CLARIVATE PLC

NYSE:CLVT

Earnings Call Transcript 2024-Q3

[Operator]

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Clarivate Third Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to the company to start the call. Please go ahead.

[Mark Donohue, executive]

Thank you, and good morning, everyone. Thank you for joining us for the Clarivate Third Quarter 2024 Earnings Conference Call. As a reminder, this conference call is being recorded and webcast and is the copyrighted property of Clarivate. Any rebroadcast of this information in whole or in part without the written consent of Clarivate is prohibited. The accompanying earnings call presentation is available on the Investor Relations section of the company's website.

During our call, we may make certain forward-looking statements within the meaning of the applicable securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the business or developments in Clarivate's industry to differ materially from the anticipated results performance, achievements or developments expressed or implied by 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. Clarivate believes non-GAAP results are useful in order to enhance 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. Reconciliations of these measures to the most directly comparable GAAP measures are available in our earnings release and supplemental presentation on our website.

With me today are Matti Shem Tov, Chief Executive Officer; and Jonathan Collins, Chief Financial Officer. After our prepared remarks, we'll open the call up to your questions.

And with that, it is a pleasure to turn the call over to Matti.

[Matti Shem Tov, executive]

Good morning, everyone, and thank you for joining us today. Jonathan is going to cover our quarterly results and business in just a few moments.

Our financial performance has been disappointing and not what we aim to achieve as Clarivate. What I would like to take you away from today's call is while Clarivate has [indiscernible] to do to improve performance, we also have a lot of value levels and opportunities in front of us. And with that comes the possibility of a significant upside. I'd like to talk about how do we plan to reposition Clarivate to realize its potential.

First, I would like to share a bit about myself and what brought me to this leadership role. I have 19 years of experience as CEO, including 14 years at [indiscernible] now meaningful part of Clarivate. Under my tenure, Ex Libris grew 6x into a SaaS education technology leader. During this period, we accelerated our focus on innovation, transforming the company from an on-premises technology to SaaS technology provider introducing the Ex Libris Alma cloud solution. We expanded our offering beyond [indiscernible] and investment -- invested in strategic position to deliver more value to our customers.

As CEO of ProQuest, I continue to focus on driving growth through operational discipline, product innovation and strategic acquisitions. We introduced [ Corporate One ], bringing together our deep connection of academic content, ebooks and videos into a single platform. We launched the Rialto content marketplace, the company's first ongoing solution in many years. We have acquired and integrated 5 companies, including Innovative Interface and public [indiscernible] software leader.

We delivered strong sustainable growth with revenue increasing from [ $1,750 million ] to more than $900 million and substantially increasing our EBITDA. This led to the acquisition of ProQuest by Clarivate in 2021 for more than $5 billion.

Ultimately, my [ patient ] lies with people and products. So learning from colleagues, customers and partners. I see [indiscernible] and challenging the status quo as a key to our success.

I take a lot of -- from bringing major product to market, and I have a tremendous passion for what we do. These experiences will serve me well in my new role and will benefit cloud-based and shareholders.

Slide 6. I've been in Clarivate CEO since for 90 days now, and I'm starting to form my view on current state of the businesses. First, I conducted detailed business reviews with over 100 leaders, including strategy, product management, sales, technology and customer service and spent time with our teams assessing our 3 segment operations and go-to-market strategy. I've engaged with 2,000 plus employees in [indiscernible], Kansas City, New York, Philadelphia, Jerusalem and London. I've also started to meet with our customers including some of our largest around the world to strengthen my insights and learning. I've begun to better understand what we are doing well and where we need to improve. My comprehensive review has helped to identifying and validating key strategic priorities, leading to the development of an initial Value Creation Plan, which I will discuss in a few minutes.

As you see on Slide 7, Clarivate has an exceptional foundation consisting of major critical solutions across the innovation value chain. Our flagship solutions are underpinned by best-in-class data and workflow assets. This includes ProQuest One, Web of Science, Derwent, [ CompuMark ], Cortellis, Alma, IPFolio, just to name a few. We are recognized as a trusted provider in the market we serve, and we have an impressive blue chip customer base, leading academic institution, top pharma companies, top-tier corporates leading law firm.

Most importantly, we have experienced and talented team of a global colleagues with strong expertise across segments and across disciplines. Our deep know-how in markets know our customers and our solutions inside out.

A key learning from me that is -- a key learning fee at Clarivate's decision to reorganize into 3 [indiscernible] was the right one. It leverages our talented by aligning our people deep [indiscernible] to our customer and results, we are better able to partner with our customers to develop products to meet their evolving needs.

Unfortunately, the company has become disrupted over the last few years. We have grown through acquisitions, which is [indiscernible] value creation tool, but this represents challenges in terms of integrating different solutions and people at the same time. Additionally, it is easy to lose focus on product innovation and organic growth -- volume growth. We have also taken on product initiatives that were overly dependent on transaction [indiscernible], which we -- which can be under predictable and less profitable with weak cash flow conversion. This revenue is susceptible to macro headwinds.

Our third quarter results clearly reflected some of the challenges and inconsistency from this unpredictable source of revenue. [indiscernible] the sales model and ultimate execution has been sub-optimal. We have combined generally, account management [indiscernible] with an extensive portfolio of product, which undermines the ability to sell expert solutions. We have also underinvested in customer success, leading to lower renewals in some segments.

In addition, we have suffered from product technology debt within the pace of product innovation [indiscernible] focus away from new development. Certain noncore legacy solution has led to insufficient management or product life cycle and aging product, requiring significant level of investment to refresh.

While near-term challenges have impacted our ability to execute effectively and deliver results exceed meaningful opportunities to renew our focus and improve performance. Put simply, we have fundamental elements to significantly grow our business. This will prove on execution.

I have been down this road before at the [indiscernible] and ProQuest. I have a clear understanding on the steps and process required to accelerate growth along with passion -- strong passion, delivery and execute success.

So Slide 9. In keeping with that step, the executive team and I developed an initial Value Creation Plan focused on improving execution and accelerating revenue growth. I'll go into more details on each of this initiative on our year-end earnings call in February, but certainly it will be important to provide you with a preview of our plans.

First, we must optimize our business model by focusing on core subscription and reoccurring revenue. To achieve that, we plan to rationalize certain transactional product lines that are declining and having low profit margin and cash characteristics. We will also continue to look for opportunities to convert transactional sales to subscriptions to building, so business model innovation. For example, we have an initial success converting our life science landscape and focus reports from transactional to subscription revenue. By focusing on subscription-first model across the business, we will improve revenue predictability and profitability and better -- and be better positioned against market [indiscernible].

We must improve execution. We plan to achieve this by strengthening our sales organization, putting in place better territory alignment, reviewing our incentive plans and enhancing customer engagement. We will invest further and put more focus on customer success to ensure improvements in renewal rate. This will create more time for each [indiscernible] to focus on smaller number of products and better align the domain expertise with the customers' need. I believe this will increase our ability to grow the pipeline and sales and revenues. I will be working closely with the sales leadership on this effort, confident we will receive the improved results.

From product perspective, we will encourage a build versus buy mentality. We will work closely with our customers to validate interest and clear business use cases through more formalized developed partnership methodology. I've used this model successfully before. It will help ensure investing in the right places and be responsive to our customer needs. This includes accelerating innovation and leveraging AI as key enabler. For example, our proven success, introducing academia research assistance in both Web of Science and [ Primo ] [indiscernible] being replicated in additional AMG product like [ TQIS ] and books. We are also extending IP and life sciences capabilities, utilizing various AI technologies.

Furthermore, on forthcoming Web of Science research intelligence platform is next-generation software solutions powered by AI. This product will empower [indiscernible] to accelerate breakthroughs and research institutions to better measure and showcase impact of their research. And finally, we will seek to carefully rationalize our portfolio. This will likely involve divesting in noncore solutions that increase our probability of success.

The company has taken steps to simplify its organization as seen with the divestment of [ Scholar One ] and Valipat this year. My experience is totally that a simplified and focused organization is the first step to creating exceptional -- to creating operational excellence. I also see great opportunity to drive future further cost rationalization to fund more product innovation and protect and expand our margins.

Going forward, our goal is simple, we plan to deploy both human and capital resources towards our most attractive opportunities that will grow our subscription and reoccurring revenue. We are committed to [ maintaining ] this growth initiative as quickly as possible as we embark on a multiyear turnaround.

As we optimize the business, enhance sales execution, advance on product offering and align our portfolio to core products, we have set the stage for predictable, long-term, organic growth.

That said, as I mentioned at the beginning of the call, we are disappointed with the third quarter top line results, particularly the [indiscernible] decline in certain transactional products. As part of my transition, as a strategic growth, we are currently focused on the value creation, we have decided to remove our full year and long-term -- and long-range guidance. Our entire focus needs to be mainly executing the Value Creation Plan, which is expected to deliver shareholder value.

In summary, I have reviewed the entire portfolio and I plan to reduce Clarivate exposure to more volatile transaction product lines that have been affecting our business, where we complete the initiatives that I have laid out, assuming nothing [indiscernible] changes, we expect that we will improve our organic growth, revenue growth and a revenue mix skewed even more to subscription and reoccurring and higher EBITDA margins and have a better free cash flow conversion.

I want to emphasize, I'm very confident in the initiatives underway. I [indiscernible] energized for the journey, and we are excited to see the step [indiscernible] in quarters ahead. I look forward to sharing more details on our next earnings call in February.

And with that, I will turn it over to Jonathan.

[Jonathan Collins, executive]

Thank you, Matti. Slide 11 is an overview of our third quarter and year-to-date financial results compared with the same periods from the prior year.

Q3 revenue was $622 million, a decrease of $25 million compared to the prior year, bringing the year-to-date to $1.9 billion. The third quarter decline was largely organic but was also impacted by the Valipat path divestiture. The third quarter net loss was $66 million, $59 million lower than last year, largely attributed to a $40 million increase in FX losses due to the weakening of the U.S. dollar, a $14 million noncash goodwill impairment charge recorded in the IT segment.

Adjusted diluted EPS, which excludes the impact of onetime items like the impairment, was $0.19 from Q3, a $0.02 decline over the same period last year due to lower adjusted EBITDA. Operating cash flow was $203 million in the quarter, an increase of $40 million over the third quarter last year, taking the year-to-date to over [ $0.5 billion ], which is down [ $48 million ] over the prior year. The decline is almost entirely driven by lower adjusted EBITDA as higher working capital requirements were offset by lower onetime costs.

Please turn now to Page 12 for a closer look at the drivers of the third quarter top and bottom changes from the prior year. We previously anticipated the business would return to slightly positive organic growth in Q3. However, our results came in below those expectations at a decline of 2.6%, lowering revenue by $17 million versus the third quarter of last year.

Our subscription business grew at just under 1%, which was significantly below our expectations, but in line with the prior quarter. Subs growth [indiscernible] remained strong at 3% so far this year, but we continue to experience headwinds in our LS&H and IoT segments as customer budget pressures persist ahead of our product refreshes.

The vast majority of the shortfall [indiscernible] expectations was in our transactional lines of business, which declined by 14% and was concentrated in our A&G and LS&H segments, where we experienced more market hedges than anticipated, causing a lower pipeline conversion.

In the case of A&G, transactional sales of books and digital collections are off to a slow start in the new fiscal year in North America and research and analytics [indiscernible] files sales were lower than expected in [indiscernible].

Our LS&H project-driven sales and services that support drug commercialization were lower than expected as budget pressures persisted at our top pharma customers.

Operating expenses were reduced by $6 million to mitigate the revenue shortfall, resorting to an $11 million decline in adjusted EBITDA on the organic revenue change. We experienced an inorganic line of $9 million on the top line and a $6 million decline on the bottom line due to the Valipat divestiture, which was nominally affected by the acquisitions of Motion Hall, Global Q and Rowan. Foreign exchange had a negligible impact on the top and bottom line compared to the same period last year.

Page 13 provides an overview of the drivers of the year-to-date top and bottom line changes from the prior year. Our third quarter results brought our year-to-date organic change to a negative 1.5%, lowering revenue by $30 million. Our subscription business growth was at just over 1%, which is in line with our organic ACV growth at the end of September. Our transactional lines of business have declined 9%. And while the decline in our A&G and LS&H segments are at or slightly below this level driven largely by market headwinds, we did see growth in Q3 in IP driven by a recovery in our trademark services, bringing a year-to-date decline in [indiscernible].

Operating expenses for the first 9 months of the year were essentially flat with the same period in the prior year as cost inflation was largely offset by cost efficiencies. The Valipat divestiture had a small offset by the acquisitions of Motion Hall, Global Q and Rowan caused an inorganic decline of $17 million on the top line and a $10 million decline on the bottom.

Similar to the third quarter, foreign exchange had a negligible impact on the top and bottom line compared to the same period last year.

Please turn with me now to Page 14 to step through the conversion from adjusted EBITDA to free cash flow. Free cash flow was $126 million in the third quarter, an increase of $24 million over the same period the prior year, driven largely by timing differences in working capital. This brings year-to-date free cash flow to $298 million, a conversion of 39% on adjusted EBITDA and a decrease of $77 million over the same period the prior year on lower adjusted EBITDA due to the top line headwinds and elevated capital spending aimed at accelerating product [indiscernible].

Onetime costs, interest and taxes for the quarter were generally in line with Q3 of last year. Working capital was essentially flat in Q3 versus a $64 million used in the same period last year, primarily due to timing differences in receipts from customers and raised the year-to-date timing impact of $23 million [indiscernible].

Capital expenditures were up $15 million as we continue to invest in product innovation to drive organic subscription growth. We used most of our free cash flow in Q3 to repurchase 15 million shares of common stock and to complete the [ Rowan ] acquisition.

As we move into the fourth quarter, we're working diligently to finalize our new Value Creation Plan and are eager to share a more detailed road map and the impact it will have on our outlook for the business when we report our fourth quarter and full year results in February.

Thank you for listening in this morning. I'm now going to turn the call back over to Regina to take your questions. [Operator Instructions] Regina, please go ahead.

[Operator]

[Operator Instructions] Our first question will come from the line of Owen Lau with Oppenheimer.

[Kwun Sum Lau, analyst]

Could you please talk about the actual [indiscernible]...

[Jonathan Collins, executive]

I'm sorry, there -- the connection was poor. I had a hard time making out what you said. [indiscernible].

[Kwun Sum Lau, analyst]

Yes. Let me try again. Could you please talk more about what the actual organic growth so far or from your expectation? I know you talk about transactional revenue and some weakness in all 3 key segments, but where was the disconnect? And how do you plan to change it?

[Jonathan Collins, executive]

Sure, Owen. I'll start with a little more color on the quarter, and then I suspect Matti will want to touch on how the Value Creation Plan and how to address this.

So as I mentioned in the prepared remarks, the transactional performance compared to expectations in Q3 was largely concentrated in our A&G business and our life sciences segments. IP was reasonably close to what we were expecting on transactional, on recovery and trademark services business.

Within A&G, you'll recall we have a few different lines of transactional services. We're providing digital content and historical research and analytics information. And particularly in North America, we saw less spending on the digital content that is transactional in nature. The pipeline development and conversion was lower than is anticipated and would be normal for those lines of business.

And then additionally, in Asia, where we still see a significant market opportunity for historical research and analytics content, the sales were lower there. The pipeline conversion was [indiscernible].

In addition to that, on the life sciences side of the business where we support our large suitable customers in commercialization products and services, a number of those products -- projects that were anticipated did not materialize and pushed during the quarter as well, too. Yes. So those are the reasons, and maybe let Matti touch on the things we focus on.

[Matti Shem Tov, executive]

Basically, this is a great segue to what we're actually doing. And part of my 3 months' journey talking to channel people, sales organization products and some of our customers, volatility, exposure to onetime revenue is also we can see that during the last quarters and going forward, we are going to take away some of the volatility and rationalize some of the onetime transactional business.

Looking further into the onetime business is low margin, it's all profits, it's all grows, it's expensive, it's very hard to get. As far as the [indiscernible] operations than we are currently concentrating the taking away this volatility and making rooms to focus to help us focus more on product innovation, subscription, [indiscernible] predictable profit revenues and that's what we're going.

[Operator]

Our next question comes from the line of Ashish Sabadra with RBC.

[Unknown Analyst]

This is [ David Paige ] on for Ashish. I was wondering maybe you could just parse out some of the weakness that was driven by just general macro headwinds? Or I know in the initial Value Creation Plan, you have to improve sales execution and get more focused on product portfolio. But maybe you could just parse out like what was a macro headwind versus what was an internal type of portfolio that needs to be fixed?

[Jonathan Collins, executive]

Thanks for the question, David. So we certainly believe that it's a combination of both. We think a meaningful portion of what we experienced in the quarter were market headwinds being higher than we expected. And as Matti touched on in his remarks, we certainly acknowledge that there is significant opportunity to improve our sales execution. .

[Matti Shem Tov, executive]

There are several factors, which relate to sales I actually mentioned. We're all aware of the history of Private One and the reversal of Private One. Some of the sales set up was in the different segments, and I want to reiterate the smart and right decision by previous management to bring back the 3 segment approach. But still, there are some work to be done, more specific sales organization of the different segments. And there are the concept of the sales generally approach, doesn't really work in some of the segments.

So what we actually want to do is actually introduce the sales -- we're going to emphasize further on the sales specialist and trying to realign the customers buying -- the customer actually buying our products with our sales experts as one of the drivers for the improvement on sales organization.

There are some other element also sales that we -- [indiscernible] we are doing. The company somehow was under invested in customer success in some of segments, making sure that people are actually using our product to the fullest and understand the new function and features coming on, and we are -- we have identified some shortages of staff and we will move from other places of organization to be closer -- to close with our customers and close engagement to make sure our revenue rates are actually going up and are going up in some of the segments.

[Operator]

Our next question comes from the line of George Tong with Goldman Sachs.

We'll take our next question from the line of Toni Kaplan with Morgan Stanley.

[Toni Kaplan, analyst]

And I appreciate the information on the Value Creation Plan. I wanted to just ask, I think when you think about moving transactional to subscription, improving sales execution, accelerating product innovation makes total sense. But I think a lot of these were items that prior management had tried to work on as well. And so just wanted to understand, I guess, what's going to be different this time? And also, should we expect a higher level of investment going forward? Does that mean that maybe we see a little bit of a hit to margins to try to drive some of the growth? Just wanted to understand those 2 aspects.

[Matti Shem Tov, executive]

I'll start with the first question. So I'm not here to comment on the previous management. Actually, we reiterate it already. I think the previous management has done a good decision to realign the company with having 3 segments. They also started the investment into product innovation. I'm simply different. I come from the different background.

I have a strong passion for people, product and sales. So I'm going to invest myself in making sure we have the right talent, and we do as the right talent. We need to do some minor alignment with our talent. And I'm going to focus a lot into product. If you look at my bio, I've been a product person, since my -- early my career, so going to be put a much stronger effort and go deeper into the product innovation life cycle and developed during my long career with service and process and methodology that [indiscernible] our customers to develop product and then making sure that we align our product relevant with customers and evolving needs.

And lastly, the sales execution. I think [indiscernible] during my career, I will focus a lot in sales execution and delivering the product. So I'll bring my 3 passion, people product and sales into the Clarivate environment. I'm sure this experiences to work well for growth to invested company on an organic growth trajectory [indiscernible] customers among the great starting for shareholders as well.

[Operator]

Our next question will come from the line of Andrew Nicholas with William Blair.

[Andrew Nicholas, analyst]

There's a lot of experience with turnarounds and people, product, sales. Just kind of curious, and I'm not asking for a specific guidance. I know you're going to talk a little bit more about the plan next quarter. But based on your experience, how long do some of these different pieces tend to take? I'm just kind of curious how quickly some of these go-to-market motions, for example, can be revitalized based on what you've seen within the business to this point.

[Matti Shem Tov, executive]

So based on our experience, I've been around for 90 days. I don't want to jump ahead of myself. I've been investing my time meeting our people and meeting some of our customers and trying to see what's working, what can be further improved. I have some very clear ideas about the way forward. Some of the [indiscernible] will be up and coming pretty quickly. Some will take more time and both all the time, obviously, some changes in the -- in different levels of the management, product innovation is [indiscernible] product. So I would be expecting to give you more details in February, but it will evolve -- that improvement will evolve over time.

And one of the ideas that we have that we're actually going to give you stock KPIs and some KPIs at some point [indiscernible] allows you to track our progress against the plan. So this will come in February and we're not going to give any specific before the February. But we understand that you need to be able to track [indiscernible] address this in February and [indiscernible].

[Operator]

Our next question comes from the line of Manav Patnaik with Barclays.

[Manav Patnaik, analyst]

Matti, you talked about all the time and effort you put into ProQuest to fix it and kind of turn it around. I think there, you had the benefit of it being a private company and a lot of kind of time and cover, if you call it. From what you're describing, it sounds like all 3 of these segments that most of us don't think belong together, have issues as well. And it's probably best done private versus public if you're not going to split it apart, it sounds like you aren't. So just curious, your discussions there with the Board, why isn't that something that's part of this effort that you're going through right now?

[Matti Shem Tov, executive]

[indiscernible] let's talk about whether these 3, this belong together or not. So all these 3 segments has some very similar characteristics, right? They're all enriched data, provide analytics insight, the legal workflow solution by our SaaS to provide some expert services. This is one.

There's also 3 businesses -- have the same abilities and the same technology infrastructure, [indiscernible] more content, a lot about technology, and we're talking about share commercial channels to deliver efficiency and scale. And at the same time, I recognize what you're saying, we have some current thinking. It's too early to comment on what you said, but there are no secret accounts.

[Operator]

Our next question comes from the line of Shlomo Rosenbaum with Stifel.

[Shlomo Rosenbaum, analyst]

Matti, I just wanted to ask you, between some of the stuff that you were talking about in terms of getting rid of products that are marginally profitable and simplifying the business and potentially looking at areas to get out of. Should we expect a substantial kind of shrink-to-grow strategy over here where the business has to actually be decently smaller than what it is today, particularly on the transactional side of the business? Or is that really -- that's not really a huge factor. It's just kind of marginally making sure that the business is not so volatile and you're in a more -- a better position to sell the products? I'm just trying to think of strategically, how we should be thinking about this in terms of trying to layer things into our thinking. .

[Matti Shem Tov, executive]

So we have identified -- thank you for the question, Shlomo. We're actually identifying some potential businesses that we want to divest, wind down, maybe shrink in different ways, and we're still deliberating on what should we do and how do we go about this because we invest the business. And we are [indiscernible] in certain segment, we want to protect our reputation. We want to protect our other business, as we said, with that respective segments. So there are currently -- different teams are working on different ideas and opportunities, and they are for real.

But you have to be bear with me on first 90 days and having patients in February. We'll lay down in February. We have some good idea much more country in specific in February.

[Operator]

Our next question comes from the line of Peter Christiansen with Citi.

[Peter Christiansen, analyst]

Matti, I think one of the original full thesis on Clarivate over the years has been driving revenue synergies, either within segment by expanding the value chain presence on the value chain or across segments. Obviously, the company's done a decent job in driving cost synergies there. But just curious on your assessment on whether you think are potentials for revenue synergies between the 3 various businesses and likewise, within segments where the company has had capabilities?

[Matti Shem Tov, executive]

So I think we all know the history went one like [indiscernible] one way with one employer base. We have brought it back to another -- to the other side. I believe, from my initial view that there is some revenue synergies between the 3 organizations. This is something I need to check and dive in and come back with our specific.

The potential is there. The concept of putting the 3 together was a sound concept, execution -- about execution. There is some definitely the risk cost synergies, and this was taken to an extreme, our situation. There is -- should be also some revenue synergies and there some cross sell between some customers of the different segments are buying from other segments as well, but I want to wait some more time [indiscernible] complete answers about revenue synergies beginning in the different segments. It's definitely something we are, yes.

[Operator]

Our final question comes from the line of George Tong with Goldman Sachs.

[Keen Fai Tong, analyst]

Sorry for the technical issues earlier. In each of your segments, can you talk a little bit more about some of the end market trends that you're seeing. What needs to improve externally to help support some of the internal initiatives you have to transform the business?

[Matti Shem Tov, executive]

Yes. First of all, it's a given. We are operating in 3 different segments. They're very good segments to be in. And I believe that the midterm growth of those segments, and I'm talking about -- I'm being very careful. I'm talking about segments, themselves. I'm not talking about the company at the moment. I think those segments grow 4%, 5%, maybe even more on the life science side, I believe those segments are growing.

We have different characteristic or different situation in the 3 segments themselves. We see -- on the start with the A&G, the current situation with university, we see less of an appetite to invest in capital expenses. That's why some softness on the digital collection front. This is why we're also talking -- this is seen already in the -- we keep talking about the sense of capital expenditure on the A&G side, which impact our onetime revenue. That's on the A&G side.

On the IP side, we've seen, again, it's a 4%, 5% grower on the market side itself. We do see some -- guided some softness on the annuity side, not only from us. If you take the Dutch PTO as an example, we see how much PTO because the indication is our annuity is tougher. The entire industry [indiscernible] do we expect this to come back.

And thirdly, the life science seems to be the most promising in terms of growth, but we see headwinds, especially on the commercial side of the life science, where we see that R&D is doing well on the commercial side of life science we see, which is on top at the moment. But as I said at the beginning, they are all good segments to be in, 4%, 5% lower as an industry [indiscernible].

[Operator]

And that question will come from the line of [ Colton Feldman ] with Jefferies.

[Unknown Analyst]

This is Colton on for Surinder. Question I just wanted to ask, you guys have mentioned seeing some lower renewal rates in some areas of the business. Just wanted to ask kind of what you're seeing there and kind of if there's any certain segments you're seeing higher churn? Or if you can generally just kind of talk about what you're seeing from kind of a churn perspective if it's quantitative or qualitative, just kind of generally?

[Jonathan Collins, executive]

Yes. Thanks for that, Colton. So in our prepared remarks, we highlighted the fact that the subscription growth for A&G remains solid. So renewals A&G continue to be very strong. Where we saw renewal pressure in the third quarter had a small impact or smaller impact was within the life science and the IoT segment.

So as we touched on, we know there's pressure on spending even for recurring revenues within the life sciences space, particularly in our large fund customers. And as Matti touched on, we do continue to see some pressure on spending in IP on our recurring business but also within subscriptions ahead of the new Derwent launch that's happening as we speak. So those are 2 areas that we were a bit softer in the third quarter.

And obviously, the things that we discussed in the VCP between sales execution, being closer to the customers, making sure that we're driving a strong usage of the province or training well to obviate in addition to the product innovation investments we've made. So thank you for that question, Colton.

Regina, I think that's our last question. So I want to thank everyone for joining us this morning.

[Operator]

Ladies and gentlemen, that will conclude today's call. Thank you all for joining, and you may now disconnect.