Q4 2019 Earnings Call
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Good morning, and welcome to the clarivate analytics Q4 2019 earnings conference call. All participants will be in the Sonoma mode. Should you need assistance, please sit down conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question you press the star then one on your telephone keypad withdraw your question, please press star than to please note. This event is being recorded. I would not let the conference every year hosted a McDonagh Hugh vice president and head of investor relations, please go ahead.
Thank you.
Good morning, everyone. Thank you for joining us with a clatter of eight fourth-quarter and full-year 2019 earnings conference call with me today or Jerry said executive chairman and chief executive officer. Richard hangs Chief Financial Officer will start on Med president science group and geoffroy president. The it group all will be available to take your questions at the conclusion of the prepared remarks as a result of this conference call is being recorded and webcast and the copyrighted property of clarivate analytics any rebroadcast of this information in whole or in part without prior written consent of Clara Vedas prohibited wage this morning by radius you to press release announcing our financial results for the period ending December Thirty One 2019 the release as well as an accompanying supplemental presentation is a valve on the investor relations section of the company's website clarity.com and our events of presentation.
During our call and 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 make up the actual results performance or achievements of the business or development in clarivate Industry to differ materially from the anticipated results performance achievements or developments expressed or implied by such forward-looking statements.
information about the factors
They could cause such actual results to differ materially from anticipated results or performance can be found apparently funds the F-16 on the company's website.
Discussion will include non-gaap measures or adjusted numbers including adjusted revenue and adjusted ebitda. I believe non-gaap results are useful in order to enhance an understanding of our ongoing birth 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 wage earnings release and supplemental presentation on our website. And after our prepared remarks will open the call up to your questions and with Dad pleasure to turn the call over to Gary. Thank you Mark and thanks to all of you for joining us this morning 2019 was an extraordinary in highly productive year for clarivate. I'm so very very proud of my clarity colleagues in the significant progress team. They on both strategic and financial initiatives their Collective accomplishments were a leading contributor to driving our transformation and driving our growth last year and positioning of birth.
for continued success in
20 and the years Beyond we were last officially with you at our investor day in November. And when I think of what we have gotten done in the multiple priorities, we've managed since then I'm even more grateful for the talented and committed Claire of 18 and we're just getting warmed up. We hit the ground running in 2020 with the acquisition of decision Resources Group, which we will close in the next few days.
More on this strategic acquisition in a minute. And as you know, we have just completed a very successful Equity offering our many thanks to all of you for your support. We're announcing very solid result of a fourth-quarter and full-year 2019 delivering growth on both the sequential and year-over-year basis Richard will cover the financials in detail. But before I'll highlight some of our major accomplishments now, let me provide an overview of our results adjusted revenue for the fourth quarter increased 4.2% on a constant currency basis adjusted ebitda was up 11.6% in our adjusted ebitda margin improved by 200 basis points to 33.2% compared to last year's order are growth was driven by pricing business across both are science and IP product groups. We also started to see the benefits of our operational cost efficiency initiatives.
on a full year, but
It says 2019 was in line with our full-year guidance and improvement over 2018 adjusted Revenue increased 2.5% adjusted even die increase 7.6% and adjusted ebitda margin improved a 30.2% excluding the markmonitor divested assets the sale of which we completed on January 1st of this year adjusted off new increase 3% adjusted ebitda increased 8.6% and adjusted ebitda margins was 32% We expect to see our margin continue to improve in twenty years as we will benefit from price increase has improved retention rates in the ongoing cost saving initiatives as well as new product introductions subscription Revenue in 2019 wage represented 82% of our total revenues improved as a result of new business with in both groups as expected. We delivered improved adjusted free cash flow of 100 million dead.
dollars and 2019
We are clearly headed in the right direction and expect our adjusted free cash flow to more than double the 220 to 240 million dollars in twenty-twenty are solid performance and two 2019 is the direct result of executing on strategic actions and financial Improvement. We streamlined and simplified our business by consolidating into to Thursday. We completed significant product improvements across our portfolio as we continue to build on delivering an exceptional experience to our customers which will increase our price Fields. Well as retention rates, we also initiated to customer Delight surveys which provided us with actionable items that will help us improve our retention rate into the mid-90s range and improve our interaction with customers and drive price increases into the 45% range over the next few years will be launching our first twenty20 survey during the second birth.
And look forward to sharing.
adult with you
we started to optimize our portfolio through a series of tuck in acquisition including Dark Side p and sequence space and divested our non-core brand protection assets with Mark monitor. We took a series of steps to improve our margins and cash flow through organizational efficiency initiatives actions, which will deliver seventy to seventy-five million of annual rate cost savings exiting 20/20. We completed the buyout of the tax receivable agreement resulting in a significant Savings of cash over many years and he kept up the transition Services agreement with Thomson Reuters, six months ahead of the schedule. Our capital structure was enhanced by refinancing our debt to improve the weighted average cost and lower interest expense by approximately 18 million dollars. We completed to secondary offerings in 2019, needing in the sale of more than $89 million ordinary.
shares previously if
Albeit private Equity there was a lot of work to be done and we accomplished a lot placing us in a much stronger position both financially and strategically compared to this time last year. We will exit 20 20 in an even better position as we realize the benefits of these actions as well as the addition of drg.
The Strategic acquisition of drg more than doubles the size of our life science business. The business is a complimentary fit with our life sciences group and creates the leading information Site Solutions provider that the life science Industry by combining Claire events leading preclinical products with drgs commercialization Solutions. We are positioned to deliver a complete data-driven solution across the entire life sciences drug device and medical technology value chain change drg brings more than $2,000 billion dollars in annual revenue and $77 in adjusted ebitda, including her expected cost reductions in synergies of $30 over the next eighteen months are same organization is very excited about the cross-selling opportunities in high-growth international markets. We will leverage our Global footprint to maximize the benefits of this acquisition.
We were very pleased that the
Whelming interest in our recent activity offering the fun part of the $900 billion dollar cash portion of the acquisition price. We think our shareowners for their support. We issued 27.6 million shares in total realizing net proceeds the $540. We also secured 360 million dollars of funds through a senior secured Term Loan be issued at par with interest rates consistent with our existing Term Loan facility last week. We announced we will redeem all of the outstanding public warrants prior to the announcement. Approximately $24 million public warrants were exercised each in titling the holder to one ordinary share of clarivate and yielding exercise premium proceeds to us for $1,276 million dollars. We will use the cash to provide the best return possible to our shareholders turning to our updated twenty-twenty Outlook which includes contributions
from Dr.
G and excludes the market manager assets that were divested on January 1st of this year are adjusted Revenue in the range at one point one, six billion dollars. The one point nine billion dollars adjusted ebitda in the range of $395 to $420 adjusted ebitda margins of approximately 34 to 35% and adjusted free cash flows in the range of 220 million to 240 million dollars. We added a new metric adjusted EPS with the range of $50.50 to $0.59 per diluted share our Target exit 20 20 will be 6.8% organic Revenue growth and adjusted ebitda margins of $38.43 as a result of the virus. We may experience some modest fluctuations in revenues in the first half of the year due to the timing of new businesses and our renewal wage.
trying to we currently
Our business in the country will improve during the second half of the year and will have a minimal impact on our full-year revenues before turning it over to Richard. I do want to thank again my colleagues clarivate for their continued hard work dedication and commitment and their sense of urgency. I also want to thank our shareholders for their continued support. We have many additional and off the initiatives underway that will move us closer to our vision of improving the way the world creates protects and advances Innovation by focusing on our for strategic goals this year of continuing to improve our colleague engagement score further increasing our customer Delight score delivering strong top and bottom line growth and providing Superior investor returns. We will continue to drive improvement in our execution or financial performance and our shareholders return 20/20 will be in fact is another exciting year for our company. We look forward to sharing a bath
Service with you Richard. Thank you, Jerry Clara had a vet.
Very solid fourth-quarter closing out our first year as a new publicly traded company on a high note reported revenues for the fourth quarter of 2019 increased by ten million dollars thousand or 4% $255 million dollars compared to the prior-year. This represents growth of 4.2% on a constant currency basis for the fourth quarter thousand nine percent of our revenues where us dollar-denominated and there was minimal impact from foreign exchange as compared to Prior year.
In November 2019. We announced the divestiture of several monitor assets and completed the divestiture on January 1st of this year, excluding the domestic products revenues for the fourth quarter increased 4.9% on a reported basis and were up 5.1% at constant currency.
Sitting down to our apne profile firstly when looking at Revenue by geography for the fourth quarter. We have a consistent balance across the regions with 46% in the Americas 31% of Europe Middle East and Africa and 23% in asia-pacific.
secondly in
Need to go to read me by type adjusted subscription revenues increased by eleven point eight million dollars or 6% to 209.5 million dollars for the fourth quarter. The increase in a scription revenues was driven in part by price increases as well as new business with the largest dollar increases in the quarter coming from the web of Science Life Sciences compumark and off-street product lines subscription revenues accounted for 82% of total revenues in the quarter compared to 80% in the prior year.
Annual contract value or a CV of subscription-based contracts at the end of 2019 represented growth of 3.5% of constant currency compared to the compared to a gym. Last year excluding monitor brand protection. As I said divested with effect from Germany 1st of this year the year-over-year growth in a CD on a pro-forma basis was 4.5% transactional revenues, which represented approximately 18% of total revenues in this year's fourth quarter decreased by two point two million dollars for 4.6 to 45.6 million for the quarter text Street delivered another strong transactional quarter, but was upset by Drake in back bar sales within web assigns lower search volumes within comedy Mark and may I be Services revenues?
Revenue performance across our two product groups
Looking now.
Barnes group revenues increased to one hundred forty six point five million dollars a growth of 6.4% as reported. The increase in science group revenues was driven by subscription Revenue growth due to new subscription business and price increases the science group accounted for 57% of Revenue in the quarter with its waiting increasing by 130 basis points from the prior year.
Intellectual property group revenues increased to one hundred eight point six million dollars in the quarter resulting in growth of approximately 1% IP group revenues or driven primarily by a substantial Revenue increases at Tech Street and compumark as well as transactional Revenue growth that text read partially offset by lower transaction revenues and other products, excluding the divested Mangia assets IP group revenues increased by 2.9% compared to last year's fourth quarter.
Turning now to adjusted ebitda which increased by 8.8 million or 11.6% to eighty four point six million dollars in the fourth quarter of 2019, which compared to seventy five million in the prior year. The increase reflects higher revenues which converts to strong flow through a revenue growth of 90% during the fourth quarter.
Adjusted ebitda margin was 33.2% in the fourth quarter compared to 30.9% in last year's fourth quarter an increase of 230 basis points expect the fourth quarter were essentially flat to Prior year has received the benefits of our cost optimization programs flying through and contributing to improved margins.
Excluding the divested monitor assets adjusted ebitda increased by 13.9% for the fourth quarter and adjusted ebitda. Margin in the fourth quarter was 35.29% As Jerry mentioned we are focused on improving margins and expect to see them to continue to improve in twenty-twenty as we deliver on our Revenue targets and realize the benefits package cost saving initiatives.
Just a net income was $42 for the fourth quarter an increase of 31% compared to the prior-year.
Weighted average. You two chairs outstanding used to calculate adjusted EPS worth $330 million shares in this year's fourth quarter compared to $290 million shares last year's fourth-quarter as a result of the merger with Churchill Capital Corp in May 2019, despite a 31% increase in our adjusted. Net income in the fourth quarter are adjusted diluted EPS for 36 cents per diluted share compared to last year's fourth-quarter fifteen cents due to the higher share count if normalized the results for the fourth quarter of 2018 would reflect ten cents per diluted share off in addition, excluding the divested monitor assets adjusted fully diluted EPS in the fourth quarter of a 2019 was fourteen cents.
As we did last quarter, we will continue to provide you with a slide in the earnings supplement explaining the diluted share count to assist you with your analysis. Please see the investor relations section of our website to find a copy of the supplemental presentation.
Out to our full-year results on a full year basis adjusted revenues in 2019, excluding the impact to deferred revenue adjustments and revenues for the IPM product line, which we divested in October 2015 increased twenty three point six million dollars or 2.5% on a reported basis and 3.1% for the year on a constant currency basis the increase Bass by 3.7% increase in subscription revenues due to price increases and new business particularly within the science group adjusted ebitda for 2019 of 294 million dollars increased $21 or almost 8% adjusted diluted EPS was $0.53 per share compared to $0.58 in 2018 money while adjusted net income in 2019 increased 22% compared to 2018 are fully r e p s was impacted by 32% increase in weighted average common shares used in the calculation dead.
sending
if normalized
Adults for the full year 2018 would reflect $0.43 of adjusted eps.
In addition and excluding the domestic monitor assets adjusted fully diluted EPS for the Philly a 2019 with 56 cents per share.
We required to report stolen adjusted ebitda on a trailing 12-month basis the students the reporting covenants contained in our credit agreement and indenture Standalone adjusted ebitda takes a month and includes three limited Outbacks firstly an adjustment for stand-alone expenses secondly in it includes the impact of pro forma cost savings. We have implemented and thirdly, the impact of Foreign Exchange stand-alone adjusted ebitda increased 8.1% to 336 million dollars for the full year 2019 compared to $309,000 for the full year 2018 an increase of twenty five million dollars.
Putting out the cash flow.
Our cash flow from operations for the full year 2019 increased $118 which compared to a use of cash of twenty-six million dollars in 2018 with the significant turnaround in operating cash flows is driven by firstly a lower operating loss which included the impact of a 39 million gain on legal settlement reported in the third quarter of 2019. Secondly a decrease of $47 in transition integration and other related expenses as a result of completing the carve-out from Thompson choices and the establishment of stand-alone company infrastructure and thirdly better management of working capital with this being a source of cash in 2019 of four million dollars as compared to a use of cash in 2018 of twenty-seven million dollars.
Capital expenditures for the full year 2019. We're almost seventy million dollars up from $45 million in last year saying. The increase is partially due to a shift in focus to new project element. Whereas prior activities focused on cars out and separation activities. We also saw an increase in capital purchase in the fourth quarter during 2019 eight million was spent on capital projects within the markmonitor diversity businesses. These funds can now be targeted towards the growth segments of our business.
Free cash flow improved to 48 million dollars for the full year 2019 up from a negative seventy two million use of cash in the prior. Driven by a turnaround in operating cash flow adjusted free cash flow which excludes the transition transformation integration and transaction-related costs and the legal settlement increased 23% to 100,000 million dollars compared to 2018.
I need to the balance sheet cash and cash equivalents with 76.1 million dollars a year in 2019 compared to twenty five point six million a year end 2018 total that outstanding at the end of 2019 was approximately one point seven billion dollars which included a $65 million draw on our revolving credit facility during the fourth quarter to fund the off position that has been subsequently repaid in the first quarter of 2020.
accordingly our net Leverage
The end of 2019 was 4.7 times and improvement from 6.4 times at the end of 2018.
The Improvement in leverage was different by The Debt Pay down in the second quarter as a result of the merger with Churchill Capital Corp.
A couple of weeks ago in conjunction with funding the drg acquisition. We also raised 360 million dollars under an incremental Term Loan be facility do 2026 with an a-rated Libor plus three twenty five basis points in addition to the Strategic and financial benefits of the drg acquisition. We also expect it to be leveraged neutral on a pro-forma basis including adjusted ebitda contribution of seven million dollars on net leverage ratio would still be 4.7 times.
In summary 2019 was a year of growth and significant operational improvements and we're on a mission to continue to deliver improving Financial results for our investors home that I'll now turn the call back over to Jerry. Thank you Richard. This concludes our prepared remarks. We are very well positioned for success and really excited about the opportunities ahead of us wage continue to profitably grow our business. Please do join us for our 2020 investor day to be webcast on May 19th, when we will be sharing a thorough review of birth date in our growth strategies. We're now ready to take your questions as a reminder. Please limit yourself to one question then return to the queue operator, please. Yes, thank you. We will not be in the question-and-answer session to ask a question you refer to * then 1 and your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys to draw your question, ma'am.
the two
This time we will pause momentarily to assemble the roster.
And the first question comes from Android Nicholas is William Blair.
Hi, thanks for taking my question. I wanted to walk through first to change it to 20 20 guidance. It looks to me like at the mid-point you added about 250 million or so to the Top Line guide, which if I'm doing the math correctly would imply, you know, twenty twenty-five percent growth a d r g and 2020 if I analyze its Revenue impact, so I guess my question is first. Can you confirm the drg is the only change to your guidance and twenty twenty and then second if that is the case what gives you confidence in that level of growth of operation this year? Thanks good question just as an original pick up and just a second. But remember we've only got ten months build into the office or d r g as I said we expect to close in the next few days. We've assumed ten months, but Richard just pick up the rest cuz it's a good analysis exactly right so we got ten months of d r g e.
included in 2020 and we also have a full year of contribution from the
Don't like P transaction that we are completed at the end of November 2019. So those the primary drivers of the year-on-year growth.
Or the year when you when you're changing guidance given in on November 12th last year.
Okay, so I do.
I'll go ahead cuz you're going to ask part be right. Well, yeah, I know that we're limited to one here. I just I'm just trying to understand you know, what how you get to you know that such a strong growth rate. Obviously. I think you had said that drg was growing up for single digits or 9% in nineteen. And I don't think darts IP is a particularly large contributor. So I'm just interested in in you know, what what makes you so confident in in that strong of growth or what are the underlying drivers at drg that that gives you that confidence and faith and if you go back and look at what we gave you guidance earlier for for our base business at clarivate that's strong growth to what I thought you were going to say. So I'll make it up is question B is is really strong growth and adjusted ebitda. It's all about 38% year-over-year in thats what three things one our commitment dead.
That we told you we would delay.
As we've gone through all the cost reductions in 2019 and through 2020 is Richard talked about where will exit 2020 with 75 million in total on that. It includes a small part. I think we publicly announced it would be ten million with drg for the first year and a balance of $20 more than a million and twenty Twenty-One. So it's it's it's got a lot of growth and if we can figure out a way to do that every year we would but let's let's
China so people can just kind of put a box around that in their mind. Thanks help you with that. We don't slow. Mo. We don't disclose the revenue by country, but I'm happy to have Jeff start and mukhtar pick up on your question cuz it's a great question. We've got more new product being delivered having been delivered in 2020. Then this companies had and probably I don't know ten twelve years. So Jeff you start you've got a lot to say in and then mukhtar you