lot to do, as you can imagine, this company has gone through a lot. And I think we've got it now all focused on the right direction. The more I learn about the company is the more I meet customers and know our people. We have some very great fundamentals, including the amazing assets we have in the different product line or the different segment, as well as great customer base, very supportive and great talent in-house.

As opposed to where we are taking the company, I believe -- over time, we can take the company back to growth rate, back to market growth rate. If you ask me, A&G 3%, 4% over time. This is the market growth that we believe is in IP, 4%, 5%. This is the growth rate. And I think we should be there. And in Life Science it's slightly higher. But definitely, I believe we will be taking the company over 3 years into market.

We have the people, we have the product and we have the customer base. So no reason why not to be -- to take the company to where it's belong in terms of growing the business over time. Any specifics we can...

[Operator Instructions]

Our next question comes from the line of Ashish Sabadra with RBC Capital Markets.

This is Will Qi on for Ashish Sabadra. When you guys think about the ACV acceleration to 4Q, could you give a little bit of context maybe on which segments you guys would call out as the primary drivers? And also maybe just any commentary around where you think that kind of largest room for improvement might be as well.

Yes. Thanks for the question, Will. I think the encouraging sign for us as we've progressed through this year, we started the year at ACV less than 1%. We're now up over 1.5%. We've seen improvement in all of our segments. So each segment has made a contribution. The most notable improvement has been with the Life Sciences business where we saw a nice improvement in retention as we moved into this year and traction on new sales as we invest in those products.

I think as we move into Q4, I think we think there's continued room there in Life Sciences and in the IP segment, which is where there's the most headroom. So we indicated we're growing at about 2% ACV in A&G and in Life Sciences, both at about that level, which means that our IP business is closer to flat. And we have made some meaningful investments over the past couple of years that we expect to start to benefit the IP business as we move forward.

We launched the Derwent patent search this year in general release with AI-powered search and new functionality on our very strong data base of the Derwent World Patent Index. We have the Derwent Patent Monitor tool that will be coming into market later this year. And as Matti mentioned in his comments, continued investment in our IPMS software and IPfolio, namely IPfolio loss.

So we think those investments in those products that are subscription products will help to drive ACV from about flat to being a growing business as we move forward.

Congrats on quarter.

And our next question comes from the line of George Tong with Goldman Sachs.

You mentioned you expect the IP market to recover and move in the right direction. Can you talk more about underlying trends you're seeing with new patents and trademarks and catalysts for a recovery in volumes?

Yes. Thanks for the question, George. Similar to what we had talked about last quarter, we believe that the overall patents in force in our core markets, continue to tick up for a few years coming out of COVID, they were essentially flat in '23, we started to see growth. We believe we saw growth last year as well, too. And it takes a couple of years for that patent in force growth to make its way into our renewal book because in some jurisdictions, your initial patent is good for a few years before it needs to be renewed.

So that's one leading indicator that we continue to watch, and we are seeing a little bit of help on the volume side. There's work that we've done in our own business from a competitive standpoint to see some modest improvement. So those things are moving in the right direction. And we also draw attention to the fact as we look out in the coming years, -- we do believe we are in a bit of an innovation upswing with the advent of AI, and we think that's going to help lift patents in force in the next couple of years and put some wind in our sales a few years out in our renewal business.

So we think the market trends are good. There can be some lumpiness quarter-to-quarter in our business depending on the customer base in the regions, but in principle, being flat this year compared to a 3% decline in that reoccurring renewal services business is a step in the right direction, and we're encouraged by that trajectory.

And our next question comes from the line of Manav Patnaik with Barclays.

I just had a question broadly on AI, I guess. I think most of your initiatives that you've talked about have been more on the workflow side of the equation, where I guess I think people have a view that there's going to be a lot more competition there. But my question was more on the content side. Can you help us by a division? Just help us appreciate the content you have behind those workflows and how much of that is actually proprietary?

No, I'm not sure -- thank you for the question. I think many -- a lot of our AI innovations go to our information services piece. I mean, the Web of Science, ProQuest One Academic, Primo, Derwent Innovation. So a lot of it is actually supporting the information services, the discovery piece of it.

And yes, we do have quite a lot of sort of proprietary data that we collect from different sources that we acquire or lease from a lot of different people, and we massage them. We put them together. We index them and we kind of put them in front of our customer base. A lot of our AI innovations go to this product. We do have some AI automation around workflow solution as well, indeed, but the majority goes to the informational services offering that we have.

And our final question today comes from the line of Surinder Thind with Jefferies.

This is Colton for Surinder. My question is kind of similar to Shlomo's earlier, just kind of around transactional revenues. And obviously, they were a bit better in the quarter. Just kind of a question around improvement it looks like in the guide from last quarter this quarter in terms of the inorganic disposals and not headwinds to the business broadly, like how that's kind of impacting results and the guide that you guys have for this year?

And then also, I think you talked about some of like a slower roll-off of those transactional disposals as well. So I just kind of wanted to get an update in terms of like time line expectations of like next year, how much of a headwind that might be if there was a bit of a benefit this quarter, how much of that headwind is for next year? That's all for me.

Yes, you got it, Colton. I'll just kind of refer back to Page 21 in the remarks there. So we have improved our top line outlook from our last indication to our current indication by about $50 million. The majority of that is the disposals at trading at a slower rate than we expected and those couple of large transactions in Q3 that I mentioned were a contributor to that. That business will go to 0 and now where I would have expected that of that $200 million going away, most of it would go away this year. It's going to be closer to balance.

So we've got about $90 million this year and then probably a little over $100 million next year that will go away. So just the timing of that business and how it's leaving is the primary impact there. The other factor I'll point to is just on the FX side. So we were a bit cautious on where the dollar had been. It's continued to stay a bit weaker compared to other currencies. So that's going to lift the top line a bit compared to what we were originally expecting. So the combination of those 2 are the primary drivers.

And then, of course, the organic -- recurring organic growth at the higher end of the range in the upper half compared to where we were at the midpoint is also helping to lift that revenue number. So a combination of all of those are or what's baked into our raised full year guidance.

Thank you very much. So that concludes our call for today. I want to thank you all for joining us, and we look forward to speaking to you soon.

Thank you.

And ladies and gentlemen, again, that concludes the call. You may now disconnect.

All right. Good morning, and welcome. I'm very pleased to be joined by Matti Shem Tov, CEO of Clarivate; as well as Jonathan Collins, CFO. Thank you both for being here.

Thank you.

Good morning.

All right. So I want to start with a high-level discussion of Clarivate's strategy and transformation, specifically the value creation plan. So this plan was announced about a year ago. It has 4 pillars. The first pillar is to phase out transactional sales and -- in favor of subscription models. Can you provide us with an update on transactional products that you phased out and the subscription products you're hoping to phase in to replace them and also what the revenue mix is right now of subscription versus transaction?

Yes. So thank you for the question. Yes, shifting the business from transactional, volatile, unpredictable, not as profitable from transaction to subscription is one of the key fundamental of our value creation plan. We've been -- we put a plan in place in February when we presented. We are on track for the plan. And we are basically doing changes in A&G and in Life Science.

In A&G, we are phasing out the print books and transactional e-books by June 2026. We are on track to complete it. We are also phasing out onetime digital collection sales. At the same time, we have introduced 2 new products, which are sold on transaction -- on a subscription basis. One is a focused e-books and the other one is digital collection. We are very proud of the fact that by now, after 6 months of this product being on the market, we sold already 70 new customers of this one, including some 2 recent wins in the U.K. market for top 2 prestigious universities in the U.K., which we cannot specifically name.

So good progress on the A&G side on moving away from transactional to subscription. We're doing a similar exercise in life science, exiting the real-world data brokering business on the DRG side. We have told the market and told our customers that we are phasing out of this business by the end of 2026. We are on track to comply with this plan. At the same time, we've introduced few new subscription-based offering on the life science, DRG side of Clarivate. DRG Fusion is a modular subscription-based data analytics platform, replacing real-world data offering.

Also on our MedTech business, we introduced Commercial Analytics 360. It's a first step towards transition -- MedTech from a transitional -- from a transactional reporting onetime business to a subscription base. It's taking off pretty well. It's progressing according to the plan. Other product that we've introduced in Life Science as well, it's a disease landscape and forecast reports, also transitioning this business from onetime to subscription, all in all, on plan. We are currently -- when we started the plan, we were 80% of the company was subscription -- was recurring. By now, if we exclude the disposal, we are talking about 88% of our business is on a subscription basis, and we aim to be at 90% over time.

That's a great update there. Now the second pillar of the value creation plan is to improve sales execution. Can you talk a little bit about what you're hoping to improve there and what steps remain to be done versus what you've already accomplished?

So sales execution is high on the agenda. It's important just to consistently meet our targets. We have implemented most of the changes we were planning around the sales execution. And you can tell by the numbers, the ACV number for H1 -- for Q1, Q2 and by us reaffirming the numbers for the rest of the year, the changes into our sales organization is impacting the business. We see greater momentum on our subscription base. We see a better retention rate.

We've implemented changes to the sales organization in the 3 different segments, mainly around talent, organization, customer engagement, and sales force incentives. I can go into some further details around in terms of talent. We brought in a few external reinforcement from the respective industry. We've hired a new Senior Vice President for Sales in Life Science coming from the industry and already making an impact, a lady by the name Dana Edwards. We've just introduced a new sales lead for A&G from -- to the North American organization and few other reinforcement of the management team of the sales organization in different positions. That's on the talent side.

Obviously, we have to take some people out when we introduce the new talent. We've also done some internal promotion with regard to the talent. So all in all, we are improving our talent base on the sales organization. We've done some reorganization, some organization changes, making sure that we are getting closer to our customers. We also improved our customer engagement. We are getting closer to our customers and increasing the number of the people are involved with sales success.

And lastly, we've done some changes to the sales incentive plan to make sure that it's in line with the company objective and also with our desire and strategy to go stronger into subscription reoccurring. That's for the sales organization. We are largely done, but there's always more to do.

Makes sense. Now the third pillar of your value creation plan involves product innovation. And there's been a lot of emphasis recently on GenAI and what you're infusing into your products. In fact, you recently launched some new agentic capabilities in your Web of Science and DRG product lines. Can you give us an update on your product road map? And how much of your revenue mix contains some sort of element of GenAI?

Yes. So I'm a product person by -- kind of my passion is product. So I'm very involved in product innovation. I was pleasantly surprised when I took over the role in Clarivate to see the fast-moving AI innovation in the A&G segment. They have created a center of excellence in A&G. And using this center of excellence has created some unique capabilities around AI innovation in academia and information and services.

And by this center of excellence, we -- it now serves more and more, is becoming the center of excellence for AI innovation in the entire company. Officially, it still sits within A&G, but we are using the methodologies, the technology. And the concept is, yes, we have a center of excellence in the company for AI innovation. And yes, we do also -- and we're going from just doing AI -- GenAI, we're going to Agentic AI in different products. I'm going to talk further about this one.

And this is -- the notion is to have a center of excellence, but also to build the team in all the different product area to be able to handle AI innovation themselves. And we're turning the entire R&D organization into 3 different segments to feel comfortable and to do AI innovation within the respective products with the support of the AI center of excellence.

I can talk a little bit about a few projects. So not only GenAI, more and more and Agentic AI in the 3 segments. Life Science, Cortellis systematically going through AI enablement of the different component of Cortellis. Derwent -- on the Derwent AI Research, AI enablement of the Derwent AI Search. We're talking about Web of Science. And basically, each and every product of ours is going through a process of AI enablement of the product.

And here, I want to give a little bit of some more details and a bit more flavor about the way we go about AI innovation and it's tying up to the revenue model as well. So we have 3 types, 3 categories of product. One and very important because we have a large book of renewals and existing products serve 80%, 90% of our business. The notion of AI enablement of existing products like Cortellis, like Web of Science, like Alma, like any other product on the company, systematically AI enablement, it helps us to on the retention side to retain the customers, and this is one. It also help us to go and acquire or to win new customers. This is one angle, going to the existing product lines and AI enablement and providing those as part of the ongoing subscription, no additional cost. This is one category.

The other category is where we go to existing products and we create an extension, which is chargeable of the product that we go to a customer. A good example is Web of Science Research Assistant. So you don't get this specific functionality because you're just paying the subscription fee. You get it when you pay some extra. So the monetization opportunities for existing product by the AI empowerment. So some product will decide case to case that we give -- we provide the customers with the AI capabilities as part of the ongoing payment -- subscription fee and some is coming from additional fees.

The third option is that we provide also products that are completely born AI. There were AI out of the gate. Two examples are MarkRisk (sic) [ RiskMark ]. MarkRisk (sic) [ RiskMark ] is a product we've introduced in the IP segment, which is completely born AI. It has some extended AI functionalities around the trademark. And a better example, and we'll hear more about this one is Web of Science research intelligence, which is completely brand-new product that we're introducing using AI.

For the record, we have 10,000 Web of Science customer. Web of Science is a monster product for us. Like we go to most of the prestigious universities worldwide, they will have Web of Science. And we are constantly selling more and more web of science to lower-tier institutions. And news here that with the introduction of Web of Science Research Intelligence, which is an AI-enabled GenAI interactive platform for researcher, we can go and monetize further and upsell into our existing customer base.

This product is now in development. We signed about 15 to 20 development partners -- chargeable development partner. And we'll see more -- we'll hear more and more about our capabilities around this Web of Science Research Intelligence. So that's what we have to say about our AI innovation and monetizing AI as well. There's a question that I constantly asked about the internal cost of AI. It is manageable. It's not an extreme cost. In fact, it's much cheaper. In terms of what we pay third-party AI vendors, it's very economical. We find a very economical way to deal with the AI -- the third-party calls for AI -- for the AI that we pay in terms of companies.

Yes. That's great. That's a very helpful update on products. So the last pillar of your value creation plan involves portfolio rationalization. And you've talked about conducting a strategic review of noncore assets and you're expecting to announce findings of your review in February of 2026. Can you talk a little bit about factors that you're considering as you conduct this portfolio rationalization, what you're looking for, what you -- what's really top of mind as you think about assets to keep or dispose off?

I think our top of mind in this process is to create shareholder value. We -- I said it all along right from the beginning, yes, we do subscription. We're going to go AI innovation. We can improve sales execution, but top of mind for us is to create shareholder value. And we've gone through some process, and we're still going through some process of creating value through potential divestiture of some of the assets.

The key factor for us is creating value to shareholders, either by -- by creating value for shareholders by making the right divestiture if we come across this divestiture, which creates value to the shareholder, either by divesting an inferior asset that will help us grow faster or by selling a certain asset in an accretive multiple to our existing multiple. So I cannot share more and we will be providing some further news by end of -- in our February call.

Got it. Now the ultimate goal of your value creation plan is to accelerate organic revenue growth. Can you talk about what goal you have for organic revenue growth and by when you hope to achieve your target?

So I'm being here for just about a year in my job. I believe we can run -- we can get the company to grow in market growth rate. And our understanding, the market growth is slightly different between the segment: A&G, 3%, 4%; IP, 4%, 5%; Life science, even further. I think we are on the right track, and we can get into the market growth rate in years to come. I don't know that I can give you a specific date, but we should -- I believe that we are well positioned and well on the way to get into the market growth rate.

Right. So hitting market growth, of course, a very good goal. Do you think there is opportunity to surpass market growth for any of the segments over the longer term as you gain share or perhaps penetrate...

I think we have to be a little bit modest and the company, we were kind of trading behind. Our ultimate goal, and I think -- I believe we are getting there to go into market growth rate. For now, once we get there, we'll have another separate discussion.

Okay. Yes, that's prudent. Let's dive into some of the individual segments. So within the academic and government segment, what would you say are the most significant product development initiatives that are currently underway that you think can really help drive a further acceleration in growth there?

So as we -- so we are currently -- you talk about A&G. In A&G, we are now running the A&G with 3 business units. One is the software business unit. This is where I come from, the Lab Automation, Alma, Polaris. This is the software business, there is a content business. That's a traditional ProQuest business. And then there is the Web of Science analytical division, all doing well, all strong, highly recurring business, and we are investing in all the 3 concurrently.

On the software side, we see -- we continuously update. We AI-enabled most of the product with constant innovation. In AMG as a whole, we have the notion of working very, very closely with the customer, customer collaboration is key. Maybe I can call out on the software side, 2 specific products that we don't talk about too much and they are up and coming. One is called the Vega platform. It's a new platform we introduced 2, 3 years ago. It's to do with the Libris community customer engagement. It's not a discovery product, but it's more like we do customer interaction or customer engagement with Libris platform using Vega. It's an up-and-coming product. We have about 100 customers, including the New York Public, and we are now taking this into the academic as well. That's one product innovation.

The other upcoming product around software is Alma Specto, which is further enhancement to provide some universities, some opportunities to shine and present their research work and also the different digital collection that they have. It's a product that -- again, it's being developed with -- as always, with some key development part of ours. So Vega, Community Engagement and Alma Specto, which is a digital collection management product. We will hear more about this.

This is in a way, business as usual. We develop the product, to upsell the existing customer and to help us sell the other basic product if it's Alma, Polaris is other software product into our customer base, and we are doing this is quite well. The other thing that we are doing on the content side -- this is the software piece. On the content side, constant innovation around content. I think the 2 products that we are now pushing strongly is the ProQuest e-Books offering since, I mentioned already, we were phasing out of the -- or we are phasing out of the onetime business, both on the data collection and on onetime e-Book sales. This is an opportunity for us to push those 2 products. I mentioned 70 customers signed already. So that's the new -- the up-and-coming product that we sell in the content side of A&G.

And lastly, Web of Science. Web of Science, I don't know that Web of Science has got enough attention in the press or in the investment committee. It's a mega -- it's a monster product of ours. We have 10,000 customers and many more to come. I'm here to talk today about the new addition or the new component or the new additional product in the Web of Science family, Web of Science Research Intelligence. This is the born AI product that I mentioned before.

It helps researchers do the research and it helps the research offices of the different universities to explore and to analyze their standing, provide direction, Web of Science Research Intelligence. I mentioned already 20 development partners paying development partners and we will come -- general availability is May 2026. It's a major development of ours, but it's a breaking news. We'll hear more about Web of Science Research Intelligence. That's on an A&G side.

That's helpful. You mentioned earlier that the Life Sciences and Healthcare business has the potential to grow faster than the other segments because the market is growing faster. Can you talk about what you're seeing in the health care market broadly that gives you confidence that the growth there can be faster than the other end markets and provide us an update on what you're seeing currently with the biotech or pharma subsegments?

I think we see -- I'll let Jonathan chime in, in a bit, but we see a growth -- we see a sustainable environment in the R&D side of the pharma, especially for us when we -- Cortellis is a leading product in this environment and for us doing better execution and AI enablement around Cortellis. I think the business is coming back. DRG, the commercial environment is a bit more challenged, but we continue the journey to introduce new products around DRG, and I think it's going to pay off when the commercial environment will come back. Jonathan?

Yes. Within Life Sciences, we see a strong and sustained demand for digital research and advanced data analytics. Our pharmaceutical customers and biotech customers in this space are dealing with personalized medicine, genomics, adopting AI into their drug discovery and launch process, and we see a great opportunity for the capabilities that we have to aid that. So that gives us a really good feeling about the growth potential in this market.

To touch a little bit more on what Matti highlighted, within the R&D space, we've made investments in the last year to incorporate the research assistant that was incubated in the A&G segment that we've brought to our Cortellis suite of products. We've got great feedback from R&D users across the stack there on the capabilities this brings. We saw a really nice improvement in our renewal rates in these products in the first half of the year. Almost all of the company's renewal rate improvement performance of about 1% that we saw was driven by improvement in the life sciences area.

So very encouraging to see early investments to bring AI technology into the products and solutions, already starting to generate returns and improvements in the marketplace. I think separately, there's continued pressure in the market to incorporate real-world evidence into the development and the regulatory compliance and then certainly in the commercialization and market aspect -- market access aspects of that market.

So we really believe this investment that Matti highlighted in DRG Fusion is an important way to do that, stepping away from selling large amounts of data and getting back to what DRG was really well known for, and that is a deep understanding of the markets, our disease landscape reporting, our epidemiology intelligence, these great products where we drive insights, and we think we have the capability to deliver much better patient insights through the Fusion platform, using that real-world data and evidence to provide more advanced analytics to help our customers get those treatments into the hands of the people that need them the most.

So those are a couple of areas where we've made investments. We're excited to see the progress that Fusion will make, particularly here in the second half of the year and as we go into next year. But that -- those are things that give us the confidence that it's an attractive growing market and that we can really partner with our customers and provide value with the things that we do particularly well.

Right. And then within the IP segment, can you talk a little bit about how GenAI could potentially change the competitive landscape, either make it easier or more difficult? And then talk about perhaps patent activity that you're seeing with respect to AI?

Yes. Matti gave a great example earlier with the launch of our RiskMark project, which is our product that is an AI-native solution that we develop to help manage the potential infringements and the room to create new brands and trademarks. So that's a great example. We think we're early to market with that solution, getting great early feedback from early development partners and customers.

I think about also not just in the trademark intelligence, but on the patent intelligence side. Over the last year or more, we've made meaningful investments in AI-powered search for our Derwent product that went into general release towards the end of last year, early this year. And as we mentioned earlier this year, we've seen a very nice uptake in searches within the key cohort that use that platform. So we've seen double-digit increases in search activity. It's the first time we've seen that in quite some time.

So that's an opportunity to take this unparalleled data set, the Derwent World Patent Index and provide analytics and intelligence for prior art searching, freedom to operate some of the key use cases for patent intelligence. We're also very excited, and you'll hear more about this in the coming months at our Ignite conference with respect to the launch of the Derwent patent watch product. So we have a group of key customers here where we're building infringement investigation, workflow capabilities with some AI native modules or enhancements in that platform that will help customers to manage the process of dealing with potential infringements and determining where to spend money to protect.

And this is a really exciting new product, and this is -- AI is enabling that. So those are a couple of examples on the intelligence side. When we think about our workflow software and our services business, undoubtedly in the coming years, building agentic capabilities into these solutions are going to help make our customers more efficient and more effective through these workflow processes. So we think there's some opportunities, not just on the intelligence front, but also on the software and services side of IP. And this is a market that we're starting to see some signs of recovery from an overall demand standpoint as well, which is encouraging.

Great. And stepping back and looking at all 3 segments, how would you think pricing could evolve as a potential contributor to growth? Where is it now? And how much additional pricing increases can you achieve in the coming years?

I think Matti touched on this a bit before. Our approach has been there are certain new products and capabilities where we will price discretely. Research or intelligence that we're building on the Web of Science platform is a great example of that. But there are other capabilities that we embed to enhance the user experience and deliver more value. And one of the ways of monetizing that is improve renewal rates, which we've talked about. But we do believe pricing is a part of the equation.

As we deliver more value and we provide greater capabilities when we come to that renewal discussion, there's a potential for us to monetize that through pricing. I think over the last few years, we've kept up with the rate of inflation. We certainly think there's an opportunity to do more as we've invested in capital spending to deliver some of these capabilities. So we'll be looking at that carefully across all of our markets and business units within the segments.

Let's talk a little bit about margins and profitability. So this year, you're guiding for EBITDA margins to contract around 50 bps to 41%, mainly because of disposals. Can you talk about where you think margins will evolve or how they're going to evolve after these disposals come to an end? And what are the key drivers you see for margin expansion going forward?

Yes, it's a great point. There are 2 things. You hit on a big one for this year that affect us. The other factor is with organic growth being relatively modest, we're going to be in a time where we believe it's important to continue to spend to bring these capabilities into the market. So that's pressuring our margins as well, too. As the disposals get behind us, that's actually going to help us.

So when we model pro forma what the business would look like without these disposals, they'll actually help to improve our margins. So we expect to see that come into the business as we get past those next year. And then this is the type of -- we operate the types of products where we build these products one time. We provide enhancements and maintenance, but we can sell them many times around the world. So the incremental margin profile for organic growth is very attractive.

So once we get back to that healthy market growth that Matti described, we're going to make steady continued progress on that over the next few years. We certainly think there's opportunity for profit margins to expand just based on that organic growth. And then the ability to reevaluate the level of capital spending as we move forward and optimize there to help to continue to improve our cash flow conversion.

Right. You talked about investing back into the business. Can you maybe speak to some examples of productivity or cost management initiatives where you're taking out costs to help drive margins?

Yes. I mean, certainly, as we brought each of these businesses together, we leveraged the great footprint that we have around the world and the talent and capabilities we have in many of our centers of excellence. We continue to optimize there to drive efficiencies in the business. Our teams are adopting AI-based tools for many of the processes we do, whether that's software development. More and more of our code is obviously being generated by AI, making our teams more efficient, the opportunity to have greater throughput in the development process.

Another big area for us is content ingestion. We continue to develop new tools to help our editorial enrichment and content ingestion teams bring that into our solutions in a much more effective way. So these are a couple of the key areas and new technology is helping us to improve and become more efficient there as well, too.

So you laid out a framework for where you hope organic revenue growth will improve to. How are you thinking about margins? So longer term, where do you think margins can expand to? And how much margin expansion per year do you think is reasonable over the medium to longer term?

Yes. I mean within the last few years, our margins were in the 42.5% range, about 150 basis points better than where we'll be this year. We outlined that we think we can get between 0.5 and a full percentage point of improvement through the disposals. And once we get back to organic growth -- we haven't laid out the exact algorithm for that, but once you get to approach 2% to 3%, there's certainly an opportunity to start expanding margins. So we haven't given a specific number, but have indicated that we think that there's room to grow here from where we are at about the 41% this year.

Makes sense. And then with respect to the balance sheet, your gross leverage right now is 4.3x. Can you talk about how you plan to balance debt paydown, share buybacks and M&A and what your broader capital allocation priorities are?

Yes, it's a fair point. We've built up a little bit of cash in the first half of the year. As you noted, we repurchased about 100 million share -- $100 million worth of shares in the first half of the year and we built up some cash. So on a net leverage basis, we're still at about 4 turns at the end of the second quarter.

When we think about the go forward, we'll continue to do a bit of both, some debt paydown and some buybacks. Last year, we were nearly balanced. We may skew from that just a little bit. But I think the important part is we have flexibility. We have a patient and very efficient debt stack. Over time, we've certainly indicated that we want to see that leverage come below 3 turns, and we'll continue to prosecute against that over the course of the next few years.

Great. Well, we're just about out of time. Thank you both, Matti and Jonathan, for the great discussion. Please join me in thanking them both.