Morning. Thank you for attending today's Clara Bate Q3 2022 Earnings Release Call. My name is Forum, and I will be your moderator for today's call. All lines will remain muted during the presentation portion of the call with an opportunity for questions and answers at the end. It is now my pleasure to pass the conference over to our host, Mark Donahue, Head of Investor Relations.
Mr. Donahue, please proceed.
Thank you, and good morning, everyone.
Thank you for joining us for the Clarivate Q3 2022 earnings conference call. With me today are Jonathan Legere, Chief Executive Officer Jonathan Collins, Chief Financial Officer Gordon Sampson, Chief Product Officer and Stephen Lomhollpromson, Chief Revenue Officer.
All will be available to take your questions at
the conclusion of prepared remarks. As a reminder, this conference call is being recorded and webcast and is copyrighted property of Clarivate. Any rebroadcast of this information in whole or in part without prior written consent of Clarivate is prohibited. An accompanying earnings call presentation is available on the Investor Relations section of the company's website clarivate.com. During our call, we may make certain forward looking statements within the meaning of applicable securities laws.
Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the business or developments in Clarivate's industry that differ materially from the anticipated results, performance achievements or developments expressed or implied in such forward looking statements. Information about the factors that cause actual results to differ materially from anticipated results or performance can be found in Clarivate's filings with the SEC and on the company's website. Our discussion will include non GAAP measures or adjusted numbers, including organic revenue and adjusted EBITDA. Clarit believes non GAAP results are useful in order to enhance an understanding of our ongoing operating performance, but they are supplement to and should not be considered in isolation from or as a substitute for GAAP financial measures. Reconciliation of these measures to GAAP measures are available in our earnings release, supplemental presentation on our website.
After our prepared remarks, we'll open the call for your questions. With that, it's
a pleasure to turn the call over to Jonathan. Great. Thank you, Mark. It's great to join my first call as CEO, Clarivate. I could not be more excited to be here.
Since joining the company in early July, I've spent much of my time traveling around the world, meeting with thousands of my colleagues. The time I've spent with them has reinforced my view of the strengths of our people, The resilience and growth potential of our products and the power of our customer relationships. There are many great things taking place at Clarivate, But we also have work to do to realize our full potential. While I look forward to covering this in great depth at our Investor Day In March 2023, I will touch upon some of my initial impressions and areas of focus in the next few minutes. First, I want to start with our Q3 financial highlights.
It was a mixed quarter with us with both areas of great strength And pockets that did not perform as we had expected. Our key financial metrics of revenue, EBITDA and EPS We're all up year over year as we continue to grow and expand the business even in these challenging economic times. This growth speaks to the resiliency and criticality of our solutions. Focusing on revenue, We came in at $636,000,000 an increase of $5,000,000 on an organic basis over the prior year period. However, this was $4,000,000 below the bottom end of the rates we provided, and I will spend some time focused on this metric.
Getting back these numbers, well over 95% of our business, including our academia and government business, Our IT business and the subscription portion of our Life Science and Healthcare business delivered as expected. In total, organic subscription revenues increased 4.3% in the quarter, which is our best quarterly subscription performance this year. We are pleased with the trajectory of these businesses and the early progress we are seeing on sales initiatives we have put in place. While we delivered positive gains in the quarter in the vast majority of our business, our transactional revenues, specifically in Life Science and Healthcare One time transactions came in light. This was primarily driven by a low conversion of our real world data sales pipeline late in the quarter.
Jonathan Collins will provide some additional context here, but I would like to share my view on this business. First, our life science and healthcare real world data is a great business. We have critical assets with strong growth potential. We have seen some quarters with strong performance. For example, the 1st 2 quarters this year, our real world data nearly doubled over the prior year.
Similarly, the first half of twenty twenty one experienced similar growth. So when this business performs well, the results are exceptional. But we have also had a couple of weak quarters, including last year's Q4 and now this year's Q3, both of which were down significantly compared to the prior year. As I have dug into our performance closing out Q3, I've come to realize that it is a very difficult business to predict for a few reasons. First, there are a small number of very large deals that can have a material impact on a quarter.
So the organic growth number can swing on less than a half 2nd, there is little we can do to speed up a close of these deals. It is all based on customer need And the timing of those needs, which can move beyond our control. Additionally, they're often selling to data aggregators were themselves dependent on end customers' decisions and the timing of those decisions. As a result, we are doing the following. 1st, We are addressing the structural volatility of this business by investing in new solutions designed to move our real world data products up the value chain and provide greater predictability.
I will cover details on these investments shortly. 2nd, for the foreseeable future, We will remove many of these larger binary deals from our guidance, which may result in better than expected performance in this area in certain quarters. On our operational highlights, there are 6 key areas that I would like to expand on, which I'll cover in the next few slides, starting with the leadership transition. I want to thank Jerry for the leadership and support he provided in creating the Clarivate up today. None of us would be here were it not for his leadership and foresight.
As he moves into the role of Chair Emeritus, we wish him and Mary Joy all the best In the next chapter of their lives as they focus on their family and philanthropic efforts. Through my travels, I've had the opportunity to meet with thousands of our colleagues, The care and dedication they have to our customers and to the growth of Clarivate is inspirational. Our assets are mission critical to our more than 45,000 global customers. This leads to long term strong customer relationships With 90% plus retention rates. I had a chance to visit 1 of our IP customers a month ago Adhering of the partnership in their own words was equally inspirational.
These types of partnerships lead to a resilient business model and open opportunities for innovation driven growth. We have work to do that I will touch on, but our starting foundation is strong. My key priority remains focused on unlocking our growth potential. We will do this by continuing to drive scale internally, Unlock efficiencies in investment dollars and drive a culture of innovation across all areas of ClutterVate. During the Q3, we announced the divestiture of the MarkMonitor business, which we completed on October 31.
This business was not a core offering of ours, and we can now allocate investments into our key product offerings with higher growth potential. We used the net proceeds to pay down some of the term loan, which helped to reduce our leverage. Jonathan Collins will speak on this subject in a few minutes. I would now like to share with you a new lens on how I look at the business. On the lower right side of Slide 8, I think about our solution sets moving from left to right as first enriched data.
This is our starting point and our key right to play in our markets. We aggregate enhanced public and private data to create proprietary enriched datasets. Analytics and insights, This is putting intelligence on top of our data. An example is our brand landscape analyzer, a tool which helps professionals assess the viability of new Analytics and insights are further enhanced by driving workflow solutions. This is where we embed our software solutions into the daily workflow of our customers.
For example, our Ahmed library management solution is a critical tool used by librarians to serve their communities. Finally, we wrap these with expert services, including consulting and software implementation services. Our goal It's to continually develop new solutions that move us from left to right, creating more value, expanding our playing field and driving loyalty into our customers. 2nd, on the top right, our regional presence with growth opportunities across all three regions. And finally and critically, our segments.
Starting this quarter, we will be reporting along 3 distinct segments. There is overlap in value shared between segments, including content, Technology and commercial channels. These segments are the prime way in which I look at our business and will be driving Clarivate going forward. With a second glance, let me share my view on how we are doing. This is an important slide for us both internally and externally and will form a key foundation for our Investor Day in March.
And I'd like to draw your attention to a few key takeaways. Today, we deliver approximately $2,600,000,000 of revenue in a serviceable addressable market approaching 25,000,000,000 In the past, we have emphasized the total addressable market of more than $100,000,000,000 However, in the near term, I will focus on how we are performing in the markets we serve. Currently, we are underperforming our market opportunities. This is driven by a small number of products, much of these are from the legacy Thompson Solutions, which while strong and often the gold standard, We're underinvested in for years. We are now pivoting and investing behind these and other opportunities.
By making focus improvements to product, go to market and a relentless focus on customer delight, we see a new baseline and 3rdPath to market growth. This will be our main focus of the Investor Day as we share with you the path Both the path and timing to a 6% organic growth baseline and beyond. All future initiatives will align to And the strategy is based on strong business fundamentals. This expanded strategy is built on 5 priority pillars that underpin all our organic growth initiatives. As we have discussed previously, Our first pillar is the execution of our industry focused customer centric go to market model.
Our Our second pillar is focused on bringing different content sets together. As an example, we combined our CopyMark and DARS IP To create a new solution for performing trademark litigation analysis. Within Pillar 3, we add insights and predictive analytics on top of our core content. For example, we recently launched a proprietary United Nations SDG module on top of Web of Science. This allows universities to analyze and track their research with their sustainability goals.
Moving to Pillar 4, We enable customers, business processes and decision support with our workflow solutions. For example, Rialto is our industry leading library marketplace It is critical as libraries build and enhance their content collections. We wrap all the prior four pillars together in Pillar 5 as we serve as a trusted partner by providing value add services and strategic guidance to help our customers realize their full potential. I would like to share 2 new investments that also will address the volatility in our Life Science Healthcare transaction revenue. Our real world data solutions, despite quarterly volatility, are among our fastest growing products and are positioned in a serviceable market of over $2,000,000,000 growing annually in the low to mid teens.
Our Life Science customers already trust us to provide high quality data. However, today we provide this in data feeds Our customers must then integrate and analyze themselves. We are now investing in a web based platform And a set of intuitive self-service analytics to convert our data into insights to drive decisions and actions faster. This new platform will drive the following benefits. 1st, it will move us up the value chain with our clients.
2nd, as it is productized, it will provide higher levels of recurring revenue. 3rd, it will expand our market reach with both existing customers and new logos. And finally, it serves as a scaled platform to drive additional use case driven innovation and growth. 2nd, we have invested in a new pharmacovigilance platform to create a new enhanced regulatory compliance workflow solution. Our Life Sciences customers are struggling to manage both rising regulatory compliance mandates and an ever growing volume of data This new solution will further automate these resource intensive activities.
This will reduce cost and drive deeper insights into drug safety by leveraging our scientific content and real world data. We plan to launch our first two products in the second half of twenty twenty three. We believe these two investments alone have the potential to increase our revenue growth rates by well over 100 basis points in the medium term. I look forward to sharing more on these and the other elements of our roadmap to growth at Investor Day. Before I turn it over to Jonathan, I want to reiterate once again how excited I am to be at Clarivate and leading this great company.
It starts with our dedicated global team who go above and beyond every day. I truly believe our future is bright and the best is ahead of us. I will now turn the call over to Jonathan Collins.
Thank you, Jonathan. Good morning, everyone. Slide 13 is an overview of our $1,000,000 an increase of $194,000,000 compared to the same period last year, driven primarily by inorganic growth from the ProQuest acquisition as well as 1.2 percent organic growth, both of which were partially offset by a substantial foreign exchange translation headwind as the U. S. Dollar strengthened significantly against primarily the pound, sterling and euro.
This brings year to date revenue to nearly $2,000,000,000 for an increase of $668,000,000 for growth of just over 50%. The 3rd quarter operating and net loss of $4,400,000,000 is entirely attributed to the non cash goodwill impairment charges recorded primarily for the CPA Global and ProQuest Acquisitions. The drivers of the impairment were deteriorating macroeconomic conditions such as inflation and rising interest rates as well as the recent sustained decline in our share price. Adjusted diluted EPS for Q3, which excludes the impact of the impairment, was $0.20 a $0.04 increase over Q3 of last year, bringing the year to date to $0.63 a $0.14 increase over the 1st 9 months of last year. Operating cash flow was $208,000,000 in the quarter, an increase of $164,000,000 over Q3 of 2021, bringing it to $372,000,000 for the 1st 9 months, which is an increase of $66,000,000 over the same period last year.
Please turn with me now to Page 14 for a closer look at the drivers of the 3rd quarter top and bottom line growth over the same period last year on a consolidated basis. When we refined our expectations for the Q3 in early September, We indicated revenue would likely be in the range of $640,000,000 to $650,000,000 as a result of the relative strength of the U. S. Dollar And that we expected organic growth of about 3%. As a result of the shortfall in transactional sales within our LS and H business In the month of September that Jonathan mentioned earlier, organic growth was about 180 bps light of our expectation and about $4,000,000 below the low end of the range.
Our recurring business, both subscriptions and reoccurring revenues, came in right in line with expectations at more than 4% and 2 The shortfall was entirely in the transactional and products and services, which declined by more than 9% when we expected them to be flat. When we look at the 3rd quarter top and bottom line growth compared to the same period last year, it was driven by 4 key factors. First, organic growth of 1.2 percent added $5,000,000 to the top line and $4,000,000 to the bottom line for a profit conversion of more than 75%. 2nd, inorganic growth contributed $220,000,000 to the top line $68,000,000 to the bottom line for a profit conversion of more than 30% on a pre cost synergy basis. This growth is primarily attributed to the ProQuest acquisition.
3rd, cost synergies net of certain operating expenses required to contributed $17,000,000 of incremental profit from carryover savings due to momentum on the ProQuest cost actions. Finally, the translation impact of subsidiaries denominated in foreign currencies had a substantial impact in the quarter, reducing revenue by $31,000,000 and profit by $8,000,000 The profit conversion is lower than normal as the translation impact was ameliorated by transaction gains. Page 15 illustrates the consolidating top and bottom line results for the 3 segments Jonathan outlined earlier for the past 7 quarters. This historical information was made available in a separate 8 ks we filed this morning. The change effectively bifurcates the segment we previously referred to as science into academia and government and life sciences and healthcare.
The A and G segment includes the legacy Thompson products, Web of Science, Insights, EndNote and ScholarOne as well as the ProQuest acquisition. The LS and H segment now includes the legacy Thompson product, Cortellis, along with the DRG acquisition. And the intellectual property segment remains essentially unchanged, including the legacy Thompson product, Derwin, and the CPA Global On the left of the page, you will note that the LS and H products have led organic growth at about 6% both last year and so far this year. However, this business is clearly more volatile with double digit growth in quarters like Q1 of this year as well as quarters that are essentially flat like this past quarter. This is caused by the lumpiness of the transactional data sales and we're making the investments to gradually move this business towards a more recurring revenue stream.
The IP segment has consistently delivered organic growth around 3% and AMG, which excludes ProQuest, has grown organically in the 2% to 4% range. While both of these businesses have a level of seasonality on transactional sales, they're much less variable than LSNH, And we expect further stability in AMG's organic growth as the ProQuest business is included in the metric next year. On the right of the page, you will note that A and G prior to the ProQuest acquisition delivered the highest profit margins. We do expect that as we realize the cost synergies in 2023, the margins in this segment will improve towards the 40s. IP has steadily improved margins over the past 2 years as the cost synergies from the CPA Global acquisition have been achieved.
Our smallest segment is LSNH and its margins are reflective of its relative size. We believe this change to our segment reporting will provide greater transparency into our operating results moving forward. Please turn to see how the Q3 profit converted to cash flow. Free cash flow was $140,000,000 in the 3rd quarter, an increase of $120,000,000 over year's Q3 and $216,000,000 in the 1st 9 months, which was essentially flat compared to the same period in 2021. Adjusted free cash flow, which excludes the impact of one time costs, was up $100,000,000 in the quarter and the 1st 9 months as the growth in adjusted EBITDA was partially offset by higher interest, taxes and capital spending, all of which are largely attributed to the ProQuest acquisition.
Please move with me now to Slide 17 for a look at our revised full year guidance for this year. As a result of the increasing strength of the U. S. Dollar, The divestiture of our MarkMonitor business that closed last week and the volatility in our LS and H transactional business, We revised our outlook for the balance of the year. We're lowering the midpoint of our revenue guidance by $100,000,000 and nearly half of this, about $45,000,000 is due to foreign exchange.
We've assumed the U. S. Dollar will strengthen another 5% sequentially against the pound and euro in the 4th quarter. The MarkMonitor sale lowers revenue by about $15,000,000 as a result of excluding this business in November December. Lowering the outlook for organic growth rate by about 200 basis points accounts for about 40,000,000 About a third of this transpired in the Q3 and we expect about 2 thirds will occur in the Q4.
As Jonathan highlighted, nearly all of this in the transactional products and services we deliver within our Life Sciences and Healthcare segment. Given the volatility over the past few quarters, we've opted to provide a quite conservative outlook for this area of the business in the Q4. We now expect our organic growth rate to be about 2.5% And revenue of $2,630,000,000 at the midpoint of the ranges. Through strong cost discipline, we expect to maintain our profit margin at the low end of the prior guidance range at about 41%, yielding an adjusted EBITDA of approximately $1,075,000,000 at the midpoint of the range. Adjusted free cash flow is now expected to be $525,000,000 at the midpoint of the range for a conversion of nearly 50%.
The $100,000,000 decrease compared to the prior guidance is attributed to the lower profit and slightly higher capital requirements. Adjusted diluted earnings are now expected at $0.80 per share at the midpoint of the range. Please turn with me now to Page 18 for the drivers of the expected revenue and profit growth for the full year compared to last year. As with the comparisons provided for the Q3 top and bottom line growth, we expect the full year will be driven by the same four factors. First, organic growth is now expected to deliver approximately $45,000,000 of incremental revenue and about $20,000,000 of added profit for a conversion of about 45%.
2nd, inorganic growth is expected to contribute an additional $830,000,000 of sales $250,000,000 of profit at actual exchange rates for a profit conversion of approximately 30% as a result of the ProQuest acquisition on a pre cost synergy basis. 3rd, cost synergies associated with the CPA and ProQuest transactions are expected to add $70,000,000 to profit. And finally, as I just noted a moment ago, We've assumed the U. S. Dollar continues to strengthen in the 4th quarter, causing $120,000,000 headwind to revenue and a $70,000,000 flow through to profit for a conversion of about 55%.
Please turn with me now to Page 19 for more detail on how we expect the full year adjusted EBITDA of nearly $1,075,000,000 will convert to free cash flow. Our full year outlook for adjusted free cash flow is now $525,000,000 at the midpoint of the range and represents an increase of $65,000,000 compared to last year. We anticipate the profit growth of approximately 275,000,000 will be partially offset by higher interest to service the debt used to fund the ProQuest acquisition, higher cash taxes on the profit growth And higher capital requirements as increased capital spending will be partially offset by lower working capital. This outlook contemplates that nearly $0.50 of every dollar Please turn to me now to Page 20 for a look at how we plan to utilize this cash as well as the proceeds we received from the MarkMonitor sales to strengthen our balance sheet. In the upper left quadrant of the page, you can see that through a combination of more than $500,000,000 of adjusted free cash flow, More than $250,000,000 of cash proceeds from the MarkMonitor sale and about $100,000,000 of cash on hand, we will pay down about $500,000,000 of debt between the term loans and the revolver, repurchase 175,000,000 of our stock, integrate the ProQuest acquisition, Service our preferred stock with a cash dividend and satisfy other minimal obligations.
In the upper right, you will see that this will leave us with $5,000,000,000 of debt at year And we expect to utilize a large portion of next year's free cash flow to continue to pay down debt as we prosecute our plan to reduce our leverage to less than 4 turns. In the lower left, you will note that during the quarter, we entered into an interest rate swap on about $0.75 of $1,000,000,000 of our floating rate term loan. This action combined with the anticipated deleveraging in the 4th quarter will result in a reduction of our floating rate debt from 45% to 25% of our annual coupon. And finally, in the lower right, you will note 2 important features about our debt stack. First, with the current interest rate projection via the forward curve, Where base rates peak at about 5%, our total weighted average cost of debt will peak at about 5.5%, which remains very low by historical standards.
And second, we have no debt maturities or mandatory prepayments for the next 4 years. Please turn it back to Page 21 for some high level comments on the major drivers of our Top and bottom line trajectory as we approach 2023. In a few months, we plan to provide specific guidance for next year that have developed in the second half of this year that will have a material impact on our outlook for next year. First, if the dollar remains strong as it is today, We will have a significant top line headwind to FX translation that will be most evident in the first half of twenty twenty three. 2nd, the sale of our MarkMonitor business will also lower our revenue in the 1st 3 quarters of next year.
It's worth noting that neither of these factors will affect our organic growth. And finally, we do expect organic growth to improve next year as we execute the strategy Jonathan outlined earlier. However, we do not anticipate the dollar impact of the CapEx and divestiture headwinds will offset the impact of the organic growth, leaving our revenue relatively flat next year. As a result, our profit margin expansion will be relatively modest next year aided by the completion of the ProQuest cost synergies, leaving EPS relatively flat as well. We do expect our free cash flow conversion to nearly double in 2023 as the one time cash outflows associated with the CPA equity plan and the ProQuest integration cost will behind us.
Please turn it over to Page 22 for a reminder of why we believe this is a great business that's positioned to generate value for shareholders even during times of economic uncertainty. I want to echo Jonathan's enthusiasm for the prospects of our business and this page helps to highlight a half a dozen reasons for our Sanguine Our 3 business segments, A and G, LS and H and IP are replete with mission critical products full of enriched data delivering analytics and insights to an expanding range of user personas. We enable our customers' workflows and we also act as a trusted partner providing value added services across a broad range of industries around the globe. And these products and services are highly recurring in nature. So far this year, 78% of our revenues are subscription and reoccurring in nature And collectively have delivered organic growth of 4.5%.
Our transactional business has been more variable than we would like over the last few quarters, With the investments we are making in new product innovation within our LSNH business, we'll migrate more of the revenues towards recurring sales, providing additional stability and Because our products are mission critical, our subscribers have renewed at 92% this year, which includes a headwind from our decision to suspend our operations in Russia. This demonstrates the sheer resilience of our subscription products. These commercial attributes provide a solid foundation to drive substantial operating leverage as evidenced in our profit margins, which are in excess of 40% so far this year. It's important to note that the content, technology and commercial channels that are 3 segments share have led to a $250,000,000 of cost Over the course of the past few years as we've integrated the DRG, CPA and ProQuest acquisitions. This is a major contributor to the strong profit margins we're delivering.
The one time cost to integrate these businesses and deliver these cost synergies have created a significant drag on our free cash flow conversion. However, these are now largely behind us. As I mentioned just a moment ago, we expect our free cash flow conversion to double next year to about half of our adjusted EBITDA. Combining these factors highlight that our business is a scaled information services compounder poised to accelerate organic growth via our refined strategy And deliver outsized returns for our shareholders moving forward. Thank you all for listening in this morning.
I'll now 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. Forum, please go ahead.
Our first question comes from the line of Manav Patnaik with Barclays. Manav, your line is now open.
Thank you. Good morning. I just wanted to touch on Jonathan here, you pointed out obviously Your growth versus the market growth and the gaps. And I know you'll give us more color on the Investor Day, but when you look at your 2023, I guess, in Right. Organic growth, it's improved, but still kind of in that 3% camp for next year.
So I was hoping just a little bit more color on how long or how much do You don't really need to do to get to be able to go penetrate that white space? It sounds like maybe 23 won't show that.
Sure, Manav. Thanks for the question. So, and a couple of comments to your question. First, I mean, we certainly expect and will make progress on organic growth in 2023. And we'll come up with a very precise number at our guidance call at the end of the Q4.
I think your second part of your question is really the timing, if you will, took the market rates of a 6 Percent overall. And it's the way we're thinking about it and again, I will have much more precise views on the timing of this monoff and also importantly the path so that you can That's your assumption there. But I think that will be measured in, I would call it, a few years and a few could be In a couple of type years, think of it in terms of that being the timing. But again, let me come back to Monhub at Investor Day with some more precise timing on this.
Next question please.
Our next question comes from the line of Toni Kaplan with Morgan Stanley. Toni, your line is now open.
Thanks so much. So I wanted to sort of go back to September, it seemed like you had some idea that The quarter wasn't going well since you lowered the guide. I know transactional has less visibility, but I guess down 9 is sort of a big delta versus flat. So like I guess are you able to monitor the transaction
intra quarter or was
September really a lot worse than July and Should intra quarter or was September really a lot worse than July August? And just how should we think about 4Q and next year for business, like how do you get that to recover basically? Thanks.
Sure. I'll add my comments and John Matt, if I missed anything. So first of all, as I mentioned in my comments, it really came down to really a half dozen very, very large deals. And we certainly, obviously, our lifetime healthcare sales team led by Tom, very involved. Myself, Steve, Jonathan, we're monitoring these on a really daily basis Getting the size of them.
And this really gets to the crux of what I made in my comments and kind of my discovery here being my Q1 on the roll. These are just very hard to predict. They and what's interesting is we didn't lose these to competition. They just the decisions were delayed, they were postponed. And I've come to realize this is the nature of the product as you have these small number of very large deals that you can feel very good about and they just don't convert.
And it's something that is, I'll say relatively new to me, Tony, in terms of my experience and it's a key lesson for us here. So as we think about next year, I think as I mentioned and Don also mentioned in his remarks, our view on this is first, we need to structurally change it. Investments which we're making, which I'm incredibly excited about, which we actually okay if you green lighted before the end of the quarter, I'm feeling very good about what that will do to really smooth Both by adding more value into our clients, so moving up the value chain, as I mentioned, but also really smoothing up the predictability of this important Important revenue change. And then the second piece is both Jonathan and I mentioned is given the volatility here, I think the prudent thing to do is just take some of these large Deals out of our guidance and out of our view. And the result of that might be we may have a couple of quarters when we come in surprised the upside.
When that happens, we will call it out. You'll have the visibility and know what happened, but that's how we're thinking about it. Jonathan, anything you'd like to add? No,
that's great.
Great. Thanks, Tony.
Thank you. Thank you for your question. Our next question comes from the line of Andrew Nicholas with William Blair. Andrew, your line is now open.
Hi, good morning. I appreciate you taking my question. I wanted to ask on profit margins for next year. I think On Slide 21, in your prepared remarks, you talked about modest expansion, primarily on ProQuest cost synergies. So I just wanted to clarify, Is the intention or the messaging here that you're planning to reinvest the organic Margin expansion that you'd expect from this business back into LS and H or other growth initiatives, is that how we should Think about next year.
Yes, Andrew, it's Jonathan Collins. As we think about next Sure. The big things we wanted to highlight were the top line, just to be clear that the FX headwind we're going to see in the divestiture of MarkMonitor Will offset even the improved organic growth on a dollar basis. To your point, when we think about the profit margins, we do believe we'll have some margin expansion. As Jonathan said, when we're out in February with our year end results, we will give more specifics around that.
With organic growth in the range that it has been, the margin expansion as a result of that is not going to be significant, But we will have the ProQuest cost synergies next year that we'll complete, which will help to bolster the margin. So those are the big pieces that we wanted to point to And highlight for next year as we think about the bottom line.
Thanks. Next question please.
Our next question comes from the line of Shlomo Rosenbaum with Stifel. Shlomo, your line is now open.
Hi, thank you for taking my question. I'm trying to understand a little bit more, what is the impact of removing the large deals From of real world data from your guidance. In other words, when I'm looking at 2023 over 20 22 and you're talking about looking kind of flattish, How much revenue are you excluding from big deals that you would normally exclude that could be potential upside? Because I'm trying to get a baseline Of what kind of organic growth we're looking at? Because it seems like you're introducing this kind of conservatism, but it's hard for us to really Get a beat on how much revenue are we talking about?
So maybe I'll give a thematic and then have Don to be specific. So Again, the 2020 we will of course, Shlomo will come back with more details at the end of the Q4 call. But thematically and a couple of things and Jonathan will comment on this. We did want to highlight The impact of some of the big impacts MarkMonitor, FX, etcetera, in the total revenue numbers. When we think about this, again, I'll call out, as I mentioned in my earlier comments, well over 95% of our business performed as expected.
And so the bulk vast majority of this business is quite predictable as you would expect as everyone on this call would expect for business of this nature. We do have this one aspect of our business, which can have great quarters and not so great quarters. And so when we look forward next year, what I would expect and maybe I'll John, if you comment on it. And keep in mind, we have not finalized our plans for next year. But I would expect kind of no heroics whatsoever in a real world data business line for next year.
But Jonathan, do you want to add to that? Yes.
I think that characterization is fair and slow mo, since we haven't given a specific number for next year, I'm not going to be able to answer With a lot of detail, but I would point to our guide for the Q4. What we've effectively done here was saying that Q4 is going to be flat organically is Heavily discounted all these deals. So, that's a pretty significant impact in the 4th quarter. That's typically the largest quarter of these deals. So as Jonathan said, as those as we hopefully get some of those closed during the quarter, that would provide some upside, but that's how we've approached the 4th quarter.
More details come on Q3 when we guide to that early next year.
Next question please.
Our next question comes from the line of George Tong with Goldman Sachs. George, your line is now open.
Hi, thanks. I wanted to stick with the Life Science and Healthcare transaction revenue performance. You mentioned you didn't lose any of the deals. The decisions were delayed And postponed. So can you talk a little bit more about the dynamics of what happened there?
Are these truly delays? And were they due to macro factors or other factors that caused the deals not to go through? And then separately, what are you doing to improve the predictability in terms of translating these revenues into recurring revenue streams? Are you Looking to restructure contracts and how you go to market? Any color there would be helpful.
Thanks.
Sure. Yes, let me comment on all those. As I went through my Q1 close, I've learned a lot on this part of the business. So first, let me kind of describe the nature of some of these larger deals. And I should mention, we have large deals.
We also have a tail of smaller deals on the real world data. So it's not all. What happened is you have these series of larger ones basically not closed. And a couple of takeaways, which I'll share with you in terms of my learning. So first, we in some cases, we're going direct to
the end user, but in
many cases, particularly with these larger ones, we're selling to other data aggregators who themselves are bringing Other data sets, other content that they may have or others may have to provide a more comprehensive solution for the ultimate end user. And so that they're complex deals. And the key thing, as I mentioned, is very reliant on the timing And specific need of the end customer, which is a moving target. That's number 1. The second thing you asked about any economic pressures, answer is no.
I don't believe any of these deals were materially impacted based upon what we're seeing in the slowdown of the economy. There may be a little more governance, if you will, for some from boards and whatnot of smaller companies that they scrutinize this. When they need the data, they do. And if they postpone decisions, then they just postponed the needs for those decisions. So George, I did not see really any macroeconomic Pressure on this or really materially in any part of our business.
It continues to be a very resilient business as it historically has shown. Now to the second part of your question, what are we doing about it? I pulled out those two examples I showed in my prepared remarks. We're building out a platform For real world data and this platform is it is the future for what we're doing with this data. There will always be a need For data, data in this pure form by certain end users and certain customers based upon their use models and requirements and aggregating with other information and that's great.
But what we're pivoting to now is this creation of a real world data platform, which then creates specific use case based analytics And it has a couple of benefits from it. 1st, it's easier to consume our data, number 1. Second, they can combine our data with Proprietary information that the end user may have to really create some enhanced solutions, number 2. And the 3rd element, which I know everyone on this call cares about, It becomes much more predictable. These will be recurring pipe revenues.
It will move us up the value chain. And to me, George, what I've typically seen in my history that What great information businesses do is they start with core information and they lay on top of analytics insight to create much more as higher value, More predictable and sticky content. So that's our plan to continue to migrate and improve this business. And again, I'll comment that the underlying business is great. The data is must have.
The issue we have right now with the real world data is just very unpredictable. The investments we're making in Productizing much of it will help address those issues. Great. Next question please. Great.
Thank you.
Our next question comes from the line of Seth Weber with Wells Fargo. Seth, your line is now open.
Hey, good morning guys. I'm wondering if you could just comment on the pricing environment, What you've seen here in the back half of the year and maybe just what you're expecting for 2023. I think the company had previously spoken to something in the like a mid single digit growth for pricing. Can you talk about whether that's still the right way to think about it? And just any kind of early view to conversations for next year?
Thanks.
Yes, Seth. It's Jonathan Collins. On the pricing front, that's one area that continues to perform as we'd It's been a bright spot for us in the 1st 9 months. It is one of the key contributors towards the strong subscription growth that's been improving As we move through the year, so those conversations have gone well. We've talked quite a bit about the fact that this is really about an exchange of incremental value.
So we've made meaningful investments in the products over the course of the past couple of years and now we're able to be able to recognize An economic benefit associated with that. As we look to next year, we're cognizant of the overall environment. I will be very thoughtful and careful as we move forward in all of these product categories, but we think this will continue to be an area that helps to bolster the strength of our recurring business, Which as Jonathan highlighted earlier, it's been a real bright spot for us so far this year.
Okay, guys. Thank you.
Thanks, Jeff. Next question, please. Yes.
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 want to go back to the transactional Revenue retooling, I appreciate the comments there. But I was wondering, Have you investigated whether there's parts of that business, particularly the data sales, where you may have the opportunity to repackage the product, Maybe introduce it into subscription, maybe at a new tier level or something of that nature.
How should we think about product repackaging as a potential means of smoothing out some of the volatility From the transactional business. Thank you.
Yes, let me dive into that. I think it's a great, great opportunity. And I'll highlight First, the end market in this area is a high growth market. It's a market that grows on average 7% to 10%. And so it's The right neighborhood to be in is the right area to be playing in.
And we've had, as I mentioned in my remarks, some quarters of incredible performance in that real world data. First half of this year was great. First half of last year was also great. But it's the unpredictability, which is painful. I mean, it pains me frankly that we had 95 And as expected,
we have
had this volatility caused by this one piece. So to address it, we're doing Exactly as you suggested. The prioritization of our real world data and that is call attention to those two investments that we called out, Which we do believe will have a significant impact on our total company organic growth rate once it's rolled out. We'll do just as you suggest. They're taking the platform, Packaging it, creating more use case based products, inside based products, which has the benefit of A, being more predictable, B being stickier and C being frankly easier to use and we frankly control the channel with the end user quite a bit better with that.
So we do think it will help with that significantly. There will always be some ongoing demand for the data in its native form, And that's just the nature of the business and the nature of the consumption. But by productizing and anatomy insight and analytics on top of the data to create these new products, It will smooth out the revenue and the growth in the Life Science Healthcare division significantly. Thanks. We'll go to next question, please.
Thank you.
Our next question comes from the line of Stephanie Moore with Jefferies. Stephanie, your line is now open.
Hi, this is Hans Hoffman on for Stephanie. Thanks for taking my question. Could you just talk a little bit about Procrit integration kind of a little more specifically kind of what you're seeing within the WebAssigns product and how that's performing relative to your And then just sort of on divestitures now kind of Mark Monitor, have you guys sort of pruned all non core assets or is there maybe more left
Okay, sure. So maybe I'll make a comment and have Jonathan Collins come in and add some additional color. So first on the ProQuest acquisition integration, it's gone exceptionally well. It's always hard. And one thing I calmed in when I I joined this company a few months ago.
The one thing that really struck me was just the pace of change that has taken place, The pace of growth, if you will, driven by acquisitions in the last 30 months and as I've mentioned on previous calls, All during COVID. Now I think the success of the integration of ProQuest really is a success story Within Clarivate and a lot of credit goes to the teams both in the ProQuest side and the legacy non ProQuest Clarivate side who made that happen. But the ProQuest acquisition has performed well, and we're very pleased with it both in terms of top line as well in terms of the efficiencies That we pulled out of it. And the combination of Web of Science from the legacy Thompson business with Progress is such combination. It's just the content makes sense because the products make sense together in terms of how we're going to market.
Now I do think and I mentioned in one of my remarks is when I look at the path to grow from our current growth rate To just market at 6%, there are a few legacy Thompson products in particular that we
need to improve in and
Web of Science is one of those. We announced previously some investments we've made there and improving our internal impact factor as an example. And we are now leaning in with investments Find web of science and other products to help make improvements in those areas. But overall, we feel very good about the progress. And Jonathan, do you want to add comments on that or talk about
Most of those are concentrated in the LS and H business. So we want to get those off and running in the second half of this year. So we've green lighted both of those projects. We added some additional content licensing that we wanted to bring in that's included There as well too to help drive better sales. So I would expect to start to see a benefit from those next year.
And then we'll be able to provide some more color to mention that a bit more Specifically, when we provide our guide for next year in Q1. Great. Thank you.
Thank you. That concludes our call for today. We appreciate you all joining us. If you have any follow-up questions, please reach out to Investor Relations.
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This concludes today's Clarivate Q3 2022 earnings release call. Thank you for your participation. You may now disconnect your line.