Q2 2023 Clarivate PLC Earnings Call
Question. Please press star followed by one in FMT, Pat I will now hand over Shaw highest Mark Donohue, Vice President Investor Relations to begin Mark. Please go ahead.
Thanks, Marty and good morning, everyone. Thank you for joining us for the clarity <unk> second quarter 2023 earnings conference call.
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 clarified is prohibited in.
And accompanying earnings call presentation is available on the Investor Relations section of the Companys Web site <unk> Dot com.
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 <unk> industry to differ materially from the anticipated results.
<unk> 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 <unk> filings with the SEC and on the company's website.
Our discussion will include non-GAAP measures or adjusted numbers, including organic revenue and adjusted EBITDA clarity believes non-GAAP results are useful in order to enhance an 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 our earnings release and supplemental presentation on our website.
So with me today are Jonathan gear, Chief Executive Officer, and Jonathan Collins, Chief Financial Officer, Bruce will be available to take your questions. The conclusion of the prepared remarks.
And now with that it's a pleasure to turn the call over to Jonathan.
Great. Thank you Mark good morning, everyone and thanks for joining US today, having just completed my one year anniversary of clarity my belief in our company and the direction of our travel have never been greater like all great companies. It begins with the mission critical nature of our products the strength and loyalty of our customer base and our incredible.
Colleagues, who despite passion in their work every day.
My learnings in the first year have given me a deeper appreciation of our company our culture, our assets and a vision of product innovation that remains steadfast.
We have implemented many operational improvements over the past year, which I believe places us in a better position to achieve our long term objectives. For example back in November we established three intuitive operating segments, academia and government intellectual property and life science and healthcare each with its own leadership.
And P&L we.
We moved quickly and began our organizational restructuring to implement this new model and reporting structure in January .
Then fast forward to March we held our Investor day event, where we outlined our revamped strategy for the next three years, including our primary financial objective to Reaccelerate organic growth in each end market by investing in product innovation and an underperforming areas.
I remain confident that this action will result in higher profits and cash flows give us more optionality for capital allocation and drive significant shareholder value and.
In April I was excited to announce precedent as for our operating segments each with deep expertise in their end markets I believe our new model is foundational to help us execute on our growth strategy and will ultimately help us better serve our customers by ensuring we have the right product offerings in each end market.
Turning to the quarter, we did not achieve the results that we wanted and we still have much work to do.
I am disappointed with this by muscle fully confident in our longer term strategy and believe we are making progress towards our goals.
Revenue in the second quarter was $669 million organic growth was essentially flat for the quarter and for the first half of the year, which was below our internal targets.
As a result of the first half performance and expectations for the second half of the year, we are lowering our revenue organic growth and adjusted EBITDA outlook for the full year, while maintaining our outlook on margins as we expect to stay disciplined on cost. We are also tightening the range on EPS and free cash flow Jonathan Collins will.
I'll elaborate on all of this later.
The lower guidance is disappointing and we take a reduced outlook seriously.
Our underperformance in the second quarter was specifically attributed to three product areas, our patent annuities business in IP, and our variable data and consulting businesses and the commercial subsegment of life Science, and healthcare, where we delivered lower than expected organic growth. We expect performance in these areas to also impact the <unk>.
Half of the year.
On a positive note our A&D segment is delivering improved results following recent product enhancements and commercial focus.
Revenue continues to be a bright spot and grew 3%. Both in Q2 ended the first half of 2023. This.
This is underpinned by continued improvements in web of science, where new business grew 8% faster than first half 'twenty, two and continued acceleration in AMA, our leading SaaS workflow solution for libraries.
While our turnaround is taking longer than expected in the short term, we continue to take actions to accelerate our performance. We remain committed to bridging the gap in market growth rates across each segment and the recent appointments of our three new segment presses have increased my confidence in our plan.
I believe that the new leadership team will drive additional insights and result in accelerating performance in the coming years.
Turning to the academia and government segment I am excited to see improved performance as prior year investments are helping to drive new subscription business and account upgrades driven by increased usage and higher retention rates in the first half with Bard buying Stein, leading AMG has deep expertise in software AI.
And analytics will be instrumental to delivering progress.
Importantly in the second quarter, we signed several key wins across our workflow software solutions, including two top 10 U S universities, who selected our flagship library software AMA.
We are building further integrations between progress and our leading flagship products to enhance value for users in response to user feedback last month, we announced the integration of pro Quest dissertations and thesis global with our renowned web of science platform. This integration enables researchers to gain quick access to a vast.
Multi disciplinary collection of early career scholarships are more than $5 5 million global dissertations and theses.
Moving to the IP segment I announced in March that Gordon Samson, our former Chief product officer would be assuming the role of president of the IP segment.
As a former chief operating officer at CPA Global Gordon is well versed in the patent renewal business in other segments of the market. His leadership will be instrumental in improving our performance.
Very late in the second quarter, we began to see lower performance in our annuities business, primarily in the market segment related to our law firm customers, who service small and medium sized clients. This segment begin to return lower volumes of Pat renewals driven by confluence of macro issues specifically for specific items have cause of <unk>.
<unk> impact.
First in Europe , we have seen an acceleration of adoption of the unitary patent.
While we estimate overall the total impact for us is modest at less than $10 million annually out of a $400 million <unk> business. The pace of adoption has occurred faster than the industry expected.
Second in Japan, the weakness in the yen has caused clients to dramatically managing to reduce cost and call that patent portfolio.
Third in a couple of other countries in Asia National governments, driven by post Covid budget challenges have redirected their financial support investments in IP protection.
The reduction in subsidies has impacted patent renewable Newell's again, primarily in small and mid sized businesses.
Finally in northern and Eastern Europe that prolonged war in Ukraine has caused a further pull back our patent protection in the region.
So I acknowledge our prior comments of low risk in our patent annuity business, having interact this year, we view the confluence of these factors as an exceptional and very unusual event, which our leadership team and IP with a decade plus of experience has not previously seen.
We are responding to support our customers to maintain their IP rights, but expect economic pressure to remain sustained as a result in the near term.
The short term impact is an approximate $20 million shortfall and our projected revenue for the second half of this year, while disappointing I am confident that the slight pullback in organic growth in IP is only a short term event and currently expect to return to normal growth in 2024.
On a positive note and evidence of our future growth. We recently signed our largest new business patent annuities deal in memory, which will commence next year. This is an example of how we provide value to our customers in any environment.
Turning to life Science and healthcare, we are fortunate that Henri Levy joined us as president in May as his deep knowledge of the life Sciences space has been instrumental.
His early assessment has reinforced our view that we have tremendous assets and even more potential to lead and grow.
So is adjusting some of our product and go to market strategies in light of his experience.
While performance continues to be strong in research and development and regulatory and safety, our commercialization subsegment, which include real world data and consulting experienced lower growth than expected.
We are seeing a couple of macro factors pressuring results in the short term in this commercialization subsegment first we believe lower biotech funding is having an impact on data aggregators and their demand for our data second a lower drug approval pipeline last year is leading to lower commercialization budget. This year.
<unk> and our clients.
While drug approval has picked up this year, we now do not expect to turnaround in clients' budgets until 2024. This is specifically.
Impacting our RWD and consulting solutions.
In addition, we have previously discussed our strategy of developing our own platform to deliver therapeutic RWD solutions directly to end users. Henry has endorsed this strategy as a result, we're being more selective of which data aggregators, we licensed data to by focusing on those that provide value to our data.
That increases the overall value of our offerings.
In the short term. These two items will result in a $40 million reduction in our 2023 revenue outlook.
However, this new strategic direction described previously will be beneficial and optimizing the long term success of our analytics platform and the investments, we're making in new and enhanced offerings.
We are being more selective with data Aggregators, we continue to deliver real world data analytics across our pharma customers in line with our longer term strategy and recently completed a multimillion dollar deal extension with a top five pharma company.
Regarded consulting the uptick of new projects has been slower than expected driven by the macro environment, resulting in a $10 million reduction to our 'twenty three revenue forecast.
We believe we have built a strong experienced team that can build a backlog of opportunities that will benefit us in 2024 and beyond.
Last quarter I shared with you. Several examples of how we have been leveraging AI across our solutions, including to remove questionable academic journals to enhanced web of science and using large language models to instantly translate and summarize patents and intellectual property.
In June we were pleased to announce a new strategic partnership with AI 'twenty, one labs, which is a pioneer and generative AI with the state of the art large language models.
I had the pleasure meeting with AI 'twenty one in my recent visit to our Jerusalem office and was impressed by their capabilities and the opportunities to partner to accelerate advanced AI solutions.
This new collaboration will further integrate llm's into solutions from <unk> to enable intuitive academic conversational search and discovery, which will help our customers get more accurate answers.
And IP, we released the first of a series of new AI products with clarified brand landscape analyzer. This will be followed later this year by <unk> trademark <unk> analyzer together. These releases will enable users to assess brand risk from every angle as they make trademark intelligence more actionable.
To deliver these products, we leveraged both AI and machine learning on our risk proprietary content, which is enhanced by <unk> internal search experts. The result, as users are able to analyze and gain insights in minutes rather than in days.
In life Science and healthcare, we're drawing on our connected data lakes and core tell us and using machine learning to predict clinical trial progression regulatory approvals and even valuations on M&A candidates.
We launched a proof of concept with select customers, where we are using <unk>, our proprietary structured data from Cartelist and unstructured data from legacy DRG solutions to make informed decisions faster.
Once ready for commercialization, which we expect later this year it will underpin our conversational discovery across broader Claire based life Sciences and healthcare datasets.
In May we issued our third annual sustainability report, where we demonstrated how we are advancing towards the United Nations sustainability goals in partnership with our customers.
The report shows how far we have progress increasing our score from 11% to 56, and reaching the 90 percentile and the S&P corporate sustainability assessment for the professional services industry in just two years.
We have further to go and we will move will be we will be updating you on our progress.
In closing I want to reiterate a few key points first over the past 12 years, we have taken important steps towards our strategic vision and aligning and operating model that is best suited for that vision.
Second with the recent appointments of our segment Presidents, we now have the right leaders in place to execute on our long term strategy of re accelerating organic growth to industry levels, while delivering margin expansion and strong cash flows.
Third while we are seeing near term headwinds in three specific product areas or business is largely a cyclical as our products remain mission critical for decision makers and the majority of our revenue is subscription based.
And fourth we remain focused on accelerating our revenues we are doing this methodically through initiatives that we have discussed as well by accelerating our product innovation cadence to enhance value for our customers.
The announcements you heard today are just the beginning and we're looking forward to sharing all of this with you over the coming months.
With that I'll turn it over to Jonathan Collins.
You, Jonathan and good morning, everyone I'm going to start with a quick programming note I apologize, but our third party service provider is having a technical issue with the lights are alive slide presentation. Please refer to the presentation that we posted on our Investor Relations website, and I'll reference the page numbers as I step through the rest of the deck.
Slide 15 is an overview of our second quarter results compared with the same period last year Q2 revenue was $669 million, a decrease of $18 million or 3% versus 2022, driven entirely by the Mark monitor divestiture as organically the business was essentially flat and outcome almost 2% lower than we expected.
Adjusted EBITDA margins expanded 270 basis points over the prior year to 42, 6% in Q2 on the cost synergies from the <unk> acquisition.
Second quarter net loss was $142 million down $186 million due to a $135 million impairment of intangible assets related to a small business in our IP segment that we plan to divest and larger net losses from foreign exchange of $35 million.
Lower mark to market gains on the private warrants were offset by an income tax benefit largely from the asset impairment adjusted diluted EPS, which excludes the impact of onetime items like the impairment was 21 and Q2 of <unk>.
<unk> decline over the same period last year as higher adjusted EBITDA of one <unk> was offset by a <unk> decline due to higher interest expense and a <unk> <unk> decline from the Mark monitor divestiture operating cash flow was $162 million in the quarter, an increase of $65 million largely due to lower lower working capital.
<unk> as was caused in nearly equal parts by lapping the large accelerations of patent renewal payments in the second quarter of last year that did not recur this year and improved collections from customers. Please turn with me now to page 16 for a closer look at the drivers of the second quarter top and bottom line changes from the <unk>.
Same period last year.
Our second quarter revenue came in about $10 million to $15 million below our expectations.
About two thirds of this was caused by lower product and services revenue in the commercialization area of our <unk> in each segment and one third by the patent renewals area of our IP segment.
Our real world data sales to the indirect channel has been well below our expectations driving most of the Miss in the commercialization sub segment the.
The patent renewal sub segment, which grew about 5% last year and his durably grown at about 3% to 4% historically is experiencing lower industry volumes in the short term driving the shortfall in our reoccurring revenues. We do expect these headwinds to persist in the second half of the year and they are driving the lowering of our organic growth rate guidance.
Which I'll come to in a few moments.
The top and bottom line changes in the quarter over the same period last year were driven by four key factors first revenue was essentially flat organically and had a negligible impact on profit and revenue.
Second inorganic activity, namely the divestiture of the Markmonitor business lowered revenue by $21 million and profit by $10 million.
Third cost synergies from the <unk> acquisition contributed $15 million of incremental profit and finally, the translation impact of subsidiaries denominated in foreign currencies increased revenue by $6 million as the U S. Dollar remains weaker than a basket of foreign currencies compared to the same time last year. The profit increase of $9 million was enhanced.
By transaction losses incurred in the second quarter of last year that did not recur this year.
Turn with me now to page 17 to step through the conversion from adjusted EBITDA to free cash flow and how we allocated this capital in Q2.
Free cash flow was $105 million in the second quarter, an increase of $55 million over the same period last year. The conversion from adjusted EBITDA improved by 19 percentage points to 37%.
Interest payments were $96 million in the quarter up $10 million over the prior year as base rates have increased and about a quarter of our debt remains floating working capital was a slight source of cash of about $7 million in Q2. When it was a use of $54 million in the same period last year. This significant improvement was driven largely by the timing of payments within our patent renewal.
<unk> in our IP segment and improved collections from customers. This drove almost all of the $65 million improvement in operating cash flow.
Capital expenditures were 58 million in the quarter flat sequentially, but an increase of $10 million over last year's second quarter. As we continue to invest in product innovation, we still expect to increase our full year capital spending by about $40 million.
We used a portion of our second quarter free cash flow to continue servicing our preferred stock with a cash dividend of $19 million and a prepaid $25 million of our term loan b in April lowering our leverage to an even for terms and reducing our interest rate risk exposure our.
Our cash balance increased by over $70 million as we opted not to continue to pay down debt in may and June in anticipation of the approval of the shareholder authorization to repurchase stock under the revised approval from our board of directors that we announced in May.
Please move now to slide 18 for our current view on the remainder of 2023.
Our second quarter results have caused us to lower our full year outlook towards the lower end of our original guidance ranges with a notable exception of organic growth, which we expect to be about 175 basis points below the low end of our original range.
We now expect organic growth of approximately 1% at the midpoint of the revised range. This represents a $60 million reduction from the midpoint of the original range to the midpoint of the revised range similar to our second quarter results. The full year revision is about two thirds attributed to the commercialization products and services within Allison H and approximately one third is.
To the patent renewals service within the IP segment. This.
This organic growth would translate to $2.635 billion of revenue at the midpoint of the revised range, which is near the low end of the prior range. The organic growth reduction is expected to be partially offset by a weaker U S. Dollar than we expected net of small divestitures that we anticipate closing in Q4, the small divestiture that we expect.
We anticipate adjusted EBITDA of $1 billion $115 million, plus or minus $25 million or.
Margin range remains unchanged at 42% to 42, 5% and we continue to expect adjusted diluted EPS at <unk> 80.
But have tightened the range to plus or minus <unk> <unk>.
And finally, we now expect cash flow of $475 million at the midpoint of the range and have lowered the top end of the range $2 5 billion.
Please turn with me now to page 19 for a closer look at the organic growth outlook for the full year in the context of the first half results our revised.
This guidance reflects a modest improvement inorganic growth in the second half of the year compared to the first half from essentially flat to growth of just over 2% at the midpoint of the range. We expect the subscription portion of our business, which accounts for nearly 60% of our total revenues to remain stable at about 3% growth, we do anticipate a more.
Modest sequential decline in the second half as a result of the performance in our commercialization business within Allison H, but we do still expect to approach, 3% on a full year basis.
Our reoccurring revenues comprised almost entirely of our patent renewals service within the IP segment are expected to improve from a 2% decline to 2% growth. Despite the lower industry volumes. We are seeing in the short term in this portion of the business. We did have some significant acceleration in patent renewal payments in the firm.
First half of last year and these accelerations did not recur this year driving the sequential improvement in.
And finally, we expect our transactional revenues to be essentially flat in the second half of the year, where they declined high single digits in the first half. This sequential improvement is driven almost entirely by softer comps in the second half as our guidance does not contemplate improved performance from our seasonally adjusted run rate perspective. Please.
Please turn with me now to page 20 for the major drivers of the anticipated revenue and profit growth for the full year compared to last year, which are modest organic growth the inorganic impact of divesting the mark monitor business. The carryover impact of the <unk> cost synergies that are essentially complete and foreign exchange.
Organic growth of 1% will add about $25 million to the top line and fund the comparable amount of incremental cost aimed at reigniting product innovation, leaving the product fit impact for this component to be flat.
From a segment perspective, we anticipate AMG will grow remaining on track towards accelerating their growth from historical performance to the market rate, we outlined at the Investor day.
It will remain essentially flat and Allison H will decline slightly this year due to the macro issues we've outlined.
Inorganic actions will remain a headwind to our results. This year the Mark monitor divestiture completed in Q4 last year accounts for most of this decline with a small impact from the divestiture we plan to complete in Q4 this year.
We've substantially completed the integration of the <unk> acquisition, enabling us to deliver the remaining $40 million of cost synergies. This year with most of the impact recognized in the first half.
We anticipate a $20 million foreign exchange tailwind on the topline with the assumption that the U S. Dollar remains relatively flat for the remainder of the year compared to a basket of foreign currencies. The headwind to the bottom line is caused by transaction gains realized later last year that we do not expect to recur this year.
Please turn with me now to page 21 to walk through how we expect the more than $1 1 billion of adjusted EBITDA will convert to nearly a half a billion of free cash flow and our current thinking with respect to allocating this capital.
All of the $170 million improvement in free cash flow projected for the full year, which is largely due to lower one time costs and augmented by improved working capital has been delivered in the first half of the year, we effectively anticipate second half free cash flow will be roughly in line with the same period last year as.
As a reminder, last year, we incurred more than $200 million in cash outflows associated with onetime cost related to the acquisitions and expect an improvement about $155 million. This year as we incur about $60 million to largely complete the pro Questech integration.
We do expect our cash interest increase of about $25 million as base rates are up considerably over last year, our working capital requirements have leveled off this year and will yield an improvement of about $65 million we.
On track to increase capital spending by about $40 million to accelerate the organic growth the.
The impact of all of these changes is about $170 million improvement in free cash flow to approximately $475 million at the midpoint of the revised range. So far this year. We've used the majority of our free cash flow to prepay debt on our term loan b in light of the recent board and shareholder authorizations to repurchase stock we have the flexibility to take a more balanced.
Approach towards allocating capital between buybacks and deleveraging, but still expect to reach our leverage target of just under four turns by the end of the year.
Please turn with me now to page 22 for a look at how we're tracking to our long term financial objectives.
As Jonathan acknowledged at the outset of the call. We are undoubtedly disappointed with the second quarter organic growth and the implications. This is having on our outlook for this year Youll recall that when we outlined our financial objectives for our business back in March our primary aim was to accelerate our organic growth.
The first area, we committed to improve was the research and analytics sub segment within AMG and this segment, which represents about half of our total business remains on track to achieve its growth plans with a solid start in the first half of the year. However, the market headwinds we've outlined in our <unk> <unk> and IP segments leave us behind the pace we expected.
But we remain laser focused on the product innovation that will help us improve from the lower starting point in the commercialization sub segment as we ride out the short term volume decline in the patent maintenance sub segment and innovate our patent intelligence offering to accelerate growth.
But despite the challenge on this objective we've made solid progress towards the other three that we outlined our second goal was maintain durable profit margins as we invest to accelerate our growth. We executed on this objective in the first half as our margins expanded by 160 basis points, even as we increased our operating and capital expenditures to <unk>.
<unk> product innovation.
The third objective, we outlined was to significantly improve our free cash flow, which we delivered an H. One is our conversion reached 51% on lower one time costs and improve working capital and finally, we committed to allocate our capital in a disciplined manner in the near term, we prioritize lowering our leverage to below four times and when prosecuted that plan by prepaying one.
Hundred $50 million of term debt in the first half and brought our leverage to an even four times. The entire <unk> team is completely focused on the solid execution required to achieve all of these financial objectives I want to thank all of you for listening in this morning, I'm now going to turn the call back over to <unk> to take your questions and as a reminder, please limit your.
Self to one question and then return to the queue for any additional.
Not yet please go ahead.
Thank you if you would like to ask a question today. Please press star one on your telephone keypad.
Hello, a question. Please press star followed by case.
When the person to ask a question. Please ensure you will stay with me Tonight Jay.
And our first question today go to Manav Patnaik Barclays' Manav. Please go ahead. Your line is open.
Thank you.
John can I guess I just wanted to ask you.
I think since you took over you've obviously you can look through the portfolio I think you've tried to reset numbers a few times, including investigating it seems like every time with hunting incremental getting worse. So what is.
Think the areas that you have that.
Visibility EBIT keeps surprising yourself in Las Vegas.
Thanks, Manav, it's undoubtedly been transactions and when you look at the performance of our business first subs, which represents as you know manav, 6% of our business continued to incrementally get better as we've been innovating in the products and the nature of that business model. We have very good visibility there. So I'm feeling very good about that.
From a business across all three segments, certainly that the thing which has been a challenge since day one since I joined even before I joined has been transactions.
And specifically in life Science, and health care, where we have these lumpy big deals RWD in also in consulting and certainly the macro impact, which we and others have seen. This this quarter particular has been very unhelpful and in transactional decisions and in fact that we were as I mentioned my remarks Manav, we were caught by surprise are into.
<unk> leadership team was around what happened with the small and medium sized businesses through our law firm channels and the impacts of those four items I talked about annuities that last piece I view very much as temporal.
Unusual confluence of events that we haven't seen before but the challenge is is transactions in the revised forecast significantly takes out any variability and transaction second half of the year.
Okay.
Next question please.
Thank you. The next question you guys to Toni Kaplan of Morgan Stanley . Tony. Please go ahead. Your line is open.
Yes.
Thank you so much I wanted to just unpack real world data.
The DRG business, you called out the strategy changes there.
Along the process take how much work needs to be done.
And also last quarter, you had highlighted the web.
Science inflection and so wanted to get an update there as well. Thank you so much.
Sure Great. Thanks, Tony and I'll, maybe do to reverse so first wherever science via the inflection we called out in Q1.
We continue to see progress there and I call. It a couple of points in my earlier comments today, but new business. For example continues to increase their faster pace, we're going to be continuing to invest in that in that product and device.
Back in the two week trip to Asia, and being out in China Korea, Japan.
You see the impact of web of science out there is so critical to the workflow of universities and researchers so we feel very good about the investments that we made and the turnaround and continued progress we are going to see we're going to see there and RWD the.
As we've talked about the channels have been historically directly to the end user the pharma companies or life Science company directly and secondly to data Aggregators.
This strategy that we outlined at Investor day was to increasingly pivot and focus on building out a platform that allow us to serve at a therapeutic level directly to the end users and that the benefits are numerous their first recapturing more of the value by building analytics on top of the of the underlying data second we're selling directly to the end users.
And there is a much more predictable recurring type revenue model. So we're still very committed to that to that path. We are going to be pushing out. Some initial initial therapeutic areas. Later this year early next year kind of in a brute force type manner with the platform not being completely complete to be able to begin to pick.
Take advantage of some of the market feedback that we have received so we'll begin to see some of that showing up early next year.
Thanks, Tony.
Thank you and the next question.
Okay, Ashish Shah of <unk>.
RBC Ashish. Please go ahead your line is open.
Hi, Thanks for taking my question just wanted to focus down turn down further on the transaction a weakness in the quarter.
Just the macro weakness I would say was very even on like the macro concerns having already been communicated and so the question was is there was there certain deals in the quarter that gone that was lost or got pushed out.
There was just more optimism in the going into the quarter that Didnt Pan out and then as we think about the back half I guess, the fact that comps are easier, but even with the flat growth like how much visibility do you really have an understanding of potential risk of further downside to that transactional revenue.
Sure. So in the transactional within life Science and health care. The two elements of it first or is it consulting second is variable data on the consulting side, which we pulled out I think as we called out $10 million for the year versus our prior forecast it is primarily <unk>.
Commercial and at the line of sight on consulting deals is limited we have maybe 60 days 90 days at most in terms of pipeline and we did see distance.
Just a slowdown in demand.
We went through the quarter. So on the back of that we pulled that out for the year to de risk that on our WD. It wasn't mix, but there were several large deals we were hoping to Poland, which didn't come in.
And in light of that in line in line with the strategic refocus that we've said, we've essentially pulled all large deals now other second half if they come in if it strategically makes sense for us and it's aligned with our longer term strategy of building value in this sector will do them, but we've essentially pull all those out the second half so in terms of surprises.
Our new range, we have.
We have we have essentially de risks the transaction sales in second half of the year, which has been the cause of challenge of forecasting challenge and.
In Q2, so we feel very good about the downside risk in the new revised forecast.
Okay.
Okay next question.
Thank you and the next question Andrew Nicholas of William Blair. Please go ahead. Your line is open.
Hi, good morning.
I wanted to ask a little bit more.
More on the patent renewal business I guess competitively are there any metrics you can provide on that.
Our renewal rate.
The client retention rate there just wanted to.
I understand how.
How much confidence you have that this has been a market share issue.
And then also maybe relatedly, if you could spend a bit more time talking about.
Patent annuity deal that you signed for 'twenty four.
So that when and if theres any sizing you can put on that that would be great. Thank you.
Okay, great. Yeah. So let me just kind of walk through how we think about the annuities business think about it as two broad channels.
Selling directly to corporates large corporates with large portfolio of patents and second us selling to our law firm partners, who serve the longer tail, the small and medium sized businesses globally.
The surprise, we saw was in the second channel, where we can we sell through.
Service to law firms, where we saw this this degradation very very late in the quarter.
And that was certainly a surprise now as we dug into it and spoke to our law firm partners kind of what the underlying drivers spoke to some of the ptos around the world see what they were seeing in terms of their inbound renewals. We feel we feel very confident we're not losing share. There has been just a reduction driven by those four factors that I mentioned, particularly impacting the small.
And medium sized business on the corporate side, there's always give and take you always win some with some clients lose some clients does natural turnover there is a little bit of timing where clients. We've won haven't come on stream, yet compared with loss, but that certainly is the minority of that the much larger impact has been this long tail served by by our law firm partners.
Now in terms of the new business sale.
Great.
We actually had a great Q2 sales within our our IP sales team, but the sales come pre revenue in one of the highlights was indeed this sale to a law firms, it's b law firm partner and they're going to ship their portfolio over to us starting in January next year.
We won't give out the exact number other than to say, it's a big deal for us which will certainly help.
Help us next year.
Thank you.
Thank you and the next question Betsy Stephanie MAU of Jefferies. Stephanie. Please go ahead. Your line is open.
Hi, This is a hard hoffman on for Stephanie.
Just kind of wanted to come back to this.
The actual piece and kind of unpack, what's going on in the back half of the year.
Just just kind of curious.
Your updated guidance kind of compared to your original expectations.
If I look to the back half of the year on transactional it sort of implies that.
Back half on a two year stacked basis relative to the first half.
Actually deteriorate a bit.
So I guess, just kind of wanted to better understand.
What sort of driving the deceleration there and kind of the incremental weakness.
Alright. Thanks for the question really comes down to our RWD Big Big sales, because we have and are both both of the last two years, both in 'twenty, two and 'twenty. One we have had quarters in their weakness, but also of course.
Very strong sales very very large RWD sales to data aggregators and so if you do a multiyear stack what youll see is that we have now assume we're not going to get those in second half of the year again, they could come in but in terms of our commitment to the forecast. We've assumed has come out. So that's that's the math you're seeing there.
Thank you.
And the next question Vishal.
Oppenheimer. Please go ahead your line is open.
Good morning, and thank you for taking my question could.
Could you please give us an update on the timeline of launching new functionalities in the life science and healthcare space.
Spec revenue impact will come in maybe in 2024 and 2025, how should we think about this.
Incremental weapon into social conceptual telephony.
Thanks.
Sure Great. Thanks, Alan Yes.
The stack in terms of improvements and maybe kind of broadly answer the question I'll get specifically to life science and health care in terms of us getting back to the market growth rates that we discussed at Investor Day step one was AMG in web of science, we have to see that improvement we saw that improvement in Q1 that continued improvement now so we feel we're well on that.
<unk> towards 4% and an IP the key area there was improving.
And our patent search tools. There. There were this is a building year of getting that done I started the mapping out of Q4 of last year with customer engagement as I've mentioned before we don't expect a revenue impact. This year, we expect to see it begin to impact in sales end of this year early next year and kind of leaking out into revenue improvement.
Next year that gives us a life science and health care. So.
Eric This is one we're in now I'll reiterate what I said in my remarks.
There is tremendous to have Henry Levy on board with the industry experience that he has and life science and healthcare.
SaaS and revenue models with data.
He's already brought a lot onto.
Our view of the business and he has found areas where both he is having us pivot faster. He has also found areas, which frankly, we havent focused on but he said listen they're gems here, we need to double down on.
And so you're going to hear more from him as we kind of exposed to more of you in the future in terms of when we expect to see that the improvements we are making incremental improvements across our product lines I mentioned, a few of them in my prepared remarks, we will begin to see the impacts of that again next year also but I would stack the timing of AMG improvements versus IP.
With Durbin second and then.
In life Science, there are two or three areas and so youll see those begin to come out again sometime mid next year. Thank you.
Thank you and the next question go to Seth Weber of Wells Fargo. Please go ahead. Your line is open.
Okay.
Hey, good morning, guys.
And to ask about the deceleration in HCV in the quarter to two eight I think it was.
$3 three in the first quarter can you just talk about.
I saw the retention numbers.
The academic and government business, but could you just talk about retention broadly across the segments and then the pricing environment. Thank you.
Hey, guys. Good morning, so the deceleration we saw in ACD in Q2 is largely attributed to our life Science business and then particular real world data. So while we've highlighted most of the volatility in this area has been in transactional as we don't get some of those larger deals building that growth.
The updates of the data becomes a headwind. So that's the primary driver in the quarter as Jonathan said and as I mentioned in the remarks there'll be a slight headwind on that we think in the second half of the year for revenue. So just a slight deceleration will still be pretty close to 3% on a full year basis, but most of the pressure is coming from the life science space any impact.
That the.
Lower real World data deals has on the subscription filing out of the business.
Thank you and as a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
And our next question.
Christiansen of Citi. Peter. Please go ahead your line is open.
Good morning, Thanks for the question I'm trying to think here.
I mean, the visibility predictability kind of issue.
It stems from SMB transactional I'm just curious what's the go to market strategy there.
And do you think some of these areas, where you're seeing weakness deserves a little bit more of a higher touch kind of sales approach. Thank you.
Great. Thanks for your interesting questions.
The answer is yes, and I'll pull back too.
On September 1st would be my 12 month anniversary as CEO , it's been an eventful 12 months to say the lease.
But certainly internally, we have really pivoted the organization around these three segments and thats more than this on papers actually realigning our sales our customer care team, our marketing teams to really be alive much more tightly.
As these around these three segments and aligning very very closely around around our customers. So there has been a certainly a very heavy renewed focus and I'll point to example of what I'm seeing some breakthrough in Houston, there in Q1, and IP, which was kind of the middle and early stages of.
This turnaround we had to have a tough sales territory in terms of what we're expecting in Q2 with three months under our belt of this new model, we had a great sales quarter and we're seeing those green shoots now across the business as we've now Dennis alignment. So I'm actually feeling very good about the changes that we've made and the cadence and results we're seeing from it now.
Now we know in the model that we have you make these changes you kind of rebuild the pipeline you convert them to sales revenues less less kind of the dominoes to fall there, but but the early indicators are very strong, but I couldnt agree more than what you said it really is around aligning and accelerating our sales motion around the customers. Thank you.
Yes.
Thank you and our final question Betsy George Tong of Goldman Sachs. George. Please go ahead. Your line is open.
Hi, Thanks, Good morning, I wanted to follow up on the transactional piece.
You're assuming improvement in performance in the second half, which mainly youre attributing to softer comps are easier comps.
And acknowledging you're not baking in large deals.
In the outlook how are you thinking about that.
The puts and takes within elephant <unk> IP around transaction revenues are you assuming excluding these large deals.
Trends get worse trends stabilize or are you assuming some degree of improvement.
Thanks, George So on the IP segment, we lapped some pretty challenging comps in our trademark business of IP. So thats part of the downdraft for last year that business had been performing quite strong in the first half of last year, we started to see the search and watch in particular soften.
Early in the economic downturn, so thats going to be the big driver of it within the life Sciences space AMG, we expect to be strong in the second half so that.
It's going to have some some softer comps towards the end of this year compared to the academic calendar year end in Q2, and then I would say, we do expect a headwind on life Sciences.
As highlighted by taking out the larger deals we are expecting to have a <unk>.
Downdraft or a headwind on the transactional within life Sciences. So the mix of those three gets us to a place where from a run rate perspective, we're not expecting a lot of improvement on a year over year basis will be closer to flat rather than the decline that we saw in the first half of this year.
Thank you we have no further questions I will now hand back to Jonathan Cohen for any closing comments.
Okay, great well, thanks, so much and thanks to everyone for joining our call. This morning, we look forward to kind of further updating you on our progress going forward, but again. Thanks for your time and please feel free to reach out to us with any questions. Thank you so much goodbye.
Thank you. This now concludes today's call. Thank you for joining you may now disconnect your lines.