Executive Summary / Key Takeaways

• Clarivate Plc is executing a comprehensive Value Creation Plan (VCP) to strategically pivot towards a subscription-first business model, aiming to enhance revenue predictability and accelerate organic growth.
• The company reported strong Q3 2025 performance, with organic Annual Contract Value (ACV) improving to 1.6% and an annual renewal rate of 93%, alongside recurring organic revenue growth of 0.6% year-to-date.
• Significant investments in AI-powered solutions across its Academia & Government (A&G), Intellectual Property (IP), and Life Sciences & Healthcare (LSH) segments are driving product innovation and strengthening competitive differentiation.
• Strategic disposals of volatile transactional businesses are optimizing the portfolio, projected to increase the organic recurring revenue mix to 88% and improve overall profit margins.
• Clarivate is actively evaluating strategic alternatives, including potential divestitures of business units or an entire segment, to maximize shareholder value, with further details anticipated with the Q4 2025 results.

Setting the Scene for Clarivate's Transformation

Clarivate Plc, a global provider of transformative intelligence, has a long history dating back to 1864, evolving into a critical partner across the innovation lifecycle. The company connects people and organizations to trusted intelligence, supporting everything from cultivating curiosity to protecting intellectual property assets. Clarivate operates through three distinct yet interconnected segments: Academia & Government (A&G), Intellectual Property (IP), and Life Sciences & Healthcare (LSH). Its core offerings include enriched data, insights analytics, workflow solutions, and expert services, all designed to fuel breakthroughs.

The company's overarching strategy, encapsulated in its Value Creation Plan (VCP) launched in late 2024, is centered on a fundamental shift towards a subscription-first model. This strategic pivot is a direct response to market dynamics emphasizing recurring revenue streams and the transformative potential of artificial intelligence. Clarivate's foundational strengths lie in its proprietary databases, which offer enhanced data accuracy and integration, and its mission-critical solutions that are deeply embedded in customer workflows. These attributes provide a significant competitive moat.

The broader industry landscape is characterized by a surge in AI innovation, driving sustained growth in registered intellectual property and increasing demand for specialized data and analytics. For instance, patent filings for AI inventions have grown fivefold compared to pre-ChatGPT levels, indicating a substantial market tailwind for IP-focused solutions. This innovation upswing, particularly with the advent of AI, is expected to lift patents in force and benefit Clarivate's renewal business in the coming years.

Technological Edge: Fueling Innovation with AI

Clarivate's competitive advantage is increasingly rooted in its differentiated technology, particularly its aggressive integration of artificial intelligence across its product portfolio. The company's core technology leverages curated, up-to-date content collections validated by domain experts, combined with predictive analytics powered by a unique blend of AI-enabled software and human insights. This approach allows Clarivate to offer solutions that go beyond raw data, providing actionable intelligence.

The tangible benefits of this AI integration are becoming evident. In the IP segment, the Derwent Invention Platform, enhanced with AI-powered search capabilities, has driven a double-digit increase in search volume for its alpha cohort compared to the prior year. This demonstrates a quantifiable improvement in user engagement and efficiency. Furthermore, new AI-powered solutions like IPfolio's AI-powered product taxonomy automate patent mapping, enabling companies to better identify which products correspond to their patents, a valuable tool for strategic portfolio decisions. The Derwent Patent Monitor, an AI threat rating feature, empowers clients to identify potentially high-risk competitor filings, proactively safeguarding intellectual property.

In the Life Sciences & Healthcare segment, Clarivate launched an AI-powered regulatory assistant within Cortellis Regulatory Intelligence in September 2025. This tool helps professionals manage global requirements more efficiently, offering conversational AI with referenced answers and multilingual capabilities. The company is also embedding additional AI agents across existing life science offerings and launching new AI-native products, expecting these to expand Annual Contract Value (ACV) going forward. In the Academia & Government segment, over 4,800 institutions across more than 90 countries are actively using Clarivate's AI-powered research assistant to enhance research, learning, and library management. The company plans to incorporate Agentic AI into solutions across its segments in the second half of 2025, including AI agents in Web of Science for literature review capabilities, simplifying labor-intensive processes.

The stated goals of these R&D initiatives are clear: to drive higher organic growth, improve renewal rates, enhance operational efficiency, and expand market reach. For investors, this technological differentiation translates into a stronger competitive moat, potentially leading to higher average selling prices (ASPs), lower operational costs through automation, improved profit margins, and a robust long-term growth trajectory. Clarivate's focus on developing AI-enabled, world-class subscription-based solutions in partnership with customers positions it to capitalize on the industry's shift towards intelligent, integrated workflows.

Strategic Evolution: The Value Creation Plan in Action

Clarivate's Value Creation Plan (VCP) is fundamentally reshaping its business model and operational focus. A cornerstone of this plan is business model optimization, specifically the strategic shift away from volatile, low-margin transactional revenues towards a subscription-first approach. This includes the transition of ProQuest ebooks and digital collections to a subscription-only strategy, with transactional sales phasing out by the end of 2025. Similarly, in Life Sciences, the launch of DRG Fusion marks a pivot from transactional data brokering to subscription-based real-world data analytics, with plans to exit direct data reselling by the fourth quarter of 2026. These strategic disposals are expected to reduce approximately $200 million in volatile transactional revenue, accelerate organic growth, and increase the recurring revenue mix from 80% to 87% (and potentially higher over time), while improving profit margins by approximately 150 basis points with minimal impact on free cash flow.

Sales execution has also seen significant enhancements under the VCP. Clarivate has upgraded leadership across its three segments, optimized reporting structures to increase accountability, and realigned account management models to better serve customer needs. A dedicated customer success team is being scaled and invested in, aiming to improve customer engagement, strengthen retention rates, and increase upsell and cross-sell opportunities. Incentive models across the company have been refocused to reward success in driving subscription and recurring revenue growth. These actions have already led to improvements in organic ACV and retention rates.

The VCP's third pillar, accelerated product innovation, is evident in the launch of 12 new products and AI-powered capabilities over the past year. These include AI-powered features for Derwent patent search, new subscription platforms like ProQuest e-books, ProQuest digital collections, and DRG Fusion. Upcoming milestones include the release of eBook Central AI-powered Research Assistant and enhanced AI-powered search functionality in Cortellis. The company's commitment to Agentic AI, with deployments across segments in the second half of 2025, underscores its focus on delivering advanced end-user experiences.

Finally, portfolio rationalization, the fourth pillar, involves streamlining the solutions portfolio through divestitures. The company completed the sale of its Valipat product group in April 2024 and the ScholarOne product group in November 2024. Clarivate is actively evaluating strategic alternatives for business units or an entire segment, having engaged financial advisors to maximize shareholder value, with updates expected in February 2026.

Financial Performance: A Turnaround in Progress

Clarivate's recent financial performance reflects the early, positive impacts of its Value Creation Plan. For the third quarter ended September 30, 2025, the company reported revenues of $623.10 million, essentially flat compared to the same period in the prior year. The net loss for Q3 2025 improved to $28.30 million, a notable improvement over the prior year, primarily driven by higher foreign exchange gains and the absence of a significant non-cash impairment charge recorded in the previous year. Adjusted diluted EPS for the quarter was flat sequentially at $0.18.

On a year-to-date basis for the nine months ended September 30, 2025, revenues totaled $1,838.20 million, a decrease from $1,893.70 million in the prior year period. The net income for this period was $204.20 million, down from $444.90 million in the prior year, which included a substantial goodwill impairment tax benefit. Adjusted EBITDA for the nine months ended September 30, 2025, was $747.20 million, compared to $775.10 million in the prior year. Despite these year-over-year declines, which were largely influenced by strategic disposals and divestitures, the adjusted EBITDA margin for Q3 2025 stood at 40.5% and 40.6% year-to-date.

Key operational metrics demonstrate positive momentum. Organic Annual Contract Value (ACV) improved to 1.6% compared to September 30, 2024, representing a 30-basis point sequential improvement. The annual renewal rate for the nine months ended September 30, 2025, increased to 93%, up 100 basis points year-over-year. Recurring organic revenue growth improved to 0.6% for the first nine months of 2025, a significant acceleration from 0.1% in the prior year. The organic revenue mix has also risen to 88% year-to-date, up from 80% in 2024.

Operating expenses saw mixed trends. Cost of revenues increased in Q3 2025 due to higher royalties from transactional book sales, but decreased year-to-date due to divestitures and product wind-downs. Selling, general and administrative costs decreased year-to-date, reflecting cost management and reduced share-based compensation expense. Depreciation and amortization increased, primarily due to higher investment in computer software assets. Interest expense, net, decreased for both the three and nine months ended September 30, 2025, benefiting from lower interest rates on variable-rate debt and reduced borrowings.

Liquidity and Capital Allocation: Strengthening the Balance Sheet

Clarivate maintains a solid liquidity position, primarily financing its operations through cash generated by operating activities and borrowing. As of September 30, 2025, the company held $318.70 million in cash and cash equivalents and had $768.50 million of available borrowing capacity under its revolving credit facility.

Operating cash flow for the nine months ended September 30, 2025, was $468.60 million, a decrease from the prior year, mainly due to higher restructuring costs associated with the VCP. Net cash used for investing activities decreased to $192.50 million, driven by lower capital expenditures and reduced outflows related to acquisitions and divestitures compared to the prior year. Free cash flow for the nine months ended September 30, 2025, was $276.10 million, a decrease from $298.40 million in the prior year, primarily due to the change in operating cash flow, partially offset by reduced capital expenditures.

The company has been proactive in managing its debt. In May 2025, Clarivate entered into an incremental $500 million tranche of term loans maturing in 2031, using the proceeds to redeem an equivalent amount of Senior Secured Notes due 2026. An additional $100 million of these notes were redeemed in September 2025. To mitigate interest expense, Clarivate utilized foreign currency swap transactions to effectively convert approximately 80% of the new term loan debt from U.S. dollars to Euro, economically reducing the interest rate by approximately 2%. This balanced capital deployment has allowed the company to maintain net leverage at approximately 4 turns.

Shareholder returns are also a focus. During the nine months ended September 30, 2025, Clarivate repurchased approximately 34.80 million ordinary shares for $149.50 million at an average price of $4.29 per share. As of September 30, 2025, $350.50 million remained available under the share repurchase program, which is authorized through December 31, 2026. Over the past four years, Clarivate has generated $1.5 billion in free cash flow, using it to repay over $1 billion of debt and repurchase over $0.5 billion of stock, lowering its share count by 10%.

Segment Deep Dive: Performance and Outlook

Clarivate's three segments are each undergoing strategic shifts and demonstrating unique performance trajectories under the VCP.

Academia & Government (AG)

The AG segment reported revenues of $953.70 million and Adjusted EBITDA of $414.90 million for the nine months ended September 30, 2025. This segment has achieved 2% organic ACV growth and boasts a subscription mix of 93% (excluding disposals), significantly up from 81% in the prior year. The annual renewal rate in A&G reached 96% in the first half of 2025, with 90% of global A&G subscriptions for the full year successfully renewed through October 27. This strong performance is driven by the strategic transition from transactional sales of digital collections and books to a subscription-only model, with over 100 contracts secured for new content subscription frameworks. Key customer wins include multi-year agreements with the British Library for Alma and Primo systems, the Canadian Research Knowledge Network, CAPES in Brazil, and the University of Melbourne. Over 4,800 institutions are actively using Clarivate's AI tools, and the segment is accelerating Agentic AI solutions, such as a literature review agent in Web of Science. While less than 3% of total revenue is directly from the U.S. federal government, and indirect risks from funding cuts are acknowledged, management believes the risk is contained within its guidance range. The long-term growth target for A&G is 3-4%.

Intellectual Property (IP)

The IP segment generated revenues of $593.00 million and Adjusted EBITDA of $245.20 million for the nine months ended September 30, 2025. The patent and trademark maintenance services, a key reoccurring revenue stream, were flat for the first nine months of 2025, representing a 3% improvement in organic growth rate compared to the full year 2024. Organic recurring revenue rose by about 1.5% in the first half of 2025 and grew 5% in Q1 2025, primarily due to higher volumes. Maroun Mourad has joined as the new President of IP to drive continued progress. The segment is heavily investing in AI-based products, including IPfolio's AI-powered product taxonomy and the Derwent platform's AI threat rating feature and AI-powered search. The market-wide surge in AI innovation is a significant tailwind, with patent filings for AI inventions growing fivefold compared to pre-ChatGPT levels. Clarivate was chosen to supply China Petrochemical Corporation with IP solutions and the Web of Science platform, showcasing cross-sell capabilities. The long-term growth target for IP is 4-5%.

Life Sciences & Healthcare (LSH)

The LSH segment recorded revenues of $291.50 million and Adjusted EBITDA of $87.10 million for the nine months ended September 30, 2025. This segment has returned to 2% ACV growth in 2025, with subscription renewal rates improving to 90% in Q4 2024, an increase of 6 percentage points over the prior year. The business has demonstrated strong performance through new product introductions and advanced AI integration. New offerings include DRG Commercial Analytics 360 for the medtech sector and an AI-powered regulatory assistant in Cortellis Regulatory Intelligence. Clarivate is embedding additional AI agents across existing life science offerings and launching new AI-native products to expand ACV. A strategic shift is underway with the launch of DRG Fusion, moving from transactional data brokering to subscription-based real-world data analytics, with plans to exit the direct data reselling market by Q4 2026. While the R&D market within LSH remains stable, the commercialization segment is relatively soft. The long-term growth target for LSH is anticipated to be "slightly higher" than A&G and IP.

Competitive Positioning: Differentiated Focus in a Dynamic Market

Clarivate holds a specialized position within the information services market, particularly in intellectual property and research analytics. The company's strategy of deep specialization and AI-driven innovation allows it to compete effectively against larger, more diversified players.

Direct competitors include Thomson Reuters (TRI), RELX Group (RELX) (through its Elsevier division), S&P Global (SPGI), and IQVIA (IQV). Clarivate's offerings in IP and scientific research analytics, such as Web of Science and Derwent products, provide a more specialized focus on research and innovation commercialization compared to Thomson Reuters' broader business and legal intelligence platforms. While Thomson Reuters typically exhibits stronger financial health and cash flow generation due to its larger scale and diversified revenue streams, Clarivate's niche value proposition in tailored solutions for academic and life sciences sectors provides a unique competitive edge.

Against RELX Group's Elsevier, which specializes in scientific, technical, and medical content, Clarivate differentiates itself through an emphasis on IP protection and commercialization, offering a more integrated suite for innovation management. Clarivate's IP-specific tools, such as Derwent's AI-powered search, offer greater efficiency for patent analysis, potentially countering RELX's content depth in academic publishing. However, RELX generally demonstrates superior profitability and cash flow generation due to its established market dominance.

Compared to S&P Global, which focuses on financial and commodity market data, Clarivate's analytics tools are more specialized in scientific and IP domains. While S&P Global has a stronger foothold in financial data and typically shows stronger growth and profitability, Clarivate's operational efficiency in IP management tools and its R&D investment in innovation tools provide differentiation.

In the life sciences sector, Clarivate's Cortellis products directly compete with IQVIA's life sciences analytics. Clarivate's unique value proposition is its holistic approach to research and commercialization, potentially offering greater efficiency in data aggregation for IP monitoring. However, IQVIA has demonstrated stronger growth trajectories and profitability in life sciences, benefiting from its focused revenue streams and established relationships.

Clarivate's primary competitive advantages, or moats, are its proprietary databases, such as the Derwent World Patent Index and Web of Science, which provide enhanced data accuracy and integration, fostering customer loyalty and recurring revenue. These technologies offer significantly greater efficiency in research discovery and patent analysis, differentiating Clarivate from competitors by exploiting potential content integration weaknesses or broader, less specialized offerings. The company also benefits from network effects within its extensive user base in research and IP communities, creating barriers to entry and fostering faster innovation cycles.

However, Clarivate faces vulnerabilities, including a potential over-reliance on specific sectors and less diversified revenue streams compared to larger rivals. This sector dependency could impact revenue stability if demand in academic or life sciences wanes. Additionally, Clarivate's operational scale might result in higher costs per unit compared to larger competitors, potentially affecting cash flow and strategic execution. Barriers to entry in Clarivate's industries, such as the need for extensive data aggregation, regulatory compliance, and established networks, help defend its position by limiting new entrants' ability to challenge its market share.

Outlook and Guidance: A Path to Sustainable Growth

Clarivate's management has provided a clear outlook for 2025, reflecting confidence in the Value Creation Plan's execution. The company is raising its full-year 2025 revenue guidance by $50 million, with the midpoint now at $2.44 billion. This upward revision is attributed to better-than-planned organic performance, a weaker U.S. dollar, and slower-than-anticipated attrition in disposed businesses. Organic Annual Contract Value (ACV) is expected to continue accelerating, with recurring organic growth anticipated to be in the upper half of the company's range.

Adjusted EBITDA is now expected at the high end of the range, with a profit margin of approximately 41%. This margin is maintained despite higher revenues from disposals and foreign exchange, which typically have lower profit conversions. Diluted adjusted EPS and free cash flow are anticipated to be near the midpoint of their respective ranges, with free cash flow projected at $340 million. This free cash flow at the midpoint implies a 4-year cumulative average growth rate of 4% and a 35% conversion on adjusted EBITDA.

For the fourth quarter of 2025, management expects revenue to be around $600 million and Adjusted EBITDA to approach $250 million. Full-year organic growth is projected to be essentially flat, with growth in recurring revenues offsetting the anticipated decline in transactional businesses, representing a $10 million improvement over initial indications. Strategic disposals are expected to lower revenue by approximately $90 million in 2025, with $60 million in operating expense reductions yielding a $30 million profit impact. The remaining revenue reduction of over $100 million from these disposals is expected in 2026. Divestitures of Valipat and ScholarOne are expected to reduce 2025 revenue by $40 million and profit by $20 million.

Underpinning this guidance are several key assumptions. Management expects continued investment in product innovation, particularly AI-powered features, to drive ACV acceleration. Aggressive cost management and efficiencies from the VCP are crucial to offsetting inflation and higher incentive compensation. The risk from U.S. government funding cuts is deemed "contained within our guidance range". Looking further ahead, CEO Matti Shem Tov believes Clarivate can return to market growth rates over the next three years, targeting 3-4% for A&G, 4-5% for IP, and slightly higher for LSH.

Risks and Challenges: Monitoring the Horizon

Despite the positive momentum, Clarivate faces several pertinent risks and challenges. The macroeconomic environment remains volatile, and the company is exposed to potential impacts from changes in government policy, spending priorities, or research funding, particularly affecting its Academia & Government segment. While direct U.S. federal government revenue is small, indirect exposure through universities and state systems necessitates careful monitoring.

The company's dependence on third parties for data and information, coupled with intense competition in its various markets, poses ongoing challenges. The ability to maintain high annual renewal rates and adapt to rapidly changing technology, including the fast-evolving AI landscape, is critical. Clarivate's level of indebtedness could also adversely affect its business, financial condition, and results of operations. Furthermore, the company is involved in securities class action complaints alleging weaknesses in internal controls and misleading statements, though these proceedings are in early stages and the ultimate resolution and potential loss are currently indeterminable. The cyclicality of patent renewals, while showing signs of recovery, remains a factor that could see movements quarter-to-quarter and year-to-year.

Conclusion

Clarivate Plc is undergoing a significant transformation, with its Value Creation Plan serving as a clear blueprint for unlocking shareholder value. The strategic pivot towards a subscription-first model, coupled with aggressive investment in AI-powered innovation, is beginning to yield tangible results, as evidenced by improving organic ACV, higher renewal rates, and a growing recurring revenue mix. The company's differentiated technology, particularly its proprietary databases and advanced AI capabilities, provides a strong competitive moat in its specialized markets.

While facing a dynamic competitive landscape and macroeconomic uncertainties, Clarivate's focused execution on its VCP pillars—business model optimization, enhanced sales execution, accelerated product innovation, and portfolio rationalization—positions it for sustainable growth. The raised 2025 guidance and the long-term vision for achieving market-rate growth across its segments underscore management's confidence. Investors should closely monitor the continued execution of the VCP, the impact of AI adoption on its product portfolio, and the outcomes of the ongoing strategic review, as these factors will be crucial in determining Clarivate's trajectory towards becoming a more predictable, higher-growth enterprise.