Q4 2024 Clarivate PLC Earnings Call
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<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 clarity filings with the SEC and on the company's website.
Our discussion will include non-GAAP measures or adjusted numbers that are basically non-GAAP results are useful in order to enhance understanding of our ongoing operating performance, but they are a supplement to and should not be.
Be considered in isolation from or as a substitute for GAAP financial measures reconciled.
These GAAP measures are available in our earnings release and supplemental presentation on our website.
Jonathan Collins: With me today are <unk>, Chief Executive Officer, and Jonathan Collins, Chief Financial Officer.
After our prepared remarks, we'll open up the call to your questions and with that it's a pleasure to turn the call over to Marty.
Marty: So good morning, everyone and thank you for joining us.
Marty: On this call. This morning, we are going to provide additional details of our value creation plan, our 'twenty to 'twenty four results and our 2025 financial outlook.
Our results demonstrate we have a strong foundation of products and assets and workflow solutions.
Marty: They also show that we have work to do to de lever and see pogany grows and build for the future.
Marty: And the way to two returned to organic growth.
Marty: We have already started to implement our V C P, which I presented to you in November.
Marty: Today I will provide more details on this plan, including some of the things we have already completed and we'll be doing in 2025. We also announced that we have retained financial advisor to help us in evaluating strategic alternatives to unlock value.
Marty: These may include divesting business units all of them.
Marty: An entire segment.
Marty: No guarantees that anything actual will arise from this process, we will provide an update.
Marty: When appropriate I'm confident this is the right plan to deliver shareholder value and return.
Marty: To help see organic growth.
Marty: Yeah.
Marty: Yeah.
Marty: Turning to slide seven.
Marty: Let me give you a reminder of our value creation plan. Our V. C. P is focused on improving execution and accelerating revenue growth.
First the three pillars include revenue optimization.
Marty: Proving safe execution, and acceleration and accelerating innovation innovation. These initiatives will improve our business performance drive better revenue predictability and improved financial and operational efficiency.
Marty: Fourth pillar.
Marty: Palio rationalization addresses opportunities to streamline our solutions portfolio through divestitures.
Marty: Now, let's talk about what was accomplished in the last three months in executing our plan.
Marty: And what lies ahead for the remainder of 2020 five.
Marty: Improving the predictability of our revenue and driving called subscription and reoccurring service is a priority.
Marty: The plan in Academia and government recently announced that we are moving to subscription only strategy for work with E books and data collection. This is a meaningful step change in our go to market strategy for this product line broke with ebooks. It is the world's largest subscale.
Marty: Sure enough academic ebooks.
Marty: <unk> more than 700000 titles.
Marty: So of course data collections also more than 160 million primary source items less scholarly journals the videos and audio effects.
Marty: With the launch of this new product offering we will phase out one time transactional sales of ebooks.
Marty: Collections and print books.
Marty: <unk> 2025, the change will allow us to focus our growth on investing in subscription based solution, which will make up.
Marty: 90% of AMG portfolio.
Marty: In life Science, we launched D O G fusion, a new model of subscription based wind what data analytics product this will shift focus.
Marty: Transactional data brokering, two new patient insight subscription products.
Marty: We will dispose the increasingly high cost.
Marty: High risk data reselling business model.
Marty: We are positioning ourselves to offer a broader set of complementary complementary.
Marty: Inside products, which increase our value proposition to our life science buyers, we plan to exit real world data direct licensing market winding down by fourth quarter 2026.
Marty: Jonathan will discuss we expect benefit from moving it moving in this strategic direction it will.
Marty: Reduced volatile transaction revenue by approximately 200 million dollar.
Marty: Salary, it's organic growth make more predictable by increasing our recurring revenue mix.
Marty: Mix from 80% to 87% and potentially.
Marty: Higher overtime in.
Marty: Prove our profit margin by approximately 150 basis points and has a minimal impact on our free cash flow.
Marty: Okay.
Marty: Now, let's discuss what we've done on our sales execution.
Marty: We have taken steps to improve execution in each of the three segments in the area of talent organization customer engagement and sales force incentives.
Marty: With people, we are attracting and promoting experienced proven sales leader to lead specific functions.
Marty: Second we have optimized reporting structure to increase accountability and empower our regional sales leader to drive new business. This will strengthen our go to market capabilities and drive closer alignment with core strategic priorities. We have also realigned our cost management models around that.
Marty: Police solutions area to capitalize on in house expertise in.
Marty: And more closely align with our customer needs.
Marty: Third we are scaling and investing in dedicated customer success team, we are enhancing our resources and tools to improve customer engagement and cartilage. Ultimately this will help us to strengthen and grow our retention rates and long increasing our upsell.
Marty: And cross sell opportunities and lastly, we are refocusing incentive models across the company.
Marty: It will reward successful driving subscription and reoccurring revenue growth. This is.
Marty: So there is more work to do in all of this area, while we have made substantial progress.
In a short time.
Marty: Turning to our third pillar product innovation.
Marty: In recent years, we have made a lot of smart investment to harness the power of technology and AI, we are seeing growing adoption and positive and positive usage trends for example, academic AI platform was introduced and developed in a number of AMG products.
Marty: Including research assistant full web of science and Primo. It was also introduced in life. It is also introduce within life sciences, with our new product offering DRG fusion and in IP with Devon AI patent search.
Marty: We continue to develop and enhance our product across all the three segments, which will drive improved customer adoption and usage.
Marty: Across academia, we are leveraging academic AI, which includes the use of large language model to drive innovation.
Marty: He is also strengthening the academic AI platform with Ajay think AI capabilities.
Marty: And we'll introduce a powerful AI agent builder and prebuilt AI agents in 2025.
Marty: Within life Science.
Marty: The team rapidly.
Marty: <unk> rapidly rapidly things of course that is R&D platforms through integration of scientific AI research assistance by leveraging the AI to A&D AI platform. We also started for implementing thanks limitation of <unk> regulatory intelligence Conversely.
Now the search within IP, we have a series of exciting AI product launches in 2025 that will provide solution across the IP lifecycle. This includes enhanced AI patent drafting and UI patent monitoring product a long size of series of AI search capabilities.
Marty: Trained on the Derwent unique proprietary data.
Marty: We expect this.
Marty: New product offerings to start to inflect in our <unk> this year.
Marty: And currently expect most of the revenue benefits will come in 2026 and beyond.
Marty: Okay.
Marty: The fourth pillar of the BCP in boats streamlining our solution portfolio to increase execution optimized capex capital allocation and unlock unlock value.
Marty: Last year, we completed the divestiture of two product lines scholar, one and verified and validated we intend to continue rationalize our portfolio throughout the year.
Marty: As I mentioned, we are already working with our financial advisor to help us evaluate strategic alternatives for business unit or an entire segment.
Marty: Since rolling out our BCP plans last November we undertook several important actions and achieve and achieved several key milestones.
Marty: Recently completed companywide review of our teams processes and operations to streamline and improve efficiency.
Marty: This is an important step in the value creation plan to fund investment and lower cost structure.
Marty: Looking ahead slide 12 outlines our expected cadence of new product releases advancing the disposal and transition certain transactional products.
Marty: Subscription.
Marty: During the second half of 2025, we expect to complete the disposal or transactional transat.
Marty: Transactional books of business and the transition of diesel collection from transaction to subscription model in summary, the BCP is well underway, we expect to return to bit too we expect we.
Marty: We expect it will return the business to healthy organic growth and now includes a review of strategic alternatives, which will include the status of our business units.
Marty: An entire segment, we are aggressively moving forward to improve operational performance our financial results.
Marty: And create shareholder value I look for.
Marty: I look forward to sharing more details on future earning calls.
Marty: And with that I would like to turn it over to Jonathan Johnson. Please thank.
Jonathan Johnson: Thank you Marty.
Jonathan Johnson: Slide 14 is an overview of our fourth quarter and full year financial results compared with the same periods from the prior year Q.
Jonathan Johnson: Q4 revenue was $663 million, bringing the full year to $2 $5 6 billion.
Jonathan Johnson: The fourth quarter change was largely inorganic as a result of the scholar one and valley pack divestitures as the rate of organic decline improved from one 5% September year to date to <unk>, 7% in the fourth quarter.
Jonathan Johnson: The fourth quarter net loss was $192 million, an improvement of $671 million compared to the same quarter in 2023, and the full year net loss also improved by $319 million, both due to considerably lower noncash asset impairment charges related to goodwill and other.
Jonathan Johnson: Adjusted diluted EPS, which excludes the impact of onetime items like the impairments was 21 in Q4, bringing the full year to <unk> 73.
Jonathan Johnson: Which was within the original guidance range, we provided nearly a year ago.
Jonathan Johnson: Operating cash flow was $141 million in the quarter, taking the full year to $647 million.
Jonathan Johnson: The change compared to last year is almost entirely driven by lower adjusted EBITDA and higher working capital.
Jonathan Johnson: Please turn with me now to page 15 for a closer look at the drivers the fourth quarter top and bottom line changes from the prior year.
Jonathan Johnson: Yes.
Jonathan Johnson: At the end of the third quarter, our business had declined organically by one 5% year to date. However, we aired the rate of decline by 80 basis points to 7% in the fourth quarter on increased transactional sales, which grew just over half a percent largely due to improved performance in our <unk> segment.
Jonathan Johnson: Transactional growth was offset by a 1% decline in our recurring revenue types subscription and reoccurring combined which was largely driven by timing of year end patent renewals compared to the prior year.
Jonathan Johnson: The net effect was a $5 million reduction to organic revenue compared to the same period in the prior year, but careful operating expense management mitigated the revenue decline, resulting in a $1 million increase in adjusted EBITDA on the organic revenue change.
Jonathan Johnson: We experienced an organic decline of $15 million on the top line and $8 million on the bottom line due to the scholar one and valley, Pat divestitures, which were nominally offset by the acquisitions of global Q and relevant.
Jonathan Johnson: Due to the recovery of the U S dollar against our basket of foreign currencies, namely the euro and the pound during the fourth quarter foreign exchange lowered the bottom line by $6 million as we recognized fewer transactional gains compared to the same period last year.
Jonathan Johnson: Page 16 provides an overview of the drivers of the full year top and bottom line changes compared to 2023.
Jonathan Johnson: Our fourth quarter results brought our full year organic revenue change to a negative one 4% lowering revenue by $35 million.
Jonathan Johnson: Recurring revenues were essentially flat organically as subscription growth of nearly 1%, which was in line with our ACB growth was offset by recurring revenues.
Jonathan Johnson: The entire organic change for 2024 was caused by our transactional lines of business, which declined six 5%.
Jonathan Johnson: Operating expenses related to the organic change were down $5 million is cost inflation was more than offset by cost efficiencies the.
Jonathan Johnson: The valley Pat in scholar one divestitures net of a small offset by the acquisitions of motion all global Q and Rowan caused inorganic declines of $32 million on the top line and $18 million on the bottom line.
Jonathan Johnson: Foreign exchange lowered revenue by $5 million in profit 9 million compared to 2023 on the translation of foreign denominated subsidiaries and lower transactional gains. Please.
Jonathan Johnson: Start with me now to page 17 to step through the conversion from adjusted EBITDA to free cash flow.
Jonathan Johnson: Free cash flow was 59 million in the fourth quarter, which brought full year free cash flow $358 million a conversion of 34% on adjusted EBITDA.
Jonathan Johnson: The changes versus prior year were driven largely by the lower adjusted EBITDA just covered on the prior page higher working capital largely due to timing of payments and higher capital spending to accelerate product innovation.
Jonathan Johnson: In the fourth quarter, we used a combination of the free cash flow, we generated excess cash on hand, and the proceeds from the scholar one divestiture to prepay $140 million of our term loan and repurchased another 19 million shares of common stock.
Jonathan Johnson: This brought our full year capital allocations and near symmetry between deleveraging and share repurchases at about $200 million each.
Jonathan Johnson: Please turn with me now to page 18, where all dimension the impact of the strategic disposals relating to the first pillar of the DCP business model optimization that Monte outlined just a few moments ago by illustrating the estimated impact of these product lines had on our financial performance last year.
Jonathan Johnson: A central tenet of our value creation plan is to concentrate our focus on recurring revenues, which is the combination of our subscription and reoccurring order types and order to do this we have strategically selected three product lines. We are exiting the transactional business model and are introducing new subscription based offerings for select Porsche.
Jonathan Johnson: Each of these content sets.
Jonathan Johnson: We anticipate multiple benefits from this strategic decision.
Jonathan Johnson: We expect the business will grow faster, we will become more predictable. We will have improved profit margins will increase the focus on our core businesses improving the probability of accelerating their organic growth and will have a negligible impact on our free cash flow.
Jonathan Johnson: These assumptions are based on our experience with these product lines over the last few years, which is illustrated in the chart on the page in the last column, we removed the impact estimated this decision would have had on last year's performance organic growth would've improved by 70 basis points due a decline of 7%.
Jonathan Johnson: <unk> revenues would have declined $200 million.
Jonathan Johnson: Our revenue mix as defined by recurring revenues over total revenues would have improved by a full seven percentage points from 80% to 87%.
Jonathan Johnson: While our adjusted EBITDA would've been lower by approximately $45 million or profit margin would have been 150 basis points higher at about 43% and our capital spending would have been lower by $35 million, yielding a reduction in free cash flow was only $10 million with no impact on the conversion, which would have remained at 30.
Jonathan Johnson: 4%.
As Marty highlighted earlier in the call. The vast majority of these revenue streams will cease by the end of this year.
Jonathan Johnson: As a result, the impact I just outlined will phase in over the next couple of years, let's turn to page 19 for a look at our full year guidance for 2025, and then I'll highlight our assumptions for the impact. These strategic disposals will have this year on the <unk>.
Jonathan Johnson: Page <unk>.
Jonathan Johnson: Beginning at the top of the page, we expect our annual contract value to accelerate by approximately 60 basis points to one 5% at the midpoint of the range as we begin to recognize the benefits of the investments we've made.
Jonathan Johnson: Recurring organic growth will likely remain flat this year at the midpoint of the range the organic growth improvement associated with the strategic disposals will primarily affect the transactional order type which is excluded from this metric.
Jonathan Johnson: We anticipate revenue will approximate 234 billion at the midpoint of the range due to the strategic disposals, the divestitures last year and a stronger U S dollar.
Jonathan Johnson: As a result of the strategic disposals, we expect our recurring revenue mix will improve by about 500 basis points from 80% to 85% this year, which will improve predictability and profit margins going forward.
Jonathan Johnson: Moving down the page, we expect adjusted EBITDA in the range of $940 million to $1 billion and to maintain our profit margin of 41, 5% due to aggressive cost management.
Jonathan Johnson: We anticipate diluted adjusted EPS between <unk> 60 and 70.
Jonathan Johnson: Down eight from last year at the midpoint has the inorganic driven adjusted EBITDA decline, which I'll detail on the next page will be partially offset by lower interest expense as well as the benefit of a lower share count, resulting from last year's stock repurchases.
Jonathan Johnson: And finally at the bottom of the page, we anticipate free cash flow of about $340 million at the midpoint of the range as the adjusted EBITDA change will be largely offset by improved conversion from lower interest working capital and capital spending.
Jonathan Johnson: Please turn with me now to page 20 for a closer look at the full year top and bottom line changes were expecting compared to last year.
Jonathan Johnson: The expected changes in revenue and adjusted EBITDA. This year compared to last year are largely driven by three inorganic factors.
Jonathan Johnson: We're aggressively managing our cost structure to maintain our profit margin at about 41, 5%.
Jonathan Johnson: The strategic disposals are expected to lower revenue this year by approximately $140 million, but we're implementing a $100 million of cost actions, which yield a profit impact of about $40 million. We expect the remaining 60 million revenue reduction will take place next year, and we will have a small impact on profit.
Jonathan Johnson: Our revenue guidance range is intended to accommodate for the potential variability in the rate of decline of this revenue stream and we will actively manage our cost structure to ensure we deliver the expected profit outcome.
Jonathan Johnson: The divestitures of both valid patent scholar one last year with lower revenue by $40 million in profit by $20 million.
Jonathan Johnson: And finally, we anticipate a 25 million foreign exchange translation headwind on the top line and a headwind of about $10 million on the bottom line as the U S. Dollar is expected to remain strong against the basket of foreign currencies.
Jonathan Johnson: These reductions to adjusted EBITDA will be largely mitigated and free cash flow. So, let's turn to page 21 to step through the main drivers.
Jonathan Johnson: One time costs are expected to remain flat this year as we invest to achieve the cost efficiencies associated with the value creation plan.
Jonathan Johnson: We do expect cash interest to improve by about $20 million compared to last year as a result of the debt we prepaid in the fourth quarter and the outlook for base rates via the forward curve.
Jonathan Johnson: Cash taxes are expected to remain in line with last year.
Jonathan Johnson: We anticipate the change in working capital this year will be negligible, which will represent an improvement over last year of about $20 million.
Jonathan Johnson: And while we remain committed to investing in product innovation this strategic disposals and cost efficiencies will improve capital spending by about $35 million.
Jonathan Johnson: The net impact of these changes is free cash flow of about $340 million at the midpoint of the range and will result in an improvement of the conversion on adjusted EBITDA of about 100 basis points.
Jonathan Johnson: From a capital allocation perspective, we continue to have the flexibility between opportunistic share repurchases and deleveraging.
Jonathan Johnson: In closing we believe we have a strong foundation to build upon with best in class data and workflow assets that we deliver as a trusted provider to a blue chip customer base underpinned by our robust financial profile and powered by a talented team of 12000 colleagues around the world is Monte outlined we believe the value.
Jonathan Johnson: Creation plan narrows, our focus to increase our performance and we'll return the business to healthy organic growth in the next few years, leading to profit and cash flow accretion.
Jonathan Johnson: We are committed to providing the near term progress on the leading indicators of success as we move through 2025.
Jonathan Johnson: We have also acknowledged that there are multiple paths to create value for shareholders and we are actively engaging with our advisors to review and pursue strategic alternatives that could accelerate the value creation by monetizing undervalued assets.
Speaker Change: I want to thank all of you for listening in this morning, I'm now going to turn the call back over to Kate to take your questions and as a reminder, please limit yourself to one question and I'll have you return to the queue for any <unk>.
Kate: Please go ahead.
Kate: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Manav Patnaik with Barclays. Please go ahead.
Speaker Change: Yes, Thank you I.
Speaker Change: I guess I had a broader question just around the overall government exposure.
Speaker Change: Lot of questions around that I was hoping you could help us frame what your direct exposure to the federal and state governments and also I guess indirectly if they all get there and that the academic and government solutions, especially as they get their funding cuts in other areas. How you think you can manage that as well.
Speaker Change: So hi.
Speaker Change: Hey, Matthew I'm going to answer this one thank you for the question so I've been in and academia.
Speaker Change: Business for almost for over 20 years.
Speaker Change: The Canadian business going through a lot of different cycles and.
Speaker Change: Yes.
Speaker Change: Main optimistic.
Speaker Change: Columbia will prevail and we'll continue to grow and uncertain.
Speaker Change: No.
Speaker Change: Low single digit to mid single digit.
Speaker Change: Over time.
Speaker Change: Yes, we do have a percentage of our.
Speaker Change: The income coming from the U S government spending is pretty small, but we do acknowledge the fact that he's a federal.
Speaker Change: Federal fungal will go down, but we have we will be.
Speaker Change: Exposed to those.
Speaker Change: <unk>.
These costs are significant we would be exposed, but as I mentioned earlier in my call I am optimistic about the trajectory.
Speaker Change: Yes.
Speaker Change: Future office as this industry I've been there for 20 years gone through several cycles I'm optimistic and positive about the about the future of the business.
Speaker Change: Thank you next question please.
Speaker Change: Your next question comes from the line of Andrew Nicholas with William Blair. Please go ahead.
Andrew Nicholas: Hi, Thank you for taking my questions.
Andrew Nicholas: <unk> focused on the incentive model changes for the sales force can you maybe spend some time talking about the evolution of <unk>.
Andrew Nicholas: Comp.
Andrew Nicholas: Structures.
Andrew Nicholas: Maybe more specifically how you expect it to change.
Andrew Nicholas: Execution and success on that front.
Andrew Nicholas: I was just imagining without going into too much detail this into into the skull electric.
Yes.
Andrew Nicholas: Models, whereas payloads over years.
Andrew Nicholas: With a full set.
Andrew Nicholas: Certain focused on one time versus subscription that will focus on certain way with certain percentage on.
Andrew Nicholas: One time retention and new business. So we in all of the three segments. We have your view as opposed to an offset assessments and incentive which goes into one time retention and new business and we changed the model, we changed a little bit where absent kind of.
Andrew Nicholas: Fine tuned this model too.
Andrew Nicholas: Also our salespeople with our concept of we go strongly after subscription and reoccurring.
Andrew Nicholas: Salespeople should be compensated accordingly, and incentivize the colon disease, retaining making sure that we are growing the retention rate and making sure we are selling more subscription as opposed to <unk>.
Andrew Nicholas: Onetime business, that's what we're doing in all three segments.
Andrew Nicholas: Okay.
Andrew Nicholas: Thank you Andrew next question please.
Speaker Change: Your next question comes from the line of George Tong with Goldman Sachs. Please go ahead.
Speaker Change: Hi, Thanks, good morning.
Speaker Change: Reoccurring revenue in the quarter.
Speaker Change: Hi.
Speaker Change: Recurring revenue in the quarter fell about 5% because of lower IP patent renewal volumes, you talked to a little bit about timing at year end, but can you discuss initiatives under the value creation plan that can help improve reoccurring.
Speaker Change: Revenue trends.
Speaker Change: Sure George Yes, so the first part of your question. The primary driver of the decline in Q4 on the reoccurring order type or where patent renewal volumes. They were lower due to the comparison with the prior year, we'd expected more of those to be renewed in Q4 earlier.
Speaker Change: In the year and some of those now are happening in the first quarter such as the primary driver of the fourth quarter change to your point on the go forward. It piggyback a little bit on that Marty's last comment, which is our sales incentive and focus for 2024.
Speaker Change: Is more geared now towards the recurring order types. So by winding down some of these transactional business and shifting the mix towards the recurring revenue types. We expect to help build the book of business not only in subscriptions, but also on our patent and trademark renewal business within the.
Speaker Change: IP segment.
Speaker Change: Got it thanks for the question.
Speaker Change: Again, I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Your next question comes from the line of Owen Lau with Oppenheimer. Please go ahead.
Owen Lau: Hi, Good morning, Thank you for taking my question so.
Owen Lau: So first of all thank you for the detail on the PCP in 2025 guidance and I do have a product question on fees.
Owen Lau: Pass a trade off for your BCP revenue and free cash flow would be down in 2025, because of inorganic disposal and also divestitures, but we can drive high organic ACG and recurring revenue mix.
Owen Lau: Why do you think this is a wide trail and can return the company back to revenue growth trajectory in 2026 and beyond thanks.
Speaker Change: I think this is matti and maybe Jonathan and Ken can add later when I came in I have done my study and met a lot of the sales organization and met the managers I met customers and the notion that I go through this and some of my prior knowledge of <unk> and I'll have Ron progress before the amount of and the Gen.
<unk> and attention in the drain we got from those one time deals.
Speaker Change: This balanced business and I'm also understands thats a reasonable data is kind of the same but it's a lot of effort to do onetime deal and disruption add to this the low margin of the E books of business very low margin.
Speaker Change: The <unk> business.
Speaker Change: Was kind of a very intuitive and decision when we discuss the recently was a management. This is a dream. This is.
Speaker Change: This is just taking over time in outlets, we have a great.
Speaker Change: Engineering and product capabilities within the company, we have some very great products and we were also smart about transitioning the three and maybe we haven't spend enough time on this one the three businesses, we actually winding down we didn't really want them down we actually we are transitioning them.
Speaker Change: Towards subscription that broke with E books.
Speaker Change: Offering which is subscription based the largest in the industry that progress data collection, we all this.
Speaker Change: This is almost the only vendor that provides those kind of services that will reward data product offerings. This is all we are transitioning the business as opposed to just purely disposing the business. When I came here there was some mumbling about maybe even says this business maybe we cannot set this business the notion of we actually.
Speaker Change: He moves his businesses and over time, we have.
Speaker Change: Degree of conviction that we believe will we can transition this.
Speaker Change: Onetime business, maybe not one to one but over time, we'll transition into more subscription recurring subscription base. This is what we do a big portion of our business.
Speaker Change: Going subscription I mentioned, we are moving from 80% to 87% subscription and reoccurring. After this disposal and I believe we can go even higher.
Speaker Change: Thank you next question please.
Speaker Change: Your next question comes from the line of Shlomo Rosenbaum with Stifel. Please go ahead.
Shlomo Rosenbaum: Hi, Thank you for taking my question.
Speaker Change: A question in terms of their rate of investment in terms of new product innovation like the key value driver in the company is really going to be moving the organic revenue growth up.
Shlomo Rosenbaum: The capital spend.
Shlomo Rosenbaum: Spending in 'twenty five is going down you are keeping the margins relative to basically flat, despite dropping $200 million out of revenue.
Speaker Change: Just wondering is there enough investment going on into the company.
Speaker Change: To drive sustainable long term organic growth rate that is going to be respectable.
Jonathan: Yes. Thank you for your question Shlomo, It's Jonathan just pointed out a couple of items.
Jonathan: Our ability to maintain our margins and lower our capital expenditures. This year in 2025 is directly correlated with the strategic disposals. So the way that we're thinking about this is we are continuing to invest in the core products. If it werent for this we would see some margin pressure.
Jonathan: Sure because as you know we firmly believe we need to continue to invest in the product innovation and the go to market motion to six returned to healthy organic growth so our ability to maintain margins and the ability to maintain our cash flow.
Jonathan: As a result of these strategic disposals.
Jonathan: <unk> highlighted that will help us to focus on the core business.
Jonathan: And have a good execution on those investments. Thank you.
Jonathan: I believe this is Matthew we have the right profile of investment into our business and let's not forget gear and his team before me that we're focusing on innovation as well and they have introduced some very great products. If you look at academic AI.
Jonathan: Introducing the AMG segment, which is empowering.
Jonathan: Most of the AMG products most of the product lines I've ever science Primo ebooks Central ebooks business. We are using this repurposing the same framework on technology and one of the other things that I've introduced one coming in while we just take whatever was developed infrastructure and technology within AMG and implemented in.
Jonathan: The segments and why we are doing today is actually implementing the academic AI infrastructure capabilities and knowhow into other segments and the first one is obviously life science.
Jonathan: We are going to implement the academic AI.
Jonathan: Infrastructure and Knowhow technology into quarterly is trying to expedite.
Jonathan: On some of the improvement we need to do is in within <unk> as we are pretty pretty.
Jonathan: Optimistic about this one and we did sign or we are signing up some development partners for this.
Jonathan: Yes.
Jonathan: Changes that we are doing in <unk>.
Jonathan: These days, but more to come.
Shlomo Rosenbaum: Thank you Shlomo.
Speaker Change: Your next question comes from the line of surrenders and with Jefferies. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Just following up on the earlier question.
Speaker Change: Why not take margins down further at this point to kind of maybe speed up investment at this point and then as you talk about.
Speaker Change: Taking technologies from one segment to another or moving things across does that make the.
What I will call the divestiture process a bit more complex or how do we take those things into consideration as you do some of that stuff.
Speaker Change: First of all maybe talk a little bit.
Speaker Change: The divestitures I think there was a lot of logic to have the three segments together, there's a lot of advantages synergies cost, but those three segments can also operate on a standalone basis, yes, there will be some exercise of separation.
Speaker Change: The segments if need be I.
Speaker Change: I don't think yes, when we make a decision to implement some of the technologies with <unk> for May and June others, Yes, we take into consideration that maybe in future. So segments with Dolby together I don't see this as a big is a big issue going forward I think we have the right level of investment I'm not suggesting we take the margin down for me when I came.
Speaker Change: There was.
Speaker Change: I would tend to do less.
Speaker Change: Number of project op, new product, but be laser focused.
Speaker Change: Thats My claim to Fame is it's something that we've done in previous life I work with the customers. So we sign up I mentioned that we are signing up dependent pumps shipped for catalysis.
Speaker Change: Implementation of AI was cabela's.
Speaker Change: We simply are doing we are doing in the company too many small things as opposed to go big or go more aggressive on certain initiatives and just said, we're taking the company I don't feel any pressure to buy the level of <unk>.
Speaker Change: For R&D or for innovation and investment I think we are in the right place.
Speaker Change: Okay.
Thank you next question please.
Speaker Change: Your next question comes from the line of Peter Christiansen with Citi. Please go ahead.
Peter Christiansen: Thank you good morning.
Speaker Change: Marty.
Speaker Change: Curious.
Speaker Change: You've reviewed the business you've had a lot more time to look at it and just thinking in the context of keeping all the three business lines together or potentially separating how should we think about the revenue synergy potential between these businesses.
Speaker Change: A more confident less confident in the ability to drive that.
Speaker Change: That those additions.
Speaker Change: Then just curious how you think about new products.
Speaker Change: Are they are the value added pricing kind of opportunities or Tam expansion.
Speaker Change: So they're both they're both Sam expansion and also additional product and I can talk on the three different segments, but first of all I feel good about where we are in the value creation plan.
Speaker Change: <unk> going well.
Speaker Change: Winding down those one time is going to give us a lot of freedom to focus on the new products for new products.
Speaker Change: Expanding the Tam in some cases in some there are some of them are just improving the products. So for example, if you take a web of science and web of science, we do ongoing.
Speaker Change: Investment, but we also introducing and we haven't talked about it today as I say robust science research intelligence real science. Because this is AI enablement is an advanced version of insights, which basically this is after.
Speaker Change: Spendings are something we're going to offer new services to our new products to our existing customer base on IP. For example, we're also doing some new innovation that protocol IPC age, which we are already sitting with a lot of law firm in all of corporate series, the new product that we will be.
Speaker Change: Are working on we have.
Speaker Change: We are necessarily as a customer we want to expand it and to go through the market aggressively with additional.
Speaker Change: One specific critical IPC as the IP communication hub more two more in this area will come.
Speaker Change: But we are looking into into customer base with also expanding expanding the wallet share within the customers as well.
Speaker Change: Thank you.
Steve: Thanks, Steve.
Speaker Change: Our last question comes from the line of Ashish <unk> with RBC capital markets. Please go ahead.
Steve: Thanks for taking my question.
Steve: So on the organic ACB inflection in 2025, how much of that is really coming from transitioning some of those transaction revenue more to subscription based versus an improved pipeline and demand environment and so I was wondering if you could comment on the pipeline and the demand environment and how what youre seeing on that front and then if I can just sneak in a question on the strategic.
Steve: <unk> I was just wondering if you could provide any kind of high level color on what are the key strategic.
Steve: Our financial criteria that you will use as part of the strategic review.
Steve: Sure Ashish, maybe we can start with the latter question. So as we indicated in the script, what we will explore as the opportunity to unlock value through potentially monetizing more valuable assets.
Speaker Change: Our commanding that value based on where the company is valued today. So that's going to be a key criterion as Marty highlighted.
Speaker Change: We do believe that there are parts of our business, including entire segments that are separable and Ken Ken.
Speaker Change: Can survive and thrive.
Speaker Change: Separate from clarify it so that's how we're thinking about it in our criteria.
Speaker Change: As it relates to <unk>, it's going to be a combination of factors as you note there will be some conversion associated with some of these new products, but the bigger benefit we expect to see R&D investments in products that we have made over the last couple of years. So we've talked a lot about in each of our segments continued investments we've made in the web of science in our research solution products with.
Speaker Change: In AMG when you think about the investments we've made in core tell us in the life Sciences group and the investments we've made in <unk> with the new AI powered search just launching here in the last few months. So a combination of those with.
Speaker Change: Some potential benefit with the conversion to subscription products.
Speaker Change: Related to the BCP strategic disposals.
Speaker Change: We believe will help to improve us into that that 1%, 2% range on ACB.
Speaker Change: Thanks for the question Ashish.
Speaker Change: Thank you all for joining us today that will conclude our call. We look forward to updating you in the future on our BCP plans.
Speaker Change: Thank you.