Q3 2023 Clarivate PLC Earnings Call
Good morning. Thank you for attending today's clearer of a third quarter 2023 earnings call. My name is for them and I will be your moderator for today's call.
<unk> will remain muted during the presentation portion of the call with an opportunity for questions and answers at the end if he would like to ask a question. Please press star one on your telephone keypad. It is now my pleasure to pass the conference over to our host Mark Donohue head of Investor Relations. Mr. Donahue. Please proceed.
Thank you and good morning, everyone. Thank you for joining us for the third quarter 2023 earnings Conference call with me today are Jonathan Gear, Chief Executive Officer, Jonathan Collins, Chief Financial Officer, both will be that we'll take your questions at the conclusion of the call.
As a reminder, this conference call is being recorded and webcast and is copyrighted property of clarity and.
Any rebroadcast of this information in whole or in part without prior written consent of clarity is prohibited in.
And the accompanying earnings call presentation is available on the Investor Relations section of the company's website.
<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 performance achievements or <unk>.
<unk> 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.
Jay Please non-GAAP results are useful in order to enhance an understanding of our <unk>.
Operating performance, but they are a supplement to and should not be considered in isolation from or as a substitute for GAAP financial measures.
Conciliation of these measures to GAAP measures are available in our earnings release and supplemental presentation on our website.
After prepared remarks, we'll open the call to your questions and with that it's a pleasure to turn the call over to Jonathan gear.
Thank you Mark good morning, everyone and thanks for joining us today.
Before I begin I would like to share some thoughts about the situation in Israel.
<unk> has over 500 colleagues and our Jerusalem office and the recent terrorist attack changed their lives. While we report should not to lose any colleagues that day, everyone. In the office knows someone who has been impacted by a loss casualty or the ongoing hostage crisis.
Our colleagues are our number one priority and we have established a bond of $200000 for the local team to use to support colleagues connection and community outreach, we have arrangements in place for operational continuity at all levels.
And do not expect any disruptions all of us at <unk> hope for peace in the region.
Now, let me turn to our third quarter results I am pleased with the progress of our business this quarter, which demonstrated sequential improvement in two of our three operating segments. While also achieving our company's highest organic growth on a consolidated basis since I joined <unk> a year ago, we are moving in the right direction.
Despite the ongoing challenges in the macro backdrop, which are having a greater impact on our transactional businesses. We delivered several key wins highlighting the resilience of our business and the mission critical nature of our data and products.
We continue to innovate our products and establish new generative AI solutions, and our IP and life Sciences and healthcare segments.
As discussed at our Investor day in March driving value enhancements to our mission critical data through product innovation is core to our long term strategy. We remain focused on accelerating organic growth to industry growth rates and continue to see generative AI as a very large untapped opportunity for our company.
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Revenue in the quarter was 647 million, an increase of $11 million on an organic basis or 2% growth. This was in line with our expectations. Our performance was driven by strong momentum in academia and government and a return to positive organic growth in life Sciences and healthcare.
We continue to face temporary headwinds and IP, such as a delayed contract start date, where the United States patent and trademark office.
And modest impact to the ongoing U S active strike both of which I will elaborate on momentarily.
Adjusted EBITDA of $281 million and EPS of <unk> 21 for both up from last year, and we continue to make progress towards our long term EBITDA margin targets of 43%.
Jonathan Collins will discuss this in more detail.
Now turning to our segments, beginning with academia and government last quarter, you heard me discuss improved performance in AMG as our investments are helping drive new subscription business.
Updates and higher retention.
This quarter I am happy to report, we were able to build on that momentum with organic revenue growth accelerating to 3%. This is our strongest growth quarter since last year's second quarter. We believe this is confirmation that our strategy is paying off.
In the quarter growth was strong across content aggregation transactional sales, which has historically been a strength for us, but we also recorded wins with three major universities for workflow solutions.
Accelerating adoption of our workflow solutions through our actually risk catalog of products has been an important area of focus for us and it's a prerequisite to bridging our gap to industry growth I am confident we will get there in this quarter is just the beginning.
In October we were selected by Yale University to provide this library services and discovery platform by.
By implementing <unk> Prime now Yale will unify its workflows and data onto a single platform elevating the user experience and enhancing services within this library ecosystem.
As a reminder, AMA as our cloud base Library management platform, which unifies print electronic and digital collections, while Primo provides fast access to scholarly materials and a tutor ways to discover new content.
Gail will implement these services in both his main in law language workflows and data combining the benefits of generative AI with trusted content sources will enable users to find new insights fast and is scale.
Another win in the quarter with Ohio Link, which is the entire state of Ohio Academic Library consortium up 117 member libraries.
Ohio Link chose AMA for its cloud based shared library services platform as it bolstered its investment in higher education technology infrastructure.
A key factor behind our win was the investments we've been making in the armor platform and our roadmap, which best meets the consortium's current and future expected needs.
In addition, the AMA, Ohio link will implement Primo and a wider suite of <unk> products that will enhance services for user staff and administration.
Lastly, we established the academia and government innovation incubator late in the quarter. We expect this will further accelerate our strategy to advance <unk> through research and education, while introducing novel solutions for our customers in academic users.
As part of the incubator first program, we made a small but important acquisition of Lithia and AI powered student engagement platform.
<unk> facilitates meaningful engagement with academic texts class readings and assignments to personalized and adaptive guidance, which helps to realize better learning outcomes and student success.
As you can tell we're seeing strong momentum in our A&D business and I was very pleased with the performance. This quarter. We remain confident that we are well on our way to bridging the gap to market growth rate.
Moving to IP in the quarter organic revenue growth.
Macro pressure from the ongoing use accurate strike, which began in mid July and impact on our trademark business trademarks are a critical part of the movie industry, where film studios use trademarks to protect movie titles and register other elements related to pay almost which compare the way to potential licensing and merchandising.
<unk> agreements.
We also saw a delay in the start date of a new contract with United States Patent and trade office, which was awarded to clarify earlier this year.
This enhanced contract with Dave by the client and we recently received word that contract will start in early first quarter next year. The delay we will have a modest impact in Q4.
I am pleased to share with you that we secured a multiyear deal with a large Indian telecommute telecommunications provider to deliver patent services on.
On the product side, we launched forecast in September forecast is an AI powered tool that delivers powerful capabilities for predictive budgeting and is fully integrated with leading IP management systems, the ryzen costs, managing IP as a strategic asset as an issue of increasing importance for customers and forecast enables IP professionals.
To create budget scenarios to make smarter filing and maintenance decisions, while collaborating more seamlessly across our organizations net of all this the view of our IP business remains the same I remain.
Confident that the slight pullback in organic growth for IP is only a short term event and we continue to expect to return to normal growth next year.
Turning to life Science and healthcare I am pleased to report improved performance with positive organic growth for the first time in four quarters of 2% year over year Dolby.
Though we remain cautious on the macro and are still seeing pressures on parts of our transactional business as a result of the lower drug approval pipeline last year and a still challenging funding environment biotech, we did see some pockets of relief in the quarter.
Our consulting business delivered 7% growth in the quarter and we secured a large engagement with a global top 20 pharma to extend our partnership and epidemiology analytics supporting market access and clinical trials. We also signed a strategic agreement with a leading U S biotech to accelerate commercial and market strategies for their lead drug.
Candidate <unk>.
Lastly, in our regulatory and safety portfolio, we continued to demonstrate consistent growth, which was up 5% from last year.
As I shared with you at our Investor Day commercialization is a key area of focus for us to accelerate our vision to market growth rates.
Well data offers our customers a wealth of information around the activities and outcomes are key healthcare providers patients and payers stakeholders.
Analyzing medical and pharmacy claims and other specialty datasets enables manufacturers to maximize our impact and launch planning by understanding the diagnosis referral treatment and reimbursement dynamics among stakeholders and their target markets.
We continue to add to our existing get assessed to drive further value to our customers in the quarter, we enhanced our real world databases with additional German hospital prescription data.
We will reinforce our position as a leading provider of variable data solutions in Europe.
We are also making progress on our software platform in August we launched enhanced search powered by generative AI as part of the latest iteration of our patent pending platform.
The new capabilities enabled clinical regulatory affairs and strategy teams to interact with complex datasets using natural language to obtain immediate and in depth insights.
The beta version of the enhanced search platform is now available to select customers and general availability is anticipated later this year.
As part of the commercial launch we're further extend the platform by integrating additional datasets across our core Telus line, including clinical trials deals drug discovery and more this is all part of our long term strategy to enhance the value of our critical data through more analytics and insights while shifting an even greater mix of our business.
Ms to subscription.
In closing, we have a great business with an unparalleled suite of mission critical products World class customers and our long term strategy is intact.
Everyone in the industry, we wish we knew when the macro pressures with these nonetheless, we made financial progress in two of our three operating segments.
And more importantly, now standing still our company is accelerating its innovative efforts and we're seeing positive early signs of our strategy based on our customer conversations and highlighted wins, but understand we still have much work to do.
I'd like to thank my colleagues for their continued dedication collaboration and hard work I look forward to sharing our progress with you all again in three months time with that let me turn the call over to Jonathan Collins to walk you through our financials.
Thank you Jonathan Good morning, everyone. Slide 11 is an overview of our third quarter results compared with the same period last year.
Q3 revenue was $647 million, an increase of $11 million or 2% versus 2022, driven entirely by organic growth as the impact of the Mark monitor divestiture was offset by foreign exchange adjusted EBITDA margins expanded 80 basis points over the prior year to 43, 5% from Q3.
Strong cost discipline and the cost synergies from the <unk> acquisition.
Third quarter net loss was $7 million, an improvement of $4 4 billion as a result of a noncash goodwill impairment charges associated with the CPA Global and pro Quest acquisitions recorded in the same period last year adjusted.
Adjusted diluted EPS, which excludes the impact of onetime items like the impairment was 21 in Q3, a <unk> <unk> improvement over the same period last year, primarily due to higher adjusted EBITDA.
Operating cash flow was $163 million in the quarter, a decrease of $44 million due entirely to higher working capital requirements, primarily stemming from the intra annual timing of payments in our IP renewals business.
Please turn with me now to page 12 for a closer look at the drivers of third quarter top and bottom line changes from the same period last year.
Our third quarter revenue and profit results are right in line with our expectations and were driven by four key factors first revenue was up $11 million on organic growth of one 7% as Jonathan highlighted the organic growth in the A&D segment is the best it's been in over a year as we continue to see.
The benefits of accelerated growth in our research and analytics sub segment due to the investments in the web of science product.
Our <unk> segment grew on a transactional basis due to soft comps from last year. Despite the pressure in the subscription file we forewarned of stemming from the soft real world data sales from the past few quarters. These segments more than offset the headwinds we continue to see in our IP business due to macro pressures the profit conversion on the <unk>.
Organic growth was particularly strong as a result of the cost discipline, we're exercising over the business second inorganic.
Activity, namely the divestiture of our Mark monitor business last year lowered revenues 19 million and profit of $11 million this year.
Third cost synergies from the <unk> acquisition contributed $10 million of incremental profit and finally, the translation impact of subsidiaries denominated in foreign currencies increased revenue by $20 million as the U S. Dollar remains weaker than a basket of foreign currencies compared to the same time last year.
<unk> increase was negligible as transaction gains incurred in the third quarter of last year did not recur this year.
Please turn with me now to page 13 to step through the conversion from adjusted EBITDA to free cash flow and how we allocated this capital in Q3.
Free cash flow was $102 million in the quarter, a decrease of $39 million over the same period last year, bringing the year to date conversion on adjusted EBITDA of 46% and the cumulative improvements so far this year to $159 million inter.
Interest payments were $40 million in the quarter nearly flat over the prior year as the impact of base rate increases were offset by the lower debt quantum due to the deleveraging in the fourth quarter of last year and the first half of this year cash.
Cash taxes were $14 million lower than the same period last year as we recognize the benefit of planning initiatives.
Working capital was a use of cash of $64 million in Q3, when it was a source of $12 million in the same period last year. This change was driven primarily by the timing of payments within our patent renewal business in the IP segment year to date working capital is essentially flat and we expect it to be for the full year.
Capital expenditures were $62 million in the quarter in line with the prior quarter and last year's third.
We continue to invest in product innovation.
We used our third quarter free cash flow to repurchase $13 8 million shares of our stock at an average price of about $7 million in 2000.
Please move with me now to slide 14 for our current view on the remainder of 2023.
Our third quarter results place us on track to deliver full year results near the midpoint of the ranges we provided in August.
We expect organic growth will approach, 1% in the fourth quarter, resulting in full year growth of about a half a percent. This is slightly below the midpoint of the range is during the quarter. We received word from the U S. PTO that a large contract. We were awarded earlier. This year has been delayed from Q4 until Q1 of next year additional.
<unk> will experience the aforementioned effects of the actors strike on a trademark transactions and anticipate tap at year end spend in life Sciences.
We continue to expect revenue near the midpoint of the range at $2.635 billion as the modest organic growth effects are offset by a later closing of a small divestiture in our IP segment, and a slightly weaker U S. Dollar.
We anticipate adjusted EBITDA in year $1 billion $115 million, yielding a profit margin of about 42.25% at the midpoint of the ranges. We continue to expect adjusted diluted EPS at about <unk> 80.
And finally, we anticipate free cash flow near the midpoint of the range at about $475 million.
Please turn with me now to page 15 for a closer look at the full year top and bottom line outlook, which is unchanged from our prior guidance.
Similar to the third quarter results, our full year outlook for revenue and adjusted EBITDA is driven by four key factors.
Organic growth will add about $15 million to the top line funding a comparable amount of incremental cost leading the profit impact for this component to be flat from a segment perspective, we anticipate AMG will continue accelerating their growth from historical performance to the market rate, we outlined at the Investor day in March.
It will decline slightly and Allison H will decline this year due to the macro pressures we highlighted.
Second the divestiture of Mark monitor last year will deduct about $65 million of revenue and about $30 million of profit this year.
Third we completed the integration of the <unk> acquisition, enabling us to deliver the remaining $40 million of cost synergies. This year accounting for all of this year as expected margin expansion in.
And finally, we anticipate a 25 million foreign exchange tailwind on the topline as the U S. Dollar has weakened slightly compared to a basket of foreign currencies, a small headwind to the bottom line is caused by the transaction gains realized late last year that we do not expect to recur this year.
Please turn with me now to page 16 to walk through how we expect to more than $1 1 billion of adjusted EBITDA will convert to nearly a half a billion dollars of free cash flow and our plans for allocating the remainder of this capital in Q4.
Nearly all of the $170 million improvement in free cash flow projected for the full year, which is largely due to lower onetime cost and augmented by improved working capital has been delivered in the first three quarters of the year as we anticipate fourth quarter free cash flow will be roughly in line with the same period last year.
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 largely to complete the pro quest integration we.
We do expect that cash interest increase of about $25 million as base rates were up considerably over last year.
Our working capital requirements have leveled off this year and will yield an improvement of about $65 million.
We remain on track to increase capital spending by about $40 million to accelerate 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 range, which is an increase in the conversion on adjusted EBITDA of 15 percentage points.
We expect to use all of our fourth quarter free cash flow and an additional $50 million of cash on the balance sheet to prepay another $150 million of our term loan, bringing the full year total to $300 million and our net leverage to just below four turns.
Please turn with me now to page 17 for a look at how we're tracking to our long term financial objectives.
Youll recall that when we outlined our financial objectives for our business at our Investor Day in March our primary aim was to accelerate our organic growth. The first area. We committed to improve was the research and analytics subsegment within AMG and this second.
Full business remains on track to achieve its growth plans with continued momentum delivering organic growth in the third quarter in excess of 3%. However, the economy related end market softness facing our <unk> and <unk> and IP segments leave us behind the pace, we expected, but we remain laser focused.
On the product innovation that will help us to lift these segments to their market growth rates over the next few years.
Despite tracking behind on the first objective we've made solid progress towards the other three we outline our second goal is to maintain durable profit margins as we invest to accelerate our growth.
We executed on this objective in the third quarter as our margins expanded by 80 basis points, even as we increased our operating and capital expenditures to drive product innovation.
The third objective, we outlined was to slightly improve our free cash flow significantly improve our free cash flow, which we delivered in the first nine months of the year with an increase of 73% on lower one time costs and improve working capital.
And finally, we committed to allocate our capital in a disciplined manner. We've demonstrated balance in this area by repurchasing $100 million of stock in Q3 and remain committed to deliver our year end leverage target through continued debt payments in Q4 the.
The entire claret 18 remains completely focused on the solid execution that will deliver 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 forum to take your questions and as a reminder, please limit yourself to one question and then return to the queue for any additional.
Please go ahead.
Absolutely.
To ask a question. Please press star followed by one on your telephone keypad.
For any reason you would like to hear him. He's got a question. Please press star followed by Tim again to ask a question Press Star one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question comes from the line of Toni Kaplan with Morgan Stanley Tony Your line is now open.
Thanks very much.
Just in light of a few additional 13D filings during the quarter can you just give us your latest thoughts on whether you think there's three businesses are more valuable together what synergies do you generate from having them together and if there are any assets that you view as sort of not as.
Core to the portfolio. Thanks.
Hi, Toni Thanks for the question, Yes, I mean.
Obviously, we always we feel great about the investors that we have in there kind of a renewed interest in the new commitment from some of those that you mentioned is fantastic and so we feel very are lucky to have them part of our investment community in terms of the portfolio really as I highlighted in my in my remarks, Tony and nothing has changed we're still very focused on executing against the plan that we have.
Now.
One of our three segments, we are getting very close to market growth rates, we made improvement in life science, and healthcare and and again, we have some short term market headwinds and IP, which were which were focused on improving and we think we will turnaround next year. So really nothing has changed in our remarks, we're always of course looking at where we sit at our portfolio and pruning.
We can make but we feel very good about the collection, we have right now thank you.
Next question please.
Our next question comes from the line of Manav Patnaik with Barclays. Your line is now open.
Thank you and good morning.
I apologize if I missed it but if you could breakout the subscription growth in the non subscriber growth in the academia and government side and just talk about how.
These new contracts you highlighted and the momentum you talked about directionally help that that subscription run rate perhaps.
Sure. Thanks for the question Manav, so throughout our A&D business, we highlighted in the first three quarters, we've seen an improvement in our renewal rates in that segment and we've seen some new business growth largely driven by the web of science product. So we made a pretty meaningful investment in that product late in 2020.
One in 2022, we saw significant increases in monthly active usage and then we followed that up with some really nice augments are enhancements to the product in 2022, Youll recall, we significantly increased the number of journals that receive a journal impact factor and we started to do some very thoughtful <unk>.
<unk> with some of the pro quest products, such as the dissertation and Ccs collection.
That's put us in a place where we've seen nice improvements in the renewal rates that has helped to improve the subscription growth rates in the AMG segment as Jonathan highlighted in his comments, we did have a nice quarter in Q3 on a transactional basis within AMG, so that business can be a little bit lumpy from quarter to quarter wasn't great in Q.
But we saw really nice growth rate in the third quarter.
Fourth quarter is important for that business from a transactional perspective. So the team bars entire team remains heavily focused on delivering a strong year end on the transactional side to augment the improvements we've seen in subscriptions.
Thank you next question please.
Our next question comes from the line of Surinder <unk> with Jefferies surrender. Your line is now open.
Thank you.
Just a big picture question here.
When we think about the cyclical exposure that you have in the business.
The commentary that was last quarter or to some of the onetime items.
And then we kind of look ahead, how would you characterize that.
The upside or the downside that's kind of left in that part of the business as we move through the current economic cycle, if things were to maintain your current levels or.
If perhaps things were to get a little tougher from a macro perspective.
Great. Thanks, Ryan it's great to have you on the call just a couple of comments I mean, firstly, we are facing those macro pressures right now we face it for the last few quarters and certainly in the case of trademarks since since summer time of next year. So in our view as we talked to clients to get us get a sense of their spending spending patterns from a.
So impact. This this is kind of as bad as it is our view and we see it in a few different areas. So the for the most part if I break it down academia and government, which as you know is primarily academia is really largely immune from macro pressures is very government budget, driven and tends to be very very solid so half of our business.
I would say heavily heavily insulated on the other parts of our business largely insulated, but not completely immune.
Within within IP. The greatest impact we are seeing is in our trademark business and as we've talked before trademark is the one part of our portfolio, which is the most sensitive it actually will we will see a negative impact on our business through an economic cycle and we've seen that since.
Late summer mid summer of last year, we've seen that.
Contracting of new products being launched and as as you mentioned on the call today, even things like the screen actors Guild strike impacting new product launches around merchandising on films impacts us so, but we are already feeling that right now we don't see it getting getting worse and then in healthcare, we've seen the impact, particularly on the commercial side of our business.
As farmer has cut back on spend on new launches part of that is macro part of that was last year was a.
A fewer number of new drugs approved in the pipeline by the FDA, we're seeing a greater improved this year that should improve next year. So we're certainly feeling it right now and I will say just maybe to summarize it again is half of our business AMG.
Virtually no impact from macro pressures and then the other half you're kind of seeing the downside this year from that thank you.
Yeah.
Thank you next question. Please thank you.
Our next question comes from the line of Andrew Nicholas with William Blair. Andrew Your line is now open.
Hi, Good morning. This is Tom <unk> on for Andrew Nicholas.
I wanted to dive into the macro factors you saw last quarter kind of unpacking transaction recurring revenues I was wondering I know you saw some improvement in consulting I was wondering if you could talk about maybe it was other factors and kind of how they progressed through the quarter and kind of how you're seeing those trend as we head into 2024.
Sure, Yes, we'll do Tom so that the two things I would really highlight first in life science and healthcare again, it's really around those commercial budgets and those are commercial spend. So if you think about a pharma company. They have strategy Biz Av they have R&D and then once the product gets approved and they get market access it goes into launch.
What we're seeing and we've seen it really throughout the year and certainly entering the year, we had kind of hope for improvements at improvement hasn't happened and company's budgets as they can.
The pharmacy department industry in general is being very tight on commercial spend this year. So we still see that continued pressure right now throughout most of our products. We do see some positive of our consulting business as was mentioned the call. So a bit of uptick there great job by the team there and certainly were scrambling for where we can for every last dollar.
That's the impact we're seeing is on the commercial side within life Science and healthcare and then an IP is obviously, a major and minor the major is primarily around the trademarks and as simple as this is trademarks are tied towards new product launches. If you create new products, you've your company consumer or <unk>.
As a matter of youre going to trademark that product if you're launching it into new countries. You can do multiple multiple registrations and those registrations are different from patents and that there are 10 year cycle instead of an annual cycle for the most part. So so they are much more susceptible to economic pressures and what we've seen starting from last year.
Again, as just fewer product launches across our customer portfolio and I think this is very similar to what we're hearing in the industry. So that's a major part and then we are seeing a bit of a minor part in terms on the patent side of customers just taken time to look at the patterns that they are renewing we highlight that in the Q2 call and that has played out frankly exactly as we.
<unk> coming out of the Q2 call. Thank you.
Thank you.
Thank you next question.
Our next question comes from the line of John <unk> with Wells Fargo. John Your line is now open.
Hi, Thanks for taking my question I'm on for Seth This morning, and I just wanted to get a quick one in on the kind of OCC subscription growth really around just what your expectations are for <unk> as well as any initial thoughts into 2004. Thanks.
Sure. So youll recall at the August call on Q2's results. We indicated we expected to see some headwinds in Q3 on the subscription file and we did that.
It's almost entirely from our life Sciences business.
We see a pullback on the updates for real World data based on what the sales pattern had been in the preceding three to four quarters. So that played out as we expected we do expect a sequential improvement in our subscription growth from Q3 to Q4 and then obviously January is a very important.
And months in our renewal cycle a lot of work going on in this month and next month. So we will have a much better line of sight into the subscription growth across the business. When we're together in early March for the year end results.
Great. Thanks for the color.
Sure.
Our next question comes from the line of Owen Lau with Oppenheimer.
Your line is now open.
Good morning, and thank you for taking my question. So you talk about have selected <unk> for AI and big data and also a high yield averaging Clough could you. Please broadly talk about the progress on adding more capabilities such as AI to your products and what are some of the key product launches in the near term to incur.
<unk> engagement with existing and potential customers. Thank you.
Got it. Thank you for the questions. So I will go and so we will go ahead and cover a few I mean, as we've discussed before and as I discussed in my prepared comments, we see we've all we've used AI for 15 plus years, but this year and the technologies coming out in <unk> I think a game changer for.
Business information and tech enabled content companies like ourselves and we're really seeing in a couple of three ways. Generically then I'll be specific first in terms of of enhanced search capabilities the ability to use gen II to find the right content the right curated content.
<unk> drives incredible efficiencies for our customers and so that is true across all three segments and as we rollout our products that we're testing right now with our clients we are <unk>.
Leveraging and expect to see rolled out of enhanced curated search across all of our segments I think that thats going to be table Stakes and then you get that combination of incredibly strong efficiency tool on top of our curated proprietary content as a as a game changer of enhancement of efficiency for our clients. So that certainly is one area and then secondarily in terms of generic <unk>.
<unk> is just using it as a way to unlock additional content and insights to help our clients in their workflow and Theres little more targeted I did comment on one in my remarks about forecast within IP and maybe I'll just dive in deep on this one. So if you are if you're managing a large IP portfolio at one of our clients.
It is a multi multi multibillion dollar spend and the challenge has always been whereas the best value in terms of that that that portfolio of patents that you manage and it's been a challenge for decades on how to best manage that we've been reacting to our clients' needs to help them think about workflow tools to assist with that what historically has been a very manual process.
And a forecasting tool is something we have launched which will work with the ibms systems to do just that and really enhance the value and increase the.
The workflow tools, we are providing to that to that important customer base. So we're doing it there we've talked about.
The acquisition, we made in <unk>, it's a great tool and a small acquisition, but a great technology that we bought that allows guided discovery and educational tools to help professors and their content as they reach out to their students and I have to college students. So I can really imagine oh and how this.
<unk>, it's going to help is going to help students as they as a tester knowledge answer your question in the way. The answer will then lead to further bespoke questions to really test that students knowledge I think it is going to be the wave of education and the wave of the future. We're investing heavily in those areas. So those are just a few examples lots more to come.
We will be sharing that in future future calls thank you.
Thanks.
Our next question comes from the line of Ashish Saba Dara with RBC.
Your line is now open.
Thanks for taking my question and thanks for providing more detail in Q4 organic growth guidance.
Question that was just focused on one of them.
Headwind called Douglas the commercial bucket and the fourth quarter is seasonally strong.
Quarter, four our commercialization revenue my understanding, particularly near the end of the DRG business.
Was just wondering what's the view from.
From that business perspective, and how is the transition the progress on the platform because that's what these cannot predict.
<unk> solution directly to the end users how's that progressing.
Yes. Thank you for the question Ashish and you're spot on the fourth quarter is a seasonally higher quarter for our life Sciences transactional business certainly includes the commercialization.
Products and services that we described but even on the R&D side. We are usually looking to capture year end spending as we've talked about earlier in the year, particularly on commercialization of drug approvals last year were down which puts us in a position where commercialization budgets are lower this year, we've seen that play out through the year.
Year, we have better line of sight into what we think the year end avail.
Availability of funds will be.
And we trimmed the expectation there just modestly we're only talking a couple of few million dollars as a part of the change in the organic outlook are the current indication for Q4. So that's really what the driver is there to your second point.
Been very focused from a product development standpoint, this year on building out.
Better content higher quality information with tools that will be relevant for our life Sciences customers. We've made really good progress we've got the launch of the first module.
On track to go out in the fourth quarter of this year and there'll be more to come next year I expect that we'll be in a position at year end earnings in early March to talk more about the plans for 2024, so stay tuned for that but thank you for the question.
Thank you next question please.
Okay. Thank you for your question just as a brief reminder, it is star one on your telephone keypad to register for a question.
Our next question comes from the line of Peter Christiansen with Citi. Peter Your line is now open.
Thank you good morning. Thanks for the question I just wanted to follow up on the previous question as.
As we think about the setup for discretionary revenue discretionary spending from your clients, perhaps maybe outside of life Sciences. Just wondering if you can frame that in.
In terms of maybe what what what.
What youre seeing maybe on the <unk> side as we get into the fourth quarter and should we be mindful of any.
Year over year comparisons.
For our fourth quarter. Thank you.
Yes, thank you for that Pete I'll touch on the other two segments so on AMG.
It is the largest transactional quarter of the year. So it's an important quarter the signs there within that market are good.
From Cowen.
Cowen for our school year budgeting standpoint, particularly in the U S. We're seeing good signs there and that helped to lead to a.
Our solid performance in Q3, but there is plenty of work left to do in the next couple of months to make sure that we get our share more than our fair share of that funding.
Now and the end of the year, but I would say the overall.
Forces in that area are positive on the life Sciences side, you raised a good point on the comps we have.
Had a.
A pretty good performance in real World data in the fourth quarter of last year Q3 of last year was very soft that's why we saw transactional growth in Q3 of this year. So we are expecting real world data sales to be down in the fourth quarter, which will pressure the life sciences transactional business.
Certainly some of that is the economic forces, we just talked about but in addition to that we're really focused on building out a solution set that we're going to sell directly into the customers and being a bit more selective as we've talked about with where we sell our data. So I think both of those are going to have an impact in Q4.
And then on the commercialization side there are a number of other transactions and products that we offer to aid in commercialization and we expect there's going to be some year over year pressure on those due to the the drug approvals that we saw last year.
Talk more about it in a few months, but as we look into next year. That's an area that we think will be a modest tailwind for us so drug approvals in the U S are up over the prior year. So we should see some improvement in commercial budgets going into 2024, but we'll give some more color on that in a few months.
Thank you.
Our next question comes from the line of Shlomo Rosenbaum with Stifel.
Your line is now open.
Yeah.
Thank you Jonathan I wanted to ask a little bit about some of the contract movements that we're seeing there is commentary about.
And each business, so impact of midterm cancellations and timing of renewals like what does that mean exactly and why are you getting cancellations and then maybe could you just give us a little bit more color as to why the U S PTO contract.
Why did that get to lead was there any concerns or anything over there.
I assume that's a pretty big contract with the marquee customers so any.
Just color on whats going on amongst all these different contract movements would be helpful.
Okay.
First of all let me answer your U S PTO to pass on to Mr. Collins for your question on <unk> on the U S PTO and happy to talk about this because obviously the government contract was public and so on.
All of this is in the public domain, but they've been a long term.
<unk> partner and customer of ours, great relationship with the U S PTO in Alexandria, and they awarded.
<unk> been with particular contract they are warranted and enhanced contract us in another provider earlier in the year.
So it was a consolidation of partners to support them someone who did not win that contested it as that then went through a process of government review process and we just recently received word that on the back of that as a confidence with their process and they have or an SD original enhanced contracts. So we would never concerned if someone was losing it.
It was a larger contract that was just delayed.
Let me know appropriate government reviews on the process, we feel very good on the outcome. It has delayed by a little over quarter. The benefit of that so we will see it coming in early next year, but that has not been confirmed.
Jonathan I'll pass you on the arsenate sure on the life Sciences side Shlomo, we highlighted that the most of the pressure in Q3 on the subscription file came from the real world data business, So thats, a business, where we've seen declining.
Sales over the past few quarters, we knew it was going to impact the subscription file. We also have a small group of products in that group that had the ability to stop the feeds and we did see a little bit pressure on renewal rates. When we spoke with customers. We got some feedback around budgetary pressures.
That's part of what is informing our outlook on the fourth quarter, but as I mentioned, we've got pretty good line of sight in the other areas in this as well too on the subscription file I do expect that subscription growth is going to improve in Q4, and then we'll be very carefully managing the really important Q1 renewal cycle for next year that will have a big impact.
On 2020 for its performance.
Thank you.
Yeah.
Thank you for your question. Our final question comes from the line of George Tong with Goldman Sachs. George Your line is now open.
Hi, Thanks, Good morning in life Sciences, and healthcare you saw negative subscription revenue growth because of lower real world data sales and some cancellations can you elaborate on your broader strategy for managing your real world data product to drive improved growth.
Sure, Yes, sorry, I'll, let me go ahead and cover that so so this is a key.
Our strategy shift we made in the middle of the year post Henri Levy joining joined the business and just as a reminder, prior to the.
Last two or three years since the <unk>.
Since the acquisition of DRG, we've been heavily focused on selling data as a as a product. So we've taken a variable data.
Our platform sold it as data and so that to other providers, who have been enhanced to provide analytical tools to the end customer which is the pharma companies.
We have made decision to really.
To focus on creating that analytics platform ourselves and migrating away from these large.
<unk> deals and adding the value ourselves because we believe we're best positioned to go ahead, and do that and begin selling more and more directly to pharma that as we start to make that investment.
Late last year, and then really enhance it this year and so what that means from a revenue profile. It means shifting away in a near term hit on revenue of both transaction and then a little bit of a subscription pull on the comments when you make a transactional sale because what you do is you sell the transaction sale, you're going to dump if you will decline.
As a dump of content there and then if it saves a figure contract, we're updating that content throughout and so a bit of a subscription pull along there and so what you'll see in terms of our financial results as a pullback on transactions in the near term.
A impact on subscription within life science healthcare this tied to those large transactions, but as we build out the platform. We will build over time, a much more sustainable higher growth higher value product, which is primarily subscription going forward and that youll see coming next year and in years to come.
Thank you.
Got it very helpful. Thank you.
Thank you for your question. This concludes our question and answer session for today's call I will now pass back for any final remarks. Thank you.
Sure. Thank you so much I'll just go and wrap again. Thank you everyone for joining the call. We feel again very good about the overall results in the quarter. Good progress, obviously still work to done, but we're seeing the progress we expected to see so thanks, everyone have a great week and look forward to talking with you soon goodbye.
This concludes todays <unk> third quarter, two 2023 earnings call. Thank you for your participation you may now disconnect your lines.