UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A (Amendment No. 2)10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20202023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _______
Commission File No. 001-38911
CLARIVATE PLC
(Exact name of registrant as specified in its charter)
| | | | | |
| Jersey, Channel Islands | Not applicableN/A |
(State or other jurisdiction of
incorporation or organization) | (I.R.S. Employer
Identification No.) |
70 St. Mary Axe London EC3A 8BE United Kingdom (Address of principal executive offices) | Not applicable
(Zip Code)
|
Registrant'sRegistrant’s telephone number, including area code: +44 207 4334000
Securities registered pursuant to Section 12(b) of the Exchange Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Ordinary Shares, no par value | CLVT | New York Stock Exchange |
| 5.25% Series A Mandatory Convertible Preferred Shares, no par value | CLVT PR A | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐☒ No ☒☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
| Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management'smanagement’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934)Act). Yes ☐ No ☒
The aggregate market value of the approximately 268.8 million ordinary shares held by non-affiliates of the Company (assuming for these purposes, but without conceding, that all executive officers and directorsregistrant, based on the closing price of the Company are affiliates ofordinary shares as reported on the Company)New York Stock Exchange as of June 30, 2020,2023, the last business day of business of ourthe registrant’s most recently completed second fiscal quarter, was $6.0 billion, based onapproximately $3.6 billion. Solely for purposes of this calculation, all executive officers, directors, and holders of five percent or more of the closing sale price of theissued and outstanding ordinary shares of $22.33 on June 30, 2020 as reported by the New York Stock Exchange.registrant are deemed “affiliates.”
The number of ordinary shares of the Company outstanding as of January 29, 202131, 2024, was 607,980,173.666,285,990.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Definitive Proxy Statementthe registrant’s definitive proxy statement for the 20212024 Annual General Meeting of Shareholders Meeting are incorporated by reference into Part III of this Form 10-K/A.10-K.
EXPLANATORY NOTE
Amendment No. 1
On May 10, 2021, Clarivate Plc (“Clarivate," the "Company,” "our," "us" and "we") filed Amendment No. 1 ("Amendment No. 1") to our Annual Report on Form 10-K for the year ended December 31, 2020, originally filed with the Securities and Exchange Commission (“SEC”) on February 26, 2021 (the "Original Form 10-K”, and the Original Form 10-K as amended by Amendment No. 1, the "Form 10-K/A"), to restate our Consolidated Financial Statements and related footnote disclosures as of and for the years ended December 31, 2020 and 2019, our Condensed Consolidated Financial Statements for the quarters ended September 30, 2020, June 30, 2020, March 31, 2020, September 30, 2019 and June 30, 2019, and our quarterly results of operations for the quarters ended December 31, 2020 and 2019. Amendment No. 1 also amended certain other Items in the Original Form 10-K, as described in “Items Amended by Amendment No. 1 and this Amendment No. 2” section below.
On April 26, 2021, the Company concluded, with concurrence from the Audit Committee of our Board of Directors (the “Audit Committee”), that the consolidated financial statements previously issued as of and for the years ended December 31, 2020 and 2019, the quarterly periods ended September 30, 2020, June 30, 2020, March 31, 2020, September 30, 2019 and June 30, 2019, and our quarterly results of operations for the quarters ended December 31, 2020 and 2019, should no longer be relied upon because of errors in such financial statements addressed in the Financial Accounting Standards Board's Accounting Standards Codification ("ASC") Topic 250, Accounting Changes and Error Corrections.
The errors corrected in Amendment No. 1 related to the treatment under U.S. generally accepted accounting principles (“GAAP”) of certain Private Placement Warrants for the purchase of the Company’s ordinary shares, issued to the founders of Churchill Capital Corp, a special purpose acquisition company or “SPAC” with which the Company consummated a business combination transaction in May 2019. The Private Placement Warrants were initially issued by the SPAC. In the affected financial statements, the Private Placement Warrants are incorrectly classified as equity of the Company.
As previously disclosed in our Current Report on Form 8-K filed with the SEC on April 29, 2021, on April 12, 2021, the staff of the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (the “SEC Staff Statement”). The SEC Staff Statement addresses certain accounting and reporting considerations that are broadly applicable to warrants issued by SPACs, which are similar in nature to certain Private Placement Warrants originally issued by the SPAC the Company merged with in 2019. In light of consideration of the impacts of the accounting interpretation to previously issued financial statements, on April 26, 2021, the Company with concurrence from the Audit Committee, after discussion with management, determined that the following financial statements previously filed with the SEC should no longer be relied upon: (1) the Consolidated Financial Statements included in the Original Form 10-K, (2) the Condensed Consolidated Financial Statements included in our Quarterly Reports on Form 10-Q ("Form 10-Q") for the three and six month periods ended June 30, 2020 and 2019, (3) the Condensed Consolidated Financial Statements included in our Form 10-Q for the three and nine month periods ended September 30, 2020 and 2019, and (4) the Condensed Consolidated Financial Statements in our Form 10-Q for the three month period ended March 31, 2020, (the “Affected Periods”). Similarly, the related press releases, the Report of Independent Registered Public Accounting Firm as of and for the years ended December 31, 2020 and 2019, and the stockholder communications describing the relevant portions of our Consolidated Financial Statements for these periods should no longer be relied upon.
As discussed in further detail below and in Note 28 to the accompanying restated financial statements, the restatement reflected in Amendment No. 1 was the result of our application of the guidance on accounting for certain Private Placement Warrants. We evaluated the impact to us and we concluded that certain of its Private Placement Warrants, issued to the founders of Churchill Capital Corp, a special purpose acquisition company or “SPAC” with which the Company consummated a business combination transaction in May 2019, should be classified as liabilities with mark to market accounting through earnings. We also concluded that the impact was material to the Company’s financial statements prepared according to U.S. generally accepted accounting principles ("U.S. GAAP") and consequently, have restated the financial statements of the Affected Periods.
Under Accounting Standards Codification 815, Derivatives and Hedging, ("ASC 815"), warrant instruments that do not meet the criteria to be considered indexed to an entity's own stock shall be initially classified as a liability at their
estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash. In periods subsequent to issuance, changes in the estimated fair value of the liabilities are reported through earnings.
This restatement reflected in Amendment No. 1 resulted in the following changes:
| | | | | | | | | | | |
| (in thousands, except per share data) | Year ended December 31, |
| 2020 | | 2019 |
| Net income | $ | (205,559) | | | $ | (47,656) | |
| Basic and diluted earnings per ordinary share | $ | (0.48) | | | $ | (0.17) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except per share data) | September 30, 2020 | | June 30, 2020 | | March 31, 2020 |
| 9 months ended | | 3 months ended | | 6 months ended | | 3 months ended | | 3 months ended |
| Net income | $ | (224,175) | | | $ | (144,753) | | | $ | (79,422) | | | $ | (23,790) | | | $ | (55,632) | |
| Basic earnings per ordinary share | $ | (0.61) | | | $ | (0.37) | | | $ | (0.22) | | | $ | (0.06) | | | (0.16) | |
| Diluted earnings per ordinary share | $ | (0.61) | | | $ | (0.37) | | | $ | (0.22) | | | $ | (0.06) | | | (0.16) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except per share data) | September 30, 2019 | | June 30, 2019 |
| 9 months ended | | 3 months ended | | 6 months ended | | 3 months ended |
| Net income | $ | (48,022) | | | $ | (21,836) | | | $ | (26,187) | | | $ | (26,187) | |
| Basic earnings per ordinary share | (0.18) | | | (0.07) | | | (0.11) | | | (0.10) | |
| Diluted earnings per ordinary share | (0.18) | | | (0.07) | | | (0.11) | | | (0.10) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | June 30, 2019 |
| Warrant liabilities | | $ | (23,237) | | | $ | 144,753 | | | $ | 23,790 | | | $ | 55,632 | | | $ | 111,813 | | | $ | 21,836 | | | $ | 90,343 | |
| Shareholders' equity ordinary shares | | $ | 4,124 | | | $ | — | | | $ | — | | | $ | — | | | $ | (64,157) | | | $ | — | | | $ | (64,157) | |
| Accumulated deficit | | $ | 18,616 | | | $ | (144,753) | | | $ | (23,790) | | | $ | (55,632) | | | $ | (47,656) | | | $ | (21,836) | | | $ | (26,187) | |
The Company, with concurrence from the Audit Committee, and together with management and the assistance of independent legal and accounting advisors, concluded that the consolidated financial statements in the Affected Periods should be restated (the "Restatement") to reflect the Private Placement Warrants issued in May 2019 as a liability, with subsequent changes in their estimated fair value recorded as non-cash income or expense in each Affected Period within the Statements of Operations below Loss from operations for each respective period.
In addition to the correction of the errors discussed above and separate from the SEC guidance issued on April 12, 2021, the Company has corrected the classification of $30,200 from the Selling, general and administrative cost line as a decrease on the Consolidated Statement of Operations to the Cost of revenues line as an increase for the three and twelve months ended December 31, 2020. The Company has also corrected the classification of certain current assets on the Consolidated Balance Sheet as of December 31, 2020 by decreasing accounts receivable of $13,713 and increasing other current assets by $13,713.
Amendment No. 2
The Company is filing this Amendment No. 2 ("Amendment No. 2") to our Annual Report on Form 10-K for the year ended December 31, 2020, to restate our Consolidated Financial Statements and related footnote disclosures as of and for the year ended December 31, 2020 and our quarterly results of operations for the quarter ended December 31, 2020. Amendment No. 2 also amends certain other Items in the Form 10-K/A as described in “Items Amended by the Amendment No. 1 and this Amendment No. 2” section below.
On December 22, 2021, the Company concluded, with concurrence from the Audit Committee, that the consolidated financial statements previously issued as of and for the year ended December 31, 2020 and the quarterly period ended December 31, 2020 should no longer be relied upon because of errors in such financial statements, as addressed in FASB ASC Topic 250. In addition, it was concluded that the financial statements for the quarterly periods ended March 31, 2021, June 30, 2021 and September 30, 2021 should also no longer be relied upon. Accordingly, the Company is filing with the SEC amendments to its previously issued Form 10-Q filings for the quarterly periods ended March 31, 2021, June 30, 2021, and September 30, 2021.
The errors corrected in Amendment No. 2 and such amended Form 10-Q filings relate to the treatment under GAAP of an equity plan included in the CPA Global business combination (the "CPA Global Equity Plan") which was consummated on October 1, 2020 (the "CPA Global Transaction”). In the affected financial statements, certain awards made by CPA Global under such equity plan and a related trust were incorrectly included as part of the acquisition accounting for the CPA Global Transaction. The Company concluded that the majority of the expenses associated with such equity plan should have been recognized as share-based compensation charges ranging primarily from the vesting period of October 1, 2020 to October 1, 2021, with only a portion of the liability recorded as part of acquisitionaccounting. In addition, ordinary shares that were transferred to an Employee Benefit Trust established for the CPA Global Equity Plan should have been excluded from the purchase price consideration in the amount of $196,038 or 6,325,860 ordinary shares. The shares distributed to the trust are being disregarded and accordingly are not treated as outstanding for EPS purposes.
In addition, and separate from the CPA Global Equity Plan restatement in Amendment No 2, the Company has corrected for the understatement of deferred tax liabilities of $3,328 with an offset to goodwill relating to the CPA Global acquisition opening balance sheet on October 1, 2020. The Company has also corrected for the understatement of deferred tax liabilities of $1,936 with an offset to goodwill relating to the DRG acquisition opening balance sheet on February 28, 2020.
This restatement reflected in this Amendment No. 2 resulted in the following changes:
Consolidated Statement of Operations
| | | | | | | | |
(in thousands, except per share data) | | December 31, 2020 |
| | 3 and 12 months ended |
Cost of revenues | | $ | (9,490) | |
Selling, general and administrative costs | | (21,119) | |
Restructuring and impairment | | (8,543) | |
Total operating expenses | | (39,152) | |
Loss before interest expense and income tax | | (39,152) | |
Loss before income tax | | (39,152) | |
Benefit (provision) for income taxes | | 396 | |
Net loss | | (38,756) | |
Basic earnings per ordinary share | | $ | (0.09) | |
Diluted earnings per ordinary share | | $ | (0.09) | |
Consolidated Balance Sheet
| | | | | | | | |
(in thousands) | | December 31, 2020 |
Restricted cash | | $ | 3,400 | |
Prepaid expenses | | — | |
Other current assets | | (183,344) | |
Goodwill | | (209,672) | |
Other non-current assets | | (16,610) | |
Deferred income taxes | | 77 | |
Total assets | | (406,149) | |
Accrued expenses and other current liabilities | | (146,674) | |
Other non-current liabilities | | (18,277) | |
Deferred income taxes | | 4,735 | |
Total liabilities | | (160,216) | |
Treasury Shares | | (196,038) | |
Accumulated other comprehensive income | | (11,139) | |
Accumulated deficit | | (38,756) | |
Total shareholders’ equity | | (245,933) | |
Consolidated Statement of Comprehensive Income
| | | | | | | | |
(in thousands) | | December 31, 2020 |
| | 3 and 12 months ended |
Net loss | | $ | (38,756) | |
Foreign currency translation adjustment | | (11,139) | |
Total other comprehensive income, net of tax | | (11,139) | |
Comprehensive income | | (49,895) | |
Consolidated Statement of Cash Flows
| | | | | | | | |
(in thousands) | | December 31, 2020 |
| | 3 and 12 months ended |
Cash flows from operating activities | | |
Net loss | | $ | (38,756) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | |
Share-based compensation | | (1,264) | |
Restructuring and impairment | | (76) | |
Deferred income tax benefit | | (404) | |
Mark to market adjustment on phantom shares | | 994 | |
Changes in operating assets and liabilities: | | |
Prepaid expenses | | — | |
Other assets | | 2,620 | |
Accrued expenses and other current liabilities | | 35,774 | |
Other liabilities | | 1,112 | |
Net cash provided by operating activities | | — | |
Items Amended by Amendment No. 1 and this Amendment No. 2
The portions of the Original Form 10-K that have been revised to give effect to the restatements reflected in Amendment No. 1 and this Amendment No. 2 and matters related thereto are as follows:
•Part I, Item 1. Business
•Part I, Item 1A. Risk Factors
•Part II, Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
•Part II, Item 6. Selected Financial Data
•Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
•Part II, Item 8. Financial Statements and Supplementary Data
•Part II, Item 9A. Controls and Procedures
•Part IV, Item 15. Exhibits and Financial Statement Schedules
See additional information within Note 26 - Quarterly Financial Data and Note 28 - Restatement of Previously Issued Financial Statements, in Item 8, Financial Statements and Supplementary Data.
Pursuant to the rules of the SEC, Part IV, Item 15 has been amended to include currently-dated certifications from our Chief Executive Officer (as Principal Executive Officer) and our Chief Financial Officer (as Principal Financial Officer), as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (Exhibits 31 and 32).
The Form 10-K/A as amended by this Amendment No. 2 sets forth the information in the Original Form 10-K in its entirety, as such information is modified and superseded by Amendment No. 1 and this Amendment No. 2. Except as provided above, the Form 10-K/A as amended by this Amendment No. 2 does not amend, update or change any other items or disclosures or otherwise reflect events occurring after the date of the Original Form 10-K to the date this Amendment No. 2 is filed. Accordingly, this Amendment No. 2 should be read in conjunction with the Company’s other SEC filings, including any amendment to those filings.
In accordance with applicable SEC rules, this Amendment No. 2 includes an updated signature page, certifications of our Chief Executive Officer and Chief Financial Officer in Exhibits 31.1, 31.2 and 32.1 as required by Rule 12b-15, and a Consent of Independent Registered Public Accounting Firm in Exhibit 23.1.
Control Considerations
In connection with the restatement reflected in Amendment No. 1, management reassessed its conclusions regarding the effectiveness of the Company’s disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR") as of December 31, 2020. Management concluded that the Company’s DC&P and ICFR were not effective as of December 31, 2020, due to a material weakness as a result of a lack of an effectively designed control over the evaluation of settlement features used to determine the classification of warrant instruments.
In connection with the restatement reflected in this Amendment No. 2, management has further reassessed its conclusions regarding the effectiveness of the Company’s DC&P and ICFR as of December 31, 2020. Management has concluded that the Company’s DC&P and ICFR were not effective as of December 31, 2020, due to additional material weaknesses related to, (1) the lack of an effectively designed control over the communication of modifications to pre-existing compensation agreements in an acquisition transaction between the legal function and the accounting function to ensure the accounting impact of the modifications could be evaluated, and (2) the lack of an effectively designed control with a sufficient level of precision to allow for an appropriate review of the tax balances associated with the opening balance sheet of acquired entities.
For a discussion of management’s consideration of our DC&P and ICFR, and the material weaknesses identified, see Part II, Item 9A, Controls and Procedures of this Amendment No. 2.
TABLE OF CONTENTS
Cautionary Note Regarding Forward-Looking Statements
This annual report includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions, or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of the “safe harbor provisions” of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will,” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this annual report and include statements regarding our intentions, beliefs, or current expectations concerning, among other things, anticipated cost savings, results of operations, financial condition, liquidity, prospects, growth, strategies, and the markets in which we operate. Such forward-looking statements are based on available current market material and management’s expectations, beliefs, and forecasts concerning future events impacting us. Factors that may impact such forward-looking statements include:
•our dependence on third parties, including public sources, for data, information, and other services, and our relationships with such third parties;
•increased accessibility to free or relatively inexpensive information sources;
•our ability to compete in the highly competitive industry in which we operate, and potential adverse effects of this competition;
•our ability to maintain high annual renewal rates;
•our ability to leverage artificial intelligence technologies (“AI”) in our products and services, including generative AI, large language models (“LLMs”), machine learning, and other AI tools;
•regulatory and legislative developments affecting our use of AI;
•our ability to obtain, protect, defend, or enforce our intellectual property rights;
•our use of “open source” software in our products and services;
•any significant disruption in or unauthorized access to or breaches of our computer systems or those of third parties that we utilize in our operations, including those relating to cybersecurity or arising from cyberattacks;
•our ability to maintain revenues if our products and services do not achieve and maintain broad market acceptance, or if we are unable to keep pace with or adapt to rapidly changing technology, evolving industry standards, macroeconomic market conditions, and changing regulatory requirements;
•our loss of, or inability to attract and retain, key personnel;
•our ability to comply with applicable data protection and privacy laws;
•the effectiveness of our business continuity plans;
•our ability to derive fully the anticipated benefits from organic growth, existing or future acquisitions, joint ventures, investments, or dispositions;
•the strength of our brand and reputation;
•our exposure to risk from the international scope of our operations, including potentially adverse tax consequences from the international scope of our operations and our corporate and financing structure;
•our level of indebtedness, which could adversely affect our business, financial condition, and results of operations;
•volatility in our earnings due to changes in the fair value of our outstanding warrants; and
•other factors beyond our control.
The forward-looking statements contained in this annual report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks and uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in Item 1A. Risk Factors of this annual report. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We do not undertake any obligation to update or revise any forward-
looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.
Defined Terms and Presentation
We employ a number of defined terms in this annual report for clarity and ease of reference, which we have capitalized so that you may recognize them as such. As used throughout this annual report, unless otherwise indicated or the context otherwise requires, the terms “Clarivate,” the “Company,” “our,” “us”“us,” and “we” refer to Clarivate Plc and its consolidated subsidiaries; “Baring” refers to the affiliated funds of Baring Private Equity Asia Pte Ltd that from time to time hold our ordinary shares; “LGP” refers to affiliated funds of Leonard Green & Partners, L.P. that from time to time hold our ordinary shares; and “Onex” refers to the affiliates of Onex Partners Advisor LP that from time to time hold our ordinary shares.subsidiaries.
Unless otherwise indicated, dollar amounts throughout this annual report are presented in thousandsmillions of dollars, except for share and per share amounts.
Website and Social Media Disclosure
We use our website (www.clarivate.com) and corporate Twitter accountsocial media accounts on Facebook, X, and LinkedIn (@Clarivate) as routine channels of distribution of company information, including news releases, analyst presentations, and supplemental financial information, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, investors should monitor our website and our corporate Twitter accountFacebook, X, and LinkedIn accounts in addition to following press releases, SEC filings, and public conference calls and webcasts. Additionally, we provide notifications of news or announcements as part of our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts.
None of the information provided on our website, in our press releases, public conference calls, and webcasts, or through social media channels is incorporated into, or deemed to be a part of, this annual report or in any other report or document we file with or furnish to the SEC, and any references to our website or our social media channels are intended to be inactive textual references only.
Foreign Private Issuer Status and Financial Presentation
We qualified as a foreign private issuer (“FPI”) under the rules of the SEC for the financials periods presented herein. However, even though we qualified as an FPI, we report our financial results in accordance with U.S. generally accepted accounting principles (“GAAP”) and we have elected to file our periodic and current reports on Forms 10-K, 10-Q and 8-K. Based on Rule 405 of the Securities Act and Rule 3b-4(c) of the Exchange Act, we no longer qualified as an FPI as of January 1, 2021.
Industry and Market Data
The market data and other statistical information used throughout this annual report are based on industry publications and surveys, public filings, and various government sources. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of the included information. Statements as to our ranking, market position and market estimates (including estimates of the sizes and future growth rates of our markets) are based on independent industry publications, government publications, third-party forecasts, and management’s good faith estimates and assumptions about our markets, and our internal research. We have not independently verified such third-party information, nor have we ascertained the underlying economic assumptions relied upon in those sources, and we are unable to assure you of the accuracy or completeness of such information contained in this annual report. While we are not aware of any misstatements regarding our market, industry, or similar data presented herein, such data involve risks and uncertainties and are subject to change based on various factors. See Cautionary Note Regarding Forward-Looking Statements and Item 1A. Risk Factors (as restated) of this annual report.
Trademarks, Service Marks, and Cautionary Statement Regarding Forward-Looking StatementsCopyrights
We own or have rights to use the trademarks, service marks, and trade names that we use in connection with the operation of our business. Other trademarks, service marks, and trade names referred to in this annual report.
TABLE OF CONTENTS
Page
| | | | | |
PART I | |
| |
| |
| |
| |
| |
| |
| |
Part II | |
| |
| |
| |
| |
Index to Financial Statements | |
| |
| |
| |
| |
Part III | |
| |
| |
| |
| |
| |
PART IV | |
| |
| |
PART I
Item 1. BusinessBusiness.
OverviewBackground
Clarivate Plc is a public limited company incorporated on January 7, 2019 under the laws of Jersey, Channel Islands. Our registered office is located at 4th Floor, St Paul’s Gate, 22-24 New Street, St. Helier, Jersey JE14TR. Our principal business offices are located at 70 St. Mary Axe, London EC3A 8BE, United Kingdom, and our main telephone number is +44 207 433 4000. We became a public company in May 2019, and our ordinary shares are traded on the New York Stock Exchange under the symbol “CLVT.”
Our Business
We are a leading global information services provider. We connect people and organizations to intelligence they can trust to transform their world. We bring together enriched data, analytics company servingand insights, workflow software, and expert services, grounded in deep domain expertise across the spectrum of knowledge, research, and innovation. Our subscription and technology-based solutions cover the Academia & Government (“A&G”), Intellectual Property (“IP”), and Life Sciences & Healthcare (“LS&H”) markets.
Our goal is to deliver a best-in-class experience for our customers at every touchpoint while delivering exceptional outcomes for our colleagues, communities, and shareholders. We aim to accomplish this goal through the following actions:
•Provide indispensable, mission-critical solutions to our customers.
•Leverage scale created by interconnected end markets.
•Operate the business to accelerate organic growth.
•Position the business to unlock significant value for shareholders.
To accomplish these objectives, we have taken or are taking the following actions:
•Strengthened our portfolio of products and services by making key acquisitions across our core markets, including Decision Resources Group (“DRG”) and CPA Global in 2020 and ProQuest in 2021. DRG improved our end-to-end capabilities across the LS&H innovation lifecycle, while CPA Global enhanced our end-to-end capabilities across the IP lifecycle, and ProQuest added end-to-end capabilities to support A&G research and resource management needs. We have also divested lower margin, non-core business, and product lines (such as Techstreet in 2020 and MarkMonitor Domain Management in 2022) to focus on our key offerings. We will continue to evaluate and pursue appropriate acquisition and divestiture opportunities across our product lines.
•Strive to achieve scale across our core markets by integrating shared content and unified technology to enable high value use cases in the innovation lifecycles of our customer end markets. We believe a significant opportunity exists for us to accelerate revenue growth by increasing the value of our products and services, developing new products, and optimizing sales force productivity.
•Leverage our shared services to achieve significant cost synergies by streamlining and consolidating our content and technology infrastructure. We expect to continue realizing the benefits of our cost-saving and margin improvement initiatives designed to generate substantial incremental cash flow. Some of our initiatives include decreasing costs by simplifying organizational structures and rationalizing general and administrative functions to enhance a customer-centric focus, using artificial intelligence (“AI”) and the latest technologies to reduce costs and increase efficiencies for content sourcing and curation, software development, operational delivery, and headcount productivity.
As a result of these activities, we believe that we are deeply entrenched across the global innovation ecosystem, with more than 150 countries where our customers benefit from our data, software, and expert insight. Nearly all of the world’s top 400 universities use our solutions to accelerate research and enhance education, and all of the world’s top pharma, medtech, and biotech companies rely on us to improve patient outcomes. More than 95 percent of the world’s top 50 R&D companies work with us to accelerate innovation.
Our Customers
We serve a large, diverse, and global customer base across the scientific research, intellectual property, and life sciences end-markets. We provide structured information and analytics to facilitate the discovery, protection and commercialization of scientific research, innovations and brands.healthcare end markets. Our product portfolio includes well-established, market-leading brands such as Web of Science, Derwent, Cortellis, DRG, CompuMark, MarkMonitor and CPA Global. We believe that our flagship products hold a #1 or #2 global position by revenues across the respective markets they serve, including abstracting and indexing databases, life science regulatory and competitive intelligence and intellectual property protection (including patent, trademarks and domain and brand protection). We serve a large, diverse and global customer base. As of December 31, 2020, we served over 30,000 customers in more than 170 countries, including the top 30 pharmaceutical companies by revenues. We believe that the strong value proposition of our content, user interfaces, visualization and analytical tools, combined with the integration of our products and services into customers’ daily workflows, leads to our substantial customer loyalty as evidenced by their high propensity to renew their subscriptions with us.
Corporations,include corporations, universities, law firms, government agencies, universities, law firmspublic libraries, and other professional services organizations aroundorganizations.
We believe the world depend on our high-value, curated content, analytics and services. Unstructuredsubstantial increase in unstructured data has grown exponentially over the last decade.decade has increased the importance of our proprietary, curated databases to our customers. This trend has resulted in a critical need for unstructured data to be meaningfully filtered, analyzed, and curated into relevant information that facilitates key operational and strategic decisions made by businesses, academic institutions and governments worldwide.our customers. Our highly curated, proprietary suite of branded information and insights solutions created through our sourcing, aggregation, verification, translation, classification, and categorization of datastandardization process has resulted in our solutions being embeddedproviding a trusted foundation and quality user experience for our customers. We believe our solutions and commitment to excellence provide us with a significant advantage in both retaining existing and attracting new customers.
We provide our customers’ workflowofferings to customers primarily through subscriptions, re-occurring arrangements, and decision-making processes.transactions, as follows:
For the year ended December 31, 2020, we generated approximately $1,254,047 of revenues. We generated•Subscription-based revenues are recurring revenues throughthat we typically earn under annual contracts, pursuant to which we license the right to use our products to our customers or provide maintenance services over a contractual term. Subscription agreements provide us with stable revenue and predictable cash flows.
•Re-occurring revenues are derived solely from the patent and trademark maintenance services provided by our IP segment. Patents and trademarks are renewed regularly, and our services help customers maintain and protect those patents and trademarks in multiple jurisdictions around the world. Because of the re-occurring nature of the patent and trademark lifecycle, our customer base engages us to manage the renewal process on their behalf. Like subscription-based modelrevenue, this revenue stream also typically provides us with stable revenue and re-occurring revenue transactions, which accountedpredictable cash flows.
•Transactional revenues are earned for 76.9% ofspecific deliverables that are typically quoted on a product, data set, or project basis. Transactional revenues include content sales (including single-document and aggregated collection sales), consulting engagements, and other professional services such as software implementation services.
The following charts illustrate our revenues from customers for the year ended December 31, 2020. In each2023, by segment, type, and geography:
We are not dependent on any single customer or group of customers, and no significant portion of the past three years, we have also achievedbusiness is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government.
We believe that the strong value proposition of our content, user interfaces, and visualization and analytical tools, combined with the integration of our products and services into customers’ daily workflows, contribute to our strong annual revenuecustomer renewal rates in excess of 90%. (For90 percent. For additional information on annual revenue renewal rates, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Key Performance Indicators - Annual Revenue Renewal Rates.) No single customer accounted for more than 1% Rates of revenues and our ten largest customers represented only 6% of revenues for the year ended December 31, 2020.
The following charts illustrate our revenues for the year ended December 31, 2020 by segment, type and geography:
Our Business Segments
Our reportable segment structure is comprised of twocomprises three segments: Science andAcademia & Government (“A&G”), Intellectual Property (“IP”), and Life Sciences & Healthcare (“LS&H”). This structure enables a sharp focus on cross-selling opportunities withinallows us to provide substantial scale for our vertical market customers while still leveraging our shared-services to operate efficiently across horizontal workflows and functions. Within each of our segments, we provide the markets we servefollowing information, solution, and provides substantial scale. service capabilities:
•Enriched Data - comprehensive, curated content collections.
•Analytics & Insights - on-demand predictive analytics capabilities to inform decision making.
•Workflow Software - automated workflow, including SaaS, to enable decisions and manage resources.
•Expert Services - business-critical regulatory and compliance activities support.
Additional information with respect to business segment results is included in Item 7 -7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8. Financial Statements and Supplementary Data - Note 22 to the Consolidated Financial Statements16 - Segment Information.
Information
ScienceA&G Segment (58.2%(50% of revenues for the year ended December 31, 2020)
Our Science segment consists of our Academic and Life Sciences Product Lines. Both provide curated, high-value, structured information thatA&G segment’s mission is delivered and embedded into the workflows ofto help our customers which includeeducate the world by advancing research intensive corporations, life scienceexcellence and healthcare organizationsstudent success to accelerate real-world outcomes. We help academic and universities world-wide.
Our product portfolio forgovernment institutions advance knowledge to build a better world. Within the A&G segment, we provide Research and Analytics, Content Aggregation, and Workflow Software solutions in striving to accomplish our Science segment is summarized below.mission.
| | | | | | | | | | | |
| Research and Analytics | Content Aggregation | | | | | | | Workflow Software |
Product LineDescription | AcademicAnalyze and explore the academic research landscape and manage research information | Life SciencesProvide comprehensive content collections to institutions in a cost-effective manner | Manage academic resources and services, connect users, and support research publication |
Product DescriptionNotable Solutions and Products | Used to navigate scientific and academic research discoveries, conduct analysis and evaluate research impactWeb of Science InCites | Used by life sciences and healthcare firms for drug research and medical device researchProQuest One Ebook Central | Alma Polaris |
| Curated Information Set | Database of 1.9B+ citations, 176mm+ index records | 80,000+7+ billion drug programdigital pages, 2.4+ billion bibliographic records, 435,0002+ billion clinical trial recordscitations,
|
Customers | 7,000+245+ million leadingjournal articles, academic institutions5+ million dissertations, and governments1.8+ million and research intensive corporations use Web of Science and its Journal Impact FactorE-books
| Trusted by the top 30 pharma companies and hundreds of research groups
|
Notable Products and Offerings | Web of Science
InCites
ScholarOne | Cortellis Drug Discovery Intelligence (formerly Integrity)
Cortellis Generic Intelligence (formerly Newport) |
Academic Product Line
Our Academic Product Line (“APL”) provides products and services to organizations that plan, fund, implement and utilize research. We deliver search and discovery services to researchers with proprietary scientific data; we help researchers cite their research with workflow tools; we provide data and analytics to allow for global measures of research excellence and university rankings; we support governments and policy makers worldwide in assessment programs; and we inform a wide range of sector specific consultation and reporting activities to national and institutional research agencies across the G20 countries. We believe that the high quality and unique nature of APL’s products and the informed approachA significant portion of our professional service expertise have resulted inproduct development efforts is focused on leveraging AI to drive enhanced value for our information, services and workflow tools becoming embeddedA&G segment customer-base. For example, we use AI to identify academic journals within the fabric of the research community. Key products include Web of Science InCites, Journal Citation Reports, EndNote, ScholarOne, Converis,that show outlier characteristics, to ensure our customers are confident that they can trust all indexed journals and Publons.
Web of Science (“WOS”),continue to deliver gold-standard content. Trained machine learning algorithms flag these journals to our flagship product, holdsin-house editors who conduct a unique and pivotal role in the infrastructure of R&D and is frequently utilized as a reference standard in the academic, institutional and corporate sectors. It provides publication records and essential metadata from trusted published assets and is linked and indexed together via over 1.9 billion tracked citations from over 176 million index records going back to 1900 within the core Web of Science, and back to 1864 in Zoological Record. A key metric we provide is the “Journal Impact Factor” (“JIF”), which we believe is the most influential and best-known research metricthorough analysis of the last 50 years. Its primary value is as a journal-level metricjournal and whether it continues to assess what journals are the most impactful, but universitiesmeet our standards. We also have integrated generative AI, LLMs, and research funders use JIF to inform their evaluation of research excellence when assessingother AI tools and technology into our A&G solutions, which provide students, faculty, and selecting funding grantees. Researchers also rely on the JIFresearchers with rapid access to identify top-tier journals where they should publish their content.detailed and contextual information and relevant recommendations.
Example Use Cases
•A physics professor planning a research program and makingpreparing a proposal for grant proposal accesses WOSfunding could utilize the Web of Science to evaluatereveal emerging research trends by discipline and gaps in the current state ofliterature where further research in her discipline,is needed, understand the competitive landscape, and identify emerging trends within highly regarded and relevant scientific journals and select a research topic, while the grant-making institutions will use WOS’s analytic tools to measure the professor’s credentials.potential collaborators.
•A university provost interested in evaluating her university’sthe chemistry department accesses WOSat her institution can use the Web of Science and ourits associated analytical tool, InCites, to measure research performance of the team and individuals using indicators of impact and collaboration, benchmark the strength of the university’s research output and benchmark it against comparablecompared to other global institutions, and find the best researchersevaluate faculty productivity to bolster the university’s rankingassist in strategic planning and improve the caliber of research, and find highly cited researchers, departments and laboratories.resource allocation.
Life Sciences Product Line
Our Life Sciences Product Line (“LSPL”) provides products and services primarily to pharmaceutical, healthcare and biotechnology companies. These Product Lines help manage customer’s intellectual property throughout their product development lifecycle. We believe we provide a unique end-to-end proposition, which links to early research workflows, and believe there is an opportunity to stretch further into the approval and post-approval phases of drug development. Key products include Cortellis research Intelligence, Cortellis Generics Intelligence, and DRG.
Cortellis, our flagship LSPL product, is used by strategy, business development, drug development, medical affairs and clinical professionals at pharmaceutical and biotechnology companies to support research, market intelligence and competitive monitoring in connection with the development and commercialization of new drugs. Our customers use the database to access and evaluate scientific data, drug pipeline data, clinical trial information, drug monographs, pharmaceutical M&A data and regulatory information, all of which have been aggregated, curated and classified by our team of scientific experts who evaluate and select data for inclusion in the database from a wide array of sources. In addition, our team of experts creates high-value content from this data, such as analytics, abstracts, conference summaries and regulatory reports. As of December 31, 2020, our data included more than 80,000 drug program records and more than 435,000 clinical trial records.
Example Use Case
•An analyst at a pharmaceutical firm who is evaluating several potential R&D programs willA library, university, or research institution looking to improve the quality or scope of its content, discovery solutions, or related software applications can use Alma, Polaris, ProQuest One, and Ebook Central to manage its collections and provide its users with access the Cortellis database to assess competitive products in the drug development pipeline, review clinical trial data, and summarize regulatory information.high-value curated content.
Intellectual PropertyIP Segment (41.8%(33% of revenues for the year ended December 31, 2020)
Our Intellectual PropertyIP segment’s mission is to enable organizations worldwide to unlock innovation, establish strong brands, and effectively protect critical IP assets through our trusted IP data, software, and expertise. We help customers establish,
protect, and manage their intellectual property. Within the IP segment, consists of our Patent, Trademark, Domainwe provide IP Maintenance, IP Intelligence, and IP Management Product Lines. These Product Lines help manage customer’s end-to-end portfolio of intellectual property from patentssolutions in striving to trademarks to corporate website domains.
Our product portfolio foraccomplish our Intellectual Property segment is summarized below.
| | | | | | | | | | | |
| IP Maintenance | IP Intelligence | | | | | | | | | | | | | IP Management |
Product LineDescription | Patents | Trademarks | Domains | IP |
Product Description | Used to searchSupport paralegal and analyze patents | Used to monitor trademarks on an ongoing basis | Used to register and manage portions of web domains | Used for renewal and validation of intellectual property rights on behalf of customers |
Curated Information Set | Database of 93 million + patent filings across 50+ patent offices
| 180+admin tasks throughout the patent and trademark officesprotection and maintenance process | Database of 1.4 million corporate domain names
| Database of 3.4 millionSupport critical decisions around patent and trademark renewalsprotection, risk, and value creation throughout the innovation and brand lifecycle performed annually with over 200+
| Create a structured environment for the effective protection and management of global patent and trademark offices across the worldassets |
| Notable Solutions and Products | Patent and Trademark Renewals | CompuMark Derwent | IPFolio Foundation IP |
CustomersCurated Information Set | Used by 50+ patent offices, large R&D organizations150+ million of Fortune 1000 companies and various universities
| 65 industrial databases, 70 Pharma in-use databases | MarkMonitor managespatent documents; 38% of the top 50 most trafficked corporate website domain portfolios
| 12,000 direct and indirect customers26,000 includingunique classifications of structured patent insights; 47 out of 50 top R&D140+ million spenders globallytrademark records;
|
Notable Products and Offerings9+ million | Derwent
Innography
IncoPat IP law cases | Compumark Watch
Compumark Saegis
Compumark Search | MarkMonitor
Domain Management
Brand Protection | CPA Global
Renewals, Filing and Prosecution, Patent Search and IPMS Solutions
|
Patents Product Line
Our Patents Product Line (“PPL”) enables customersA significant portion of our product development efforts are focused on leveraging AI to evaluatedrive enhanced value for our IP segment customer-base. For example, the noveltyCompuMark Naming Tool uses generative AI to automate the process of brainstorming new brand names, simultaneously analyzing them for potential new products, confirm freedom to operate with respect to their product design, help them secure patent protection, assess the competitive technology landscapeusability. Trained on US, EU, and ensure that their products comply with required industry standards. We provide a range of analytics capabilities and data visualization tools to improve the efficiency and accuracy of IP-driven decisions. Key products include Derwent Innovation, Innography and IP Professional Services.
Derwent, our flagship PPL product, is used by R&D professionals and lawyers to monitor patent filings, search existing patents and analyze data to support R&D decision-making. It is a critical resource to help our customers secure patent protection and address litigation of patent infringement. The product is powered by Derwent World Patents Index,Pharma In-Use databases, our proprietary database of over 93 million patent publications from 59 patent offices, which represented 90% of all patents published globallyAI algorithm generates creative name suggestions based on customer criteria in 2020seconds, simultaneously analyzing them against existing domain names and has been developed and curated for over 50 years. The database combines data science with our team of domain experts who correct, enrich and abstract over six million global patents per year in over 30 languages, as of December 31, 2020. We provide customers with easy-to-understand summaries of patent filings that are prepared by our domain experts, who index and translate the highly technical and intentionally obscure patent filings into understandable abstracts that provide insights into a patent’s novelty, use and advantage over prior patents.social media handles.
Example Use Case
•An employee developing a new product or idea (e.g., a chemical engineer or a product designer) will access the Derwent database of patents to evaluate the novelty and determine the patentability of the new product or idea.
Trademarks Product Line
Our Trademarks Product Line (“TPL”) provides trademark research and protection services for businesses and law firms globally and relies on our leading trademark database, CompuMark. Our CompuMark’s offerings span the entire life cycle of a trademark, from determining availability of a proposed trademark to monitoring for infringement post registration. TPL provides global trademark research and protection to corporations and law firms globally. Over the last 30 years, the organization has curated content from more than 180 patent and trademark offices. Coupled with industry specific sources,
including over 65 industrial design databases and 70 Pharma In-Use Databases, as of December 31, 2020, CompuMark delivers the most comprehensive data set available for trademark professionals.
Key products include trademark screening, trademark searching and trademark watching. We do this by (i) providing customers with sophisticated self-service tools to narrow large lists of potential trademarks, which we refer to as “screening”; (ii) preparing detailed, custom reports post screening that uncover potential risks related to a proposed trademark, which we refer to as “clearance searching”; and (iii) monitoring trademark applications and other data sources on a recurring subscription revenues basis to alert clients to potential instances of infringement post registration, which we refer to as “watching.”
Example Use Case
•An attorney for a large law firm helps clear a trademark for use by its corporate customer as part of a new product launch. The attorney first conducts a “knock-out” search as part of a preliminary screening process using our trademark researchTrademark Searching tool and then later orders an analyst curated “Full Search” report by CompuMark to ensure the availability of the proposed trademark in the markets in which the customer will be operating. In this way, the attorney can clear both the word and image mark for use by his/herthe client. The attorney will then subscribe to CompuMark’s trademark watchingTrademark Watching services solution to continually ensure that none of their customers’ valuable trademarks are being infringed upon.
Domains Product Line
Our Domains Product Line (“DPL”) helps global enterprises establish, manage, optimize and protect their online presence. Our primary offering, MarkMonitor, provides a suite of technology services for brand managers, IT managers, marketing teams, and legal counsel in corporations to register and manage portfolios of domain names critical for their business. This allows customers to achieve the right balance of being easily found online without overpaying for domains that generate little to no Internet user traffic. MarkMonitor also provides data and domain industry insights which help enterprises maximize the power of their portfolios, and mitigate cyber squatters’ attempts to register domains aimed to defraud consumers.
Example Use Case
•An in-house counsel uses MarkMonitor to ensure that important domain names are registered and protected from security threats such as domain hijacking, spam, and other forms of domain name system ("DNS") abuse.
IP Management Product Line
Our IP Management Product Line ("IPMPL") provides technology solutions and legal support services across the intellectual property lifecyle under the CPA Global brand name. The principal activities are renewal and validation of IP rights on behalf of customers and the development and provision of IP management software, as well as other activities including patent searching, IP filing, prosecution support and trademark watching.
Example Use Case
•A law firm partnership uses the technology solutionsFoundationIP to provide renewal and validation of IP rights on behalf of a customer.
Our Strategy
The Clarivate management team, led by Executive Chairman and Chief Executive Officer Jerre Stead, has implemented a transformation strategy designed to improve operations, increase cash flow and accelerate revenues growth. Under Mr. Stead’s leadership, we have embarked on a race to deliver excellence to the markets we serve and continue our evolution as a world-class organization. As we move forward, the focus will be on three basic principles; focus, simplify and execute. This means:
1. Focusing on our core capabilities and the greatest opportunities for growth.
2. Simplifying our organization and processes. The focus on two segments is the driver for streamlining our operations.
3. Relentlessly driving execution of our strategy and growth plans.
These changes will help us operate with greater focus and urgency. They will ensure that we put our clients first, drive accountability throughout the organization, accelerate decision-making, and promote consistency. These tenets will enable us to deliver long-term, sustainable growth.
With a proven operational playbook with multiple levers, we have quickly pursued initiatives to set ourselves on a growth trajectory. Our results for the year ended December 31, 2020 are among the first proof points that our transformation is underway.
| | | | | | | | | | | | | | | | | |
Accelerate Revenue Growth | | | 2020 Earnings Progress Report(1)
|
~ | Product and pricing enhancement strategies | | | 1. | Revenue growth 28.7%(2)
|
| | | | | |
~ | Increased pipeline of new products | | | 2. | Subscription revenue growth 7.7% |
| | | | | |
~ | Build strength in Asia Pacific | | | 3. | Transactional revenue growth 74.2% |
| | | | | |
~ | Optimizing pricing and cross-sell | | | 4. | ACV growth (at constant currency) 14.2%(3)
|
| | | | | |
| | | | 5. | 91.2% retention rate(4)
|
| | | | | |
Enhance Margins | | | 6. | Net loss $(350,625) (Net loss margin and margin improvement not meaningful; change in Net loss of 35.6%) (2)
|
| | | | | |
~ | Benefit from top-line initiatives | | | 7. | Adjusted EBITDA margin 38.1%(2)
|
| | | | | |
~ | Simplifying Selling, General and Administrative ("SG&A") cost structure | | | 8. | Adjusted EBITDA margin improvement 793.3 bps(2)
|
| | | | | |
~ | Consolidating footprint | | | 9. | Adjusted EBITDA growth 65.5%(2)
|
| | | | | |
~ | Increase automation and cloud infrastructure | | | | |
| | | | | |
| | | | | |
| | | | | |
(1)For a reconciliation of our non-GAAP measures to the corresponding most closely related measures calculated in accordance with GAAP, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Certain Non-GAAP Measures.
(2)Results calculated for the year ended December 31, 2020 as compared to the year ended December 31, 2019.
(3)“ACV” or “annualized contract value” refers to the annualized value for a 12-month period following a given date of all subscription-based client license agreements, assuming that all license agreements that come up for renewal during that period are renewed. The figure above represents the year-over-year growth in the annual value of our subscriptions as of December 31, 2020 as compared to December 31, 2019. For information on ACV, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Key Performance Indicators - Annualized Contract Value.
(4)Retention rate measurement period is for the year ended December 31, 2020.
Operational Improvement Initiatives
We have implemented several cost-saving and margin improvement initiatives designed to generate substantial incremental cash flow. We have engaged a strategic consulting firm to assist us in optimizing our structure and cost base. The focus of these initiatives is to identify significant cost reductions to be implemented over the next several quarters, enabling us to deliver margins consistent with those of our peer group. Some examples include:
•decreasing costs by simplifying organizational structures and rationalizing general and administrative functions to enhance a customer-centric focus;
•using artificial intelligence and the latest technologies to reduce costs and increase efficiencies for content sourcing and curation;
•moving work performed by contractors in-house to best-cost geographic locations, particularly India, where we have significant scale that can be leveraged;
•achieving headcount productivity benchmarks and operational efficiency metrics based on alignment with quantified sector leader benchmarks;
•expanding existing operations in best-cost geographic locations, aligning with business objectives;
•minimizing our real estate footprint by reducing facility locations substantially over the next three years; and
•divesting non-core assets.
Revenues Growth Initiatives
We believe a significant opportunity exists for us to accelerate revenues growth by increasing the value of our products and services, developing new products, cross-selling certain products and optimizing sales force productivity. Actions to achieve such revenues growth are expected to include:
•developing new value-added products and services;
•delivering an enhanced client experience through ongoing renovations to our products’ user interface and user experience;
•offering additional analytics that enhance existing products and services;
•moving up the value chain by providing our clients with predictive and prescriptive analytics, allowing for stronger growth and higher retention rates;
•expanding our footprint with new and existing customers, with significant opportunity for growth in the Asia Pacific and emerging markets;
•broadening our consulting capabilities, in particular in the Science Group, where there is considerable opportunity for us to deliver high value consulting services to drive significant revenues growth;
•optimizing product pricing and packaging based on customer needs;
•increasing sales force focus on large accounts;
•expanding our inside sales capability to improve account coverage; and
•restructuring our incentive plans to drive new business, as well as cross-selling among similar products and overlapping buying centers.
The above actions are part of an overarching effort to improve retention rates and new business growth rates to best-in-class levels across our portfolio.
Pursue Acquisition Opportunities
Given the fragmented nature of the broader information services industry, we track and, where appropriate, will continue to pursue opportunities across our product lines. From 2017 through 2020, we completed seven small add-on acquisitions and two significant acquisitions to augment our existing portfolio of assets and provide additional datasets and services for our customers. Our completed acquisitions include Publons, Kopernio and Decision Resources Group within the Science segment and TrademarkVision, SequenceBase, Darts-ip, CPA Global, Beijing IncoPat and Hanlim in the IP segment. We also acquired the assets of CustomersFirst Now, which was accounted for as an asset acquisition. Certain of these acquisitions are fully integrated into our platform, while others continue to be integrated, and we believe they have already provided additional value to our customers. Additionally, we divested lower margin, non-core products lines such as MarkMonitor Brand Protection, Antipiracy and Antifraud solutions, and Techstreet.
We are evaluating additional acquisition opportunities to supplement our existing platform and enable us to enter new markets. Our focus is on disciplined and accretive investments that leverage our core strengths and enhance our current product, market, geographic and customer strategies. We believe that the combination of Mr. Stead’s successful acquisition track record and our scale and status as a global information services leader uniquely positions us to create value through additional acquisitions.
Positive Sector Dynamics Support Our Trajectory
We operate in the global information services and analytics sector, which is experiencing robust growth due to many factors. Data and analytics have become critical inputs into broader corporate decision-making in today’s marketplace, and companies and institutions are seeking services like ours to enhance the predictive nature of their analysis. In addition to creating greater demand for our services, rapid innovation within our customers’ businesses has created new use cases for our services. Third-party industry reports estimate the global data and analytics market will grow from $169 billion in 2018
to $274 billion by 2022, a 13.2% compound annual growth rate over the period. This represents the target addressable market across verticals that have a need for data and analytical services.
Customers of data and analytics products continue to approach complex business decisions in new ways. We believe that these customers are placing greater emphasis and value on the ability to embed predictive and prescriptive analytics into their decision-making processes. These customers are using smart data to anticipate what will happen in the future, as opposed to using historical data to study what has happened in the past. As such, we are investing in these critical, forward-facing products and solutions. We believe offering these types of products will increase the value clients place on our products, allow for stronger growth and open new addressable markets, as illustrated below.
Significant Move Up the Value Chain with Smart Data Offerings
Our Competitive Strengths
Leading Market Positions in Attractive and Growing Global Markets
We offer a collection of high-quality, market-leading information and analytic products and solutions serving the intellectual property, scientific research and life sciences end-markets. Through our products and services, we address the large and growing demand from corporations, government agencies, universities, law firms and other professional services organizations worldwide for comprehensive, industry-specific content and analytical tools to facilitate the discovery, development, protection, commercialization and measurement of scientific research, innovations and brands. We believe that our flagship products hold a #1 or #2 position by revenue across the respective markets they serve, including abstracting and indexing databases, life science regulatory and competitive intelligence and intellectual property protection (including patent, trademarks and brand protection). We also believe that the outlook for growth in each of our Product Lines is compelling because of customer demand for curated high-quality data, underpinned by favorable end-market trends, such as rising global R&D spending, growing demand for information services in emerging markets, the acceleration of e-commerce and the increasing number of patent and trademark applications.
A Trusted Partner Delivering Highly Curated Content Embedded Within Customer Workflows
We believe the substantial increase in unstructured data over the last decade has increased the importance of our proprietary, curated databases to our customers. This trend has resulted in a critical need for unstructured data to be meaningfully filtered, analyzed and curated into relevant information that facilitates key operational and strategic decisions made by businesses, academic institutions and governments worldwide. Our suite of branded information and analytic solutions provides access to content that has been collected, curated and standardized over decades, making our products and services highly valued and increasingly important for our customers. Our content curation and editorial teams include over 930 employees who clean, analyze and classify unstructured data to ensure high-quality content and an enhanced user experience. We believe our solutions and commitment to excellence provide us with a significant advantage in both retaining existing and attracting new customers.
Attractive Business Model with Strong Free Cash Flow Profile
Approximately 67.9%LS&H Segment (17% of revenues for the year ended December 31, 2020 were generated2023)
Our LS&H segment’s mission is to empower our customers to deliver treatments that improve patient lives and create a healthier tomorrow. Our intelligence solutions, transformative data and technology equip our customers with the insight and foresight needed across all of their initiatives from early-stage drug discovery right through annual or multi-year subscription agreements. Approximately 9.0%commercialization and beyond. Within the LS&H segment, we provide Research and Development, Regulatory and Safety, and Commercialization solutions in striving to accomplish our mission.
| | | | | | | | | | | |
| Research and Development | Regulatory and Safety | Commercialization |
| Description | Support the development of new drugs and medical devices from discovery to clinical trials | Efficiently monitor drug safety issues and adhere to the latest global regulatory protocols | Effectively inform commercial launch strategy and set pricing for optimal reimbursement |
| Notable Solutions and Products | Cortellis Competitive Intelligence Cortellis Drug Discovery Intelligence
| Cortellis Regulatory Intelligence OFF-X | Real World Data (“RWD”) Optimize |
| Curated Information Set | 48+ billion patient claims & EHR records; proprietary disease insights covering 200+ diseases and biomarkers across 45+ countries and 3,500+ patient segments; |
A significant portion of revenuesour product development efforts are focused on leveraging AI to drive enhanced value for the year ended December 31, 2020 were generated through re-occurring transactional revenues. In addition, we have been ableour LS&H segment customer base. For example, to achieve annual revenues renewal rates in excess of 90% over the past three years. We believe our business has strongspeed up drug development and attractive free cash flow characteristics due to our highly visible and recurring subscription revenues stream, attractive Adjusted EBITDA margins, low capital expenditure requirements and favorable net working capital characteristics. Anticipated revenue growth, margin improvement and effective working capital management are expected to result in strong free cash flow generation. We believe this will create capacity to invest further into the business so that we can grow and maximize shareholder returns.
Diversified Product Lines with Longstanding Customer Relationships
We believebetter ensure that the diversified nature of our Product Lines enhancesright medicines reach the stability of our entire platform asright patients, we are not dependentdrawing on any one end-market, product, service or customer. We serve a large, diverse and global customer base, and as of December 31, 2020, we served over 30,000 customersour connected data in more than 170 countries, including the top 30 pharmaceutical companies by revenues. No single customer accounted for more than 1% of revenues and our ten largest customers represented only 6% of revenues for the year ended December 31, 2020. We believe the strong value proposition offered by our content, combined with the integration of our products and services into our customers’ daily workflows and decision-making processes, leads to substantial customer loyalty. Our relationships with our top 50 customers by revenues have an average lifespan of over 15 years. Our diverse global footprint is highlighted by the distribution of our revenues for the year ended December 31, 2020 by geography: Americas (49.4%), Europe/Middle East/Africa (28.6%), and Asia Pacific (21.9%).
Resilience Through Economic Cycles
We believe our business is resilient across economic cycles because our products and services are an integral part of our customers’ decision-making processes. We believe multi-year agreements also help to maintain this resiliency. During the economic downturn of 2008 to 2009, three of our key products — Web of Science, Cortellis and Derwent — realized year-over-year revenues increases. In addition, our diverse global footprint reduces our exposureusing machine learning to nationalpredict clinical trials progression, regulatory approvals and regional economic downturns.
Our performance is largely due to the sectors we serveeven valuations on merger and the deep integration of our products with our customers’ workflows, which provides for a resilient business model even during an economic downturn.
Proven and Experienced Leadership
Mr. Stead is a proven business operator with demonstrated success in shareholder value creation. At Clarivate, Mr. Stead brings his decades of expertise in the information services sector to guide a talented and experienced management team sourced from world-class, global companies, most of whom have decades of experience in their respective areas of expertise.
Background and History
Clarivate Plc was registered on January 7, 2019 and is organized under the laws of Jersey, Channel Islands. Our registered office is located at 4th Floor, St Paul’s Gate, 22-24 New Street, St. Helier, Jersey JE1 4TR. Our principal business officesacquisition candidates.
are located at 70 St. Mary Axe, London EC3A 8BE, United Kingdom, where our main telephone number is +44 207 4334000. We maintain a website at www.clarivate.com. In addition, the SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers (including Clarivate) that file electronically with the SEC at www.sec.gov.
Our predecessors date back to the acquisition of two industry-leading information services businesses: Derwent World Patents Index (“DWPI”) and Institute for Scientific Information (“ISI”). DWPI was founded in 1951 by Monte Hyams who first began abstracting and publishing British patents on a weekly basis. This platform was then launched as the first online patent search tool in 1974. ISI was founded in 1957 by Dr. Eugene Garfield as a series of databases which laid the foundation for modern day bibliometrics and the influential Journal Impact Factor indicator. Thomson Reuters acquired DWPI in 1984 and ISI in 1992; it made further investments in complementary businesses centered on life science research and domain management.
Since Thomson Reuters acquired DWPI and ISI, the business now known as Clarivate has emerged as the leading global information services and analytics company serving the scientific research, intellectual property and life sciences end-markets. Through product development, investment and acquisitions, we have developed a full suite of solutions providing high-value structured information that facilitates the discovery, protection and commercialization of scientific research, innovations and brands.
During the majority of its time under prior ownership, the Company operated as a set of non-core, separate divisions until Thomson Reuters decided in 2015 to divest them. This decision led to two key transformative events.
The first transformative event occurred in October 2016, when Onex and Baring acquired subsidiaries and assets comprising the intellectual property and science business of Thomson Reuters for $3,566,599 and formed Clarivate.
Onex, Baring and the new executive team they put in place focused on transitioning us to be a standalone company and completed a substantial number of operational improvements, including:Example Use Case
•buildingA researcher at a new senior executive management team;pharmaceutical company who is evaluating several potential R&D programs will access the Cortellis database to assess competitive products in the drug development pipeline, review clinical trial data, and summarize regulatory information.
•investing in our core productsA data analyst at a biopharma company seeking to upgrade their content, functionality, analytical toolsbenchmark forecasts using data on the total potential and user interfaces;addressable market will utilize RWD to corroborate forecasts and validate investments using bottom-up forecasting.
•completing the acquisitions of Publons, Kopernio, TrademarkVision,An analyst at a medical technology company responsible for commercializing drugs or devices uses Optimize products to analyze markets and SequenceBasedetermine which payers, providers, or patients to complement our product offerings;target.
•implementing initial cost savings initiatives; and
•fully transitioning the business from reliance on Thomson Reuters.
The second transformative event occurred in January 2019, when Churchill Capital Corp, a special purpose acquisition company led by Mr. Stead, announced that it would combine with Clarivate in a transaction completed in May 2019. Following the merger, the ordinary shares of Clarivate began trading on the New York Stock Exchange (“NYSE”) and NYSE American. Clarivate shares now trade on the NYSE under the symbol “CLVT”.
Recent Developments
Strategic Acquisitions
Acquisition of CPA Global
On October 1, 2020, we acquired 100% of the assets, liabilities and equity interests of CPA Global, a global leader in intellectual property software and tech-enabled services. Clarivate acquired all of the outstanding shares of CPA Global in a cash and stock transaction. The aggregate consideration in connection with the closing of the CPA Global acquisition was $8,541,551, net of $102,010 cash acquired, including an equity hold back consideration of $46,485. The aggregate consideration was composed of (i) $6,565,477 from the issuance of up to 218,183,778 ordinary shares to Redtop Holdings Limited, a portfolio company of Leonard Green & Partners, L.P., representing approximately 35% pro forma fully diluted ownership of Clarivate and (ii) approximately $2,078,084 in cash to fund the repayment of CPA Global's parent company outstanding debt of $2,055,822 and related interest swap termination fee of $22,262. Of the 218,306,663 ordinary shares issuable in the acquisition, Clarivate issued 210,357,918 ordinary shares as of October 1, 2020. In addition, 6,325,860 shares were issued to Leonard Green & Partners, L.P. to fund a Employee Benefit Trust established for the CPA Equity Plan. These shares should have been excluded from purchase price consideration.
In conjunction with the closing of the transaction, the Company incurred an incremental $1,600,000 of term loans under our term loan facility and used the net proceeds from such borrowings, together with cash on hand, to fund the transaction. As a result of the additional term loan associated with the CPA Global acquisition, we had $2,847,400 outstanding on our term loan facility as of December 31, 2020.
Acquisition of Decision Resources Group
On February 28, 2020, we acquired 100% of the assets, liabilities and equity interests of Decision Resources Group ("DRG"), a premier provider of high-value data, analytics and insights products and services to the healthcare industry, from Piramal Enterprises Limited ("PEL"), which is a part of global business conglomerate Piramal Group. The acquisition helps us expand our core businesses and provides us with the potential to grow in the Life Sciences Product Line.
The aggregate consideration paid in connection with the closing of the DRG acquisition was $964,997, composed of $900,000 of base cash plus $6,100 of adjusted closing cash paid on the closing date and up to 2,895,638 of the Company's ordinary shares to be issued to PEL following the one-year anniversary of closing. The contingent stock consideration was valued at $58,897 on the closing date and will be revalued at each period end and included in the Accrued expenses and other current liabilities in the Consolidated Balance Sheets.
Acquisition of Hanlim IPS Co., Ltd.
On November 23, 2020, we acquired 100% of the assets, liabilities and equity interests of Hanlim IPS. Co., Ltd. ("Hanlim"), a leading patent renewal and information service provider in South Korea via cash on hand for $9,254. Hanlim is complementary to Clarivate’s intellectual property portfolio.
Acquisition of Beijing IncoPat Technology Co., Ltd.
On October 26, 2020, we acquired 100% of the assets, liabilities and equity interests of Beijing IncoPat Technology Co., Ltd. (“IncoPat”), a leading patent information service provider in China via cash on hand for $52,133. IncoPat is complementary to Clarivate’s intellectual property portfolio.
Redemption of Public Warrants
On February 20, 2020, we announced the redemption of all of our outstanding public warrants to purchase our ordinary shares that were issued as part of the units sold in the Churchill Capital Corp initial public offering and remained outstanding at 5:00 p.m. New York City time on March 23, 2020, for a redemption price of $0.01 per public warrant. In addition, our board of directors elected that, upon delivery of the notice of the redemption on February 20, 2020, all public warrants were to be exercised only on a “cashless basis.” Accordingly, by virtue of the cashless exercise of public warrants, exercising public warrant holders received 0.4626 of an ordinary share for each public warrant, and 4,747,432 ordinary shares were issued for public warrants exercised on a cashless basis and 4,649 public warrants were redeemed for $0.01 per public warrant. As of December 31, 2020, no public warrants were outstanding.
The Private Placement Warrants issued in a private placement concurrently with the Churchill Capital Corp initial public offering and still held by their initial holders were not subject to this redemption.
Dispositions
Disposition of Techstreet
On November 6, 2020, the Company completed the sale of certain assets and liabilities of non-core assets and liabilities within the IP segment for a total purchase price of $42,832. A gain of $28,140 was recognized in the Consolidated Statements of Operations during the year ended December 31, 2020.
MarkMonitor Brand Protection, Antipiracy and Antifraud Disposition
In November 2019, we announced an agreement to sell the MarkMonitor brand protection, antipiracy and antifraud businesses, and completed such divestiture on January 1, 2020. We retained the MarkMonitor Domain Management business.
Customers
We serve a large, diverse and global customer base and, as of December 31, 2020, we served over 30,000 customers in more than 170 countries as well as the top 30 pharmaceutical companies by revenue. Our customers either use our databases on an exclusive basis or on a dual-sourced basis.
No single customer accounted for more than 1% of revenues and our ten largest customers represented only 6%, 5% and 6% of revenues for the years ended December 31, 2020, 2019, and 2018 respectively.
Competitive EnvironmentCompetition
We believe the principal competitive factors in our business include the qualitydepth, breadth, timeliness, and accuracy of database content embedded in our databases and thoseanalysis, the ease of our competitors, customers’ perception of our products relativeuse related to thecontent delivery platforms and management software, and value that they deliver, user interface of the products and the quality and breadth of our overall offerings.for price. We believe we compete favorably with respect to each of these factors.
We Although we face competition in specific markets and with respect to specific offerings, including related to developing and implementing AI, we do not believe no singlethat we have a direct competitor currently offersacross all of the same scope of services and market coverage we provide, nor do we provide the same scope of services and market coverage as our competitors. The breadth of markets we serve exposes usdue to a broad range of competitors as described below.
Our primary competitors differ by product linethe depth and include the following companies and product offerings:
•Abstracting and Indexing Database Market: Elsevier (Scopus, SciVal), Digital Science (Dimensions) and ProQuest (RefWorks);
•Patent Protection Market: LexisNexis (TotalPatent), Minesoft (PatBase) and Questel (Orbit);
•Life Sciences Regulatory and Competitive Intelligence Market: Evaluate (Evaluate Pharma), Global Data (Global Data Pharmaceuticals), Informa (Pharma Intelligence, BioMedTracker, Pharmaprojects, Trialtrove, Sitetrove), IQVIA (Tarius) and Qiagen (Qiagen Services);
•Trademark Protection Market: Corsearch (Contour, Corsearch Screening, search and watch services), and Markify (ComprehensiveSearch, ProSearch and trademark and domain watch); and
•Domain Management Market: Corporation Service Company ("CSC") (domain name management) and AppDetex (domain management and online brand protection).
Sources of Data
The data supporting our products and services is sourced principally through two different types of arrangements. First, we source data generally at little or no cost from public sources, including federal, state and local governments. Second, we purchase data from third-party data aggregators under contracts that reflect prevailing market pricing for the data elements purchased.
Technology
Our information technology systems are fundamental to our success. They are used for the storage, processing, access and delivery of the data which forms the foundationbreadth of our business and the development and delivery of our solutions provided to our customers.offerings.
Much of the technology we use and provide to our customers is developed, maintained and supported by approximately 1,226 employees and approximately 669 contractors, as of December 31, 2020. We generally own or have secured ongoing rights to use for the purposes of our business all the customer-facing applications which are material to our operations.
We are continually transforming our content, products, services and company to better meet our customers’ needs. We also are focused on securing our customer data and global systems as we implement and enhance our security programs. We are migrating the infrastructure for several of our customer applications and content databases to a third-party service provider, which provides a distributed computing infrastructure platform for business operations, or what is commonly referred to as a “cloud” computing service.
Intellectual Property
AsWe own and generate a significant amount of December 31, 2020, we owned approximately 1,404intellectual property, including registered trademarks, 175 trademark applications, 3,984 domain names, 145patents (both granted patents and 56 patent applications.pending), and expertly curated, interconnected data assets. We also own certain proprietary software.software, including AI products and services. In addition, we are licensed to use certain third-party software and we obtain significant content and data through third-party licensing arrangements with content providers. We consider our trademarks, service marks, databases,data assets, software, and other IP to be proprietary, and we rely on a combination of statutory (e.g., copyright, trademark, trade secret, and patent), contractual, and technical safeguards to protect our IP rights. We believe that the IP we own and license is sufficient to permit us to carry on our business as presently conducted.
Our agreements with our customers and business partners place certain restrictions on the use of our IP. As a general practice, employees, contractors, and other parties with access to our proprietary information sign agreements that prohibit the unauthorized use or disclosure of our IP and confidential information.
New Product DevelopmentOur People
At Clarivate, we have prioritized enhancing our colleague experience and creating a work environment that attracts and retains top talent from around the world. Our overarching goal is to create a strong foundation on which we can build for the future to ensure we have career pathways and development opportunities for our talented workforce. We continue to promote a work environment where we can be our authentic selves – respecting and celebrating our differences.
We believe that innovation is essential to our success and is one of our primary bases of competition. We believe we are uniquely positioned to help shape how professionals find, evaluate, interact with, consume and act upon information. We are focused on developing capabilities to improve our products’ user interfaces, analytical tools, searching algorithms and content curation processes. Our current focus includes building out a technology platform focused on search technologies, big data and analytics, machine learning, social computing and natural language technologies. This will enable more rapid product development as we shift our investment focus toward new products rather than maintenance of legacy technology.
We also add to our business line offerings through acquisitions. We have completed two significant acquisitions in 2020 including DRG, expanding upon our life sciences product line and CPA Global, broadening our IP product offerings. During the past four years we have completed small add-on acquisitions to augment our existing portfolio of assets and provide additional datasets and services for our customers. Given the fragmented nature of the broader information services industry, we track and, where appropriate, have pursued opportunities across our Product Lines. These include Publons and Kopernio in APL, SequenceBase in PPL, Connect in CPA Global and TrademarkVision and Darts-ip in Trademark Product Line. These acquisitions are fully integrated into our platform and we believe they have already provided additional value to our customers.
When we find it advantageous, we augment our proprietary data sources and systems by forming alliances with other leading information providers and technology companies and integrating their product offerings into our offerings. This approach gives our customers the opportunity to obtain the information they need from a single source and more easily integrate the information into their workflows.
Enforcement of Civil Liabilities
U.S. laws do not necessarily extend either to us or our officers or directors. We are incorporated under the laws of Jersey, Channel Islands. Some of our directors and officers reside outside of the United States. Substantially all of our assets and the assets of our directors and officers are located outside the United States. As a result, it may not be possible for investors to
effect service of process on either us or our officers and directors within the United States, or to enforce against these persons or us, either inside or outside the United States, a judgment obtained in a U.S. court predicated upon the civil liability provisions of the federal securities or other laws of the United States or any U.S. state.
We have appointed Vistra USA, LLC, as our agent to receive service of process with respect to any action brought against us in the United States under the federal securities laws of the United States or of the laws of any state of the United States.
A judgment of a U.S. court is not directly enforceable in Jersey, but constitutes a cause of action which may be enforced by Jersey courts provided that:
•the applicable U.S. courts had jurisdiction over the case, as recognized under Jersey law;
•the judgment is given on the merits and is final, conclusive and non-appealable;
•the judgment relates to the payment of a sum of money, not being taxes, fines or similar governmental penalties;
•the defendant is not immune under the principles of public international law;
•the same matters at issue in the case were not previously the subject of a judgment or disposition in a separate court;
•the judgment was not obtained by fraud; and
•the recognition and enforcement of the judgment is not contrary to public policy in Jersey.
Jersey courts award compensation for the loss or damage actually sustained by the plaintiff. Although punitive damages are generally unknown to the Jersey legal system, there is no prohibition on them either by statute or customary law. Whether a particular judgment may be deemed contrary to Jersey public policy depends on the facts of each case, though judgments found to be exorbitant, unconscionable, or excessive will generally be deemed as contrary to public policy. Moreover, certain defendants may qualify for protection under Protection of Trading Interests Act 1980, an act of the UK extended to Jersey by the Protection of Trading Interests Act 1980 (Jersey) Order, 1983. This Act provides that a qualifying defendant is not liable for multiple damages, in excess of that required for actual compensation. A “qualifying defendant” for these purposes is a citizen of the UK and its Colonies (as defined in the Act), a corporation or other limited liability entity organized under the laws of the UK, Jersey or other territory for whose international relations the UK is responsible or a person conducting business in Jersey.
Jersey courts cannot enter into the merits of the foreign judgment and cannot act as a court of appeal or review over the foreign courts. It is doubtful that an original action based on U.S. federal or state securities laws could be brought before Jersey courts. In addition, a plaintiff who is not resident in Jersey may be required to provide a security bond in advance to cover the potential of the expected costs of any case initiated in Jersey. In addition, Clarivate has been further advised by our legal counsel in Jersey that it is uncertain as to whether the courts of Jersey would entertain original actions or enforce judgments from U.S. courts against us or our officers and directors which originated from actions alleging civil liability under U.S. federal or state securities laws.
Marketing, Sales and Customer Support
We primarily sell our products and services directly to our customers, although some of our products and services are sold through partners. Focusing some of our sales and marketing efforts on digital sales and marketing has allowed us to broaden our range of customers and reduce sales and marketing costs. We have a dedicated sales and marketing force, which, as of December 31, 2020, consisted of approximately 1,469 people.
We annually develop sales, distribution and marketing strategies on a product-by-product and service-by-service basis. We leverage customer data, business and market intelligence and competitive profiling to retain customers and cross-sell products and services, while also working to promote unified brand recognition across all our products and services.
Our sales teams participate in both service and sales activities. They provide direct support, interacting frequently with assigned customers to assure a positive experience using our products and services. Sales people primarily seek out new sales opportunities, including existing customer retention and upsell, and work with the various sales teams to coordinate sales activity and provide the best solutions for our customers. A portion of our sales people’s compensation is tied to revenues retention. We believe our sales people’s product knowledge and local presence differentiates us from our competition.
In addition, we employ product specialists who are subject-matter experts and work with sales people on specific opportunities for their assigned products. Both sales people and product specialists have responsibility for identifying new sales opportunities. A team approach and a common customer relationship management system allow for effective coordination between the two groups.
Employees
As of December 31, 2020, approximately 8,445 full-time and approximately 245 part-time employees support our business operations. The employee count excludes employees related to the MarkMonitor Brand Protection, Antipiracy and Antifraud disposition in January 2020 and the Techstreet Disposition in November 2020. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors Affecting the Comparability of Our Results of Operations for information related to the disposition. None of our employees in the United States are represented by unions; however, customary representation by unions and works councils applies for certain of our non-U.S. employees. We consider our relationship with our employees to be good and have not experienced interruptions to operations due to labor disagreements.
The Company has spent the past two years fosteringfoster a values-led culture that begins with the Company’s purpose andour vision that we fuel the world’s greatest breakthroughs by harnessing the power of human ingenuity can transformingenuity. Our mission is to advance the worldsuccess of people and we will improveorganizations through transformative intelligence and trusted partnership. Our values help us achieve our goals with ambition (“We aim for greatness”), integrity (“We own our actions”), and respect for the way the world creates, protects and advances innovation. With a continuous focus on three corporate values (aim for greatness,people around us (“We value every voice and own your actions) along with transparent communication and a wide variety of colleague support programs, colleague engagement has steadily climbed and reached 79 (out of 100) in September 2020.
voice”). We provide a variety of colleague-oriented programs and benefits to promote retentionattract, retain, and growthdevelop a productive and engaged workforce.
As of December 31, 2023, we had more than 12,000 employees located in 42 countries around the world. The following charts illustrate our employees by segment and by geography:
Inclusion and Diversity
Treating one another with fairness, dignity, and respect are fundamental to our purpose and mission. We believe that people coming together from different cultures and backgrounds, with different life experiences, is essential to sparking new ideas and accelerating our progress. We know that colleagues who feel engaged and included will be the most proactive and productive. Our goal is to weave these principles into the fabric of our employees. culture to become a recognized global employer of choice.
Diversity is an integral part of our principles of corporate governance, and the Board believes that its membership should be composed of highly qualified directors from diverse backgrounds. As such, the Nominating and Governance Committee actively considers diversity (including gender, age, ethnicity, and geographic background) in the recruitment of directors.
We have initiated a Council for Inclusion and Diversity at Clarivate, chaired by the CEO. The council focuses on a five-pillar framework of Leadership and Strategy, Culture, Workplace Practices, Business Integration, and Community Impact to guide our inclusion and diversity efforts. For example, some of our initiatives include providing non-bias training and education, increasing colleague resource group activities and participation, and supporting diversity throughout our supply chain and in our communities.
This year, Clarivate received a score of 80 (out of 100) on the Human Rights Campaign Foundation’s 2023-2024 Corporate Equality Index, the nation’s foremost benchmarking survey and report measuring corporate policies and practices related to LGBTQ+ workplace equality. Clarivate improved our score to 80 from 75 last year, demonstrating our commitment and progress to an inclusive workplace culture.
Attraction, Development, and Retention
We have a dedicated talent acquisition team whose priority is to attract the best, most suitable candidates using such channels as proactive sourcing, connecting through universities, ad campaigns, and referrals. Their goal is to identify a diverse, qualified candidate pool and to provide a positive candidate experience throughout the interview and hiring process. Current colleagues also are a key source of talent, and we have a number of opportunities enabling colleagues to thrive and advance their careers. We recently launched a new approach to our internal mobility process with the goal of making it easier for our colleagues to grow their career internally rather than seeking an opportunity with another employer.
Our learning and development philosophy is about bringing our values, diverse culture, and opportunities to life. It’s about empowering each colleague to bring their best self to work every day and providing a range of opportunities to help them develop the knowledge and skills they need to be successful. We encourage colleagues to take advantage of the more than 5,000 self-paced eLearning resources available on our Learning Management System platform as well as the many live and virtual training sessions we offer regularly throughout the year. We align our training offerings to our competency model, building a foundation for career development and advancement.
We conduct a colleague engagement survey twice a year to gauge overall colleague satisfaction and gather feedback on what colleagues feel is going well and what areas need improvement. We are committed to listening, learning, and acting upon the feedback we receive through the survey to make Clarivate an even better place for our colleagues to work and achieve success. Our overall colleague satisfaction score increased from 74 (out of 100) in 2022 to 75 in 2023, with a participation rate of 87 percent, well above the benchmark. We believe that the increased score reflects our continuing commitment to actively address survey responses to strengthen our workforce and improve our workplace.
We have invested in a robust health and well-being strategy to encourage healthier and happier colleagues. Our global Employee Assistance Program provides confidential emotional support, legal guidance, financial resources, and online support. In addition, our Be Well platform offers a personalized experience to help colleagues build healthy habits, such as reducing stress, eating healthier, tracking sleep, and exercising regularly with personal and team challenge incentives.
We strive to offer equitable pay and competitive salaries and wages. In addition,wages, and we have historically provided an annual broad-based equity grant to our employees to promote a sense of company pride and ownership. We offer a comprehensive benefits package that gives a robust collection ofand rewards and benefits,package, including healthcare, and insurance benefits, and retirement savings plans.plans, and more. We also host a numberprovide 40 hours of affinity groups for our employees. We have an online academy that fosters a learning culture, leveraging the knowledge and expertisepaid volunteer time off to each of our people.
Seasonality
Our cash flows from operations are generated primarily from payments from our subscription customers and the standard termcolleagues in support of a subscription is typically 12 months. When a customer enters into a new subscription agreement, or submits a notice to renew their subscription, we typically invoice for the full amount of the subscription period, record the balance to deferred revenues and ratably recognize the deferral throughout the subscription period. As a result, we experience cash flow seasonality throughout the year, with a heavier weighting of operating cash inflows occurring during the first half, and particularly first quarter, of the year, when most subscription invoices are sent, as compared to the second half of the year.
Regulatory Environment
Certain of our Product Lines provide authorized customers with products and services such as access to public records. Our Product Lines that provide such products and services are subject to applicable privacy and consumer information laws and regulations, including U.S. federal and state and European Union (the “EU”) and member state regulation. Our compliance obligations vary from regulator to regulator, and may include, among other things, strict data security programs, submissions of regulatory reports, providing consumers with certain notices and correcting inaccuracies in applicable reports. Many of these laws and regulations are complex and their application to us, our customers or the specific services and relationships we have with our customers are not always clear. Our failure to accurately anticipate the application of these laws and regulations, or any failure to comply, could create liability for us, result in adverse publicity and otherwise negatively affect our business. See Item 1A. Risk Factors for more information about the impact of government regulation on our company.
Sustainability and Environment, Social and Governance (“ESG”)
Recognizing that sustainability and ESG are critical to the Company’s future success, a formal ESG commitment was launched in 2020. Built around four ESG pillars (i.e., governance, environment, colleagues and community) and aligned to
the United Nations Sustainable Development Goals,Goals.
Available Information
Our internet address is clarivate.com and our goalinvestor relations website is ir.clarivate.com. On or through our investor relations website, we make available, free of charge, printable copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to embed sustainability into the fiber and operationsthose reports filed or furnished pursuant to Section 13(a) or 15(d) of the company and further strengthen the values-led company culture.
The four ESG pillars of Sustainability@Clarivate
During the many challenges posed by the uncertainty of the global pandemic, Sustainability@Clarivate achieved a number of important initial milestones, primarily around reporting, organizational infrastructure and governance deliverables.
The below describes the actions taken by the Company to ensure a focus on sustainability:
•Assessed, developed and launched Sustainability@Clarivate framework and strategy, including a dedicated sustainability office and team, a sustainability steering committee, a sustainability champions network, and a comprehensive scorecard of goals across all dimensions;
•SignatoryExchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the United Nations Women's Empowerment Principles ("WEPs"), the CEO Action for DiversitySEC. On our website, we also make available printable copies of our Amended and InclusionRestated Memorandum of Association, Corporate Governance Guidelines, Audit Committee Charter, Risk and the Stonewall Transgender Rights areSustainability Committee Charter, Human Rights;Resources and Compensation Committee Charter, Nominating and Governance Committee Charter, Code of Conduct, and other corporate policies.
•Launched an advanced privacy center and expanded ESG information sharing to increase transparency and commitment to annual goal setting;
•Implemented a global e-waste program and launched an R2 compliant e-waste recycling effort across our global operations;
•Implemented a third party environmental metrics system to collect and analyze data in order to optimize our real estate portfolio;
•Initiated efforts to build a more sustainable supply chain by evaluating our top 100 suppliers against a comprehensive ESG evaluation framework; and
•Earned Ecovadis Bronze Level and Gold Level recognition with our Proctor & Gamble ESG evaluation
Item 1A. Risk FactorsFactors.
Investing in our ordinary shares involves risks. You should carefully consider the risks described herein before making a decision to invest in our ordinary shares. If any of these risks actually occurs, our business, financial condition, and results of operations could be materially and adversely affected. In such case, the trading price of our ordinary shares would likely decline, and you may lose all or part of your investment.
Any significant disruption in or unauthorized access to our computer systems or those of third parties that we utilize in our operations, including those relating to cybersecurity or arising from cyber-attacks, could adversely impact our business.
Our reputation and ability to attract, retain and serve our customers is dependent upon the reliable performance and security of our computer systems and those of third parties that we utilize in our operations to collect, store and use public records, IP and sensitive data. We expend significant resources to develop and secure our systems, but they may be subject to damage or interruption from natural disasters, terrorist attacks, power loss, Internet and telecommunications failures and cybersecurity risks. Our computer systems and those of third parties we use in our operations may be vulnerable to cybersecurity risks, including cyber-attacks from state-sponsored entities and individual activity, such as computer viruses, denial of service attacks, physical or electronic break-ins and similar disruptions. We have implemented certain systems and processes to thwart hackers and protect our data and systems; however, these systems and processes may not be effective and, similar to many other global multinational companies, we experience cyber-threats, cyber-attacks and other attempts to breach the security of our systems. Any fraudulent, malicious or accidental breach of data security could result in unintentional disclosure of, or unauthorized access to, customer, vendor, employee or other confidential or sensitive data or information, which could potentially result in additional costs to our company to enhance security or to respond to occurrences, lost sales, violations of privacy or other laws, notifications to individuals, penalties or litigation. Any failure of our systems, significant disruption to our operations or unauthorized access to our systems or those of third parties (or “cloud” computing service providers) we contract with to host our computing could result in significant expense to repair, replace or remediate systems, equipment or facilities, a loss of customers, legal or regulatory claims, and proceedings or fines and adversely affect our business and results of operations. We do not have control over the operations of the facilities of the third party cloud computing service that we use. This, coupled with the fact that we cannot easily switch our cloud computing operations to another cloud provider, means that any disruption of or interference with our use of our current third party cloud computing service could disrupt our operations and our business could be adversely impacted.
If our products and services do not maintain and/or achieve broad market acceptance, or if we are unable to keep pace with or adapt to rapidly changing technology, evolving industry standards, macroeconomic market conditions and changing regulatory requirements, our revenues could be adversely affected.
Our business is characterized by rapidly changing technology, evolving industry standards and changing regulatory requirements. Our growth and success depend upon our ability to keep pace with such changes and developments and to meet changing customer needs and preferences. Our business could also be affected by macroeconomic factors beyond our control and our ability to keep pace with technology and business and regulatory changes is subject to a number of risks, including that we may find it difficult or costly to:
•update our products and services and develop new products and services quickly enough to meet our customers’ needs;
•make some features of our products work effectively and securely or with new or changed operating systems; and
•update our products and services to keep pace with business, evolving industry standards, regulatory requirements and other developments in the markets in which our customers operate
In addition, the principal customers for certain of the products and services are universities and government agencies, which fund purchases of these products and services from limited budgets that are sensitive to changes in private and governmental sources of funding. Recession, economic uncertainty or austerity have contributed, and may in the future contribute, to reductions in spending by such sources. Accordingly, any further decreases in budgets of universities or government agencies, which have remained under pressure, or changes in the spending patterns of private or governmental sources that fund academic institutions, could adversely affect our results of operations
The loss of, or the inability to attract and retain, key personnel could impair our future success.
Our future success depends to a large extent on the continued service of our employees, including our experts in research and analysis and other areas, as well as colleagues in sales, marketing, product development, critical operational roles, and management, including our executive officers. We must maintain our ability to attract, motivate, and retain highly qualified colleagues in order to support our customers and achieve business results. The loss of the services of key personnel and our
inability to recruit effective replacements or to otherwise attract, motivate, or retain highly qualified personnel could have a material adverse effect on our business, financial condition, and operating results.
Our collection, storage and use of personal data are subject to applicable data protection and privacy laws, and any failure to comply with such laws may harm our reputation and business or expose us to fines and other enforcement action.
In the ordinary course of business, we collect, store, use and transmit certain types of information that are subject to different laws and regulations. In particular, data security and data protection laws and regulations that we are subject to often vary significantly by jurisdiction, such as the privacy requirements of the Health Insurance Portability and Accountability Act and the stringent operational requirements for processors and controllers of personal data implemented by the EU-wide General Data Protection Regulation. It also significantly increased penalties for noncompliance, including where we act as a data processor. Data security and data protection laws and regulations are continuously evolving and there are currently a number of legal challenges to the validity of EU mechanisms for adequate data transfers such as the Privacy Shield Framework and the Standard Contractual Clauses. Brexit may also mean that we are required to take additional steps to ensure that data flows from EU members states to the UK are not disrupted and remain permissible. Although we have implemented policies and procedures that are designed to ensure compliance with applicable laws, rules and regulations, if our privacy or data security measures fail to comply with applicable current or future laws and regulations, including, without limitation, the EU ePrivacy Regulation and the California Consumer Privacy Act, we will likely be required to modify our data collection or processing practices and policies in an effort to comply with such laws and regulations, and we could be subject to increased costs, fines, litigation, regulatory investigations, and enforcement notices requiring us to change the way we use personal data or our marketing practices or other liabilities such as compensation claims by individuals affected by a personal data breach, as well as negative publicity and a potential loss of business.
Our business continuity plans may not be effective against events that may adversely impact our business.
We have established operational policies and procedures that manage the risks associated with business continuity and recovery from potential disruptions to our business. These policies and procedures are designed to increase the likelihood that we are prepared to continue operations during times of unexpected disruption and we have taken steps to minimize risks that could lead to disruptions in our operations and to avoid our customers being harmed in the event of a significant disruption in our operations. However, there is no guarantee that these measures will be effective in minimizing any disruption from unexpected events that could result from a variety of causes, including human error, natural disasters (such as hurricanes and floods), infrastructure or network failures (including failures at third-party data centers, by third party cloud-computing providers, or of aging technology assets), and a disruption to our business that we are not capable of managing could adversely affect us.
We are dependent on third parties, including public sources, for data, information, and other services, and our relationships with such third parties may not be successful or may change, which could adversely affect our results of operations.
Substantially all our products and services are developed using data, information or services obtained from third-party providers and public sources or are made available to our customers or are integrated for our customers’ use through information and technology solutions provided by third-party service providers. We have commercial relationships with third-party providers whose capabilities complement our own and, in some cases, these providers are also our competitors. The priorities and objectives of these providers, particularly those that are our competitors, may differ from ours, which may make us vulnerable to unpredicted price increases and unfavorable licensing terms. Agreements with such third-party providers periodically come up for renewal or renegotiation, and there is a risk that such negotiations may result in different rights and restrictions which could impact our customers’ use of the content. From time to time, we may also receive notices from third parties claiming infringement by our products and services of third-party patent and other IP rights and as the number of products and services in our markets increases and the functionality of these products and services further overlaps with third-party products and services, we may become increasingly subject to claims by a third party that our products and services infringe on such party’s IP rights. Moreover, providers that are not currently our competitors may become competitors or be acquired by or merge with a competitor in the future, any of which could reduce our access to the information and technology solutions provided by those companies. Any of the foregoing risks may be exacerbated by our use of AI, or that of our competitors or third-party service providers. If we do not maintain, or obtain the expected benefits from, our relationships with third-party providers or if a substantial number of our third-party providers or any key service providers were to withdraw their services, we may be less competitive, our ability to offer products and services to our customers may be negatively affected, and our results of operations could be adversely impacted.
Increased accessibility to free or relatively inexpensive information sources may reduce demand for our products and services.
In recent years, more public sources of free or relatively inexpensive information have become available and this trend is expected to continue. Public sources of free or relatively inexpensive information may reduce demand for our products and
services. Competition from such free or lower cost sources may also require us to reduce the price of some of our products and services (which may result in lower revenues) or make additional capital investments (which might result in lower profit margins). Demand could also be reduced as a result of cost-cutting, reduced spending or reduced activity by customers. Our
results of operations could be adversely affected if our customers choose to use these public sources as a substitute for our products or services.
We may be unable to derive fully the anticipated benefits from organic growth, existing or future acquisitions, joint ventures, investments or dispositions, including anticipated revenue and cost synergies, and costs associated with achieving synergies or integrating such acquisitions may exceed our expectations.
We seek to achieve our growth objectives by optimizing our offerings to meet the needs of our customers through organic development, including by delivering integrated workflow platforms, cross-selling our products across our existing customer base, acquiring new customers, implementing operational efficiency initiatives, and through acquisitions, joint ventures, investments and dispositions. However, we may not be able to achieve the expected benefits of our acquisitions, including anticipated revenue, cost synergies or growth opportunities and we may not succeed in cross-selling our products and services. Moreover, we may not be able to integrate the assets acquired in any such acquisition or achieve our expected cost synergies without increases in costs or other difficulties. If we are unable to successfully execute on our strategies to achieve our growth objectives, drive operational efficiencies, realize our anticipated cost or revenue synergies or if we experience higher than expected operating costs that cannot be adjusted accordingly, our growth rates and profitability could be adversely affected and the market price of our ordinary shares may decline. Furthermore, acquisitions may subject us to new types of risks to which we were not previously exposed.
We operate in a highly competitive industry, and we may be adversely affected by competition and other changes in our markets.
The markets for our products and services are highly competitive and are subject to rapid technological changes and evolving customer demands and needs. We compete on the basis of various factors, including the quality of content embedded in our databases, customers’ perception of our products relative to the value that they deliver, user interface of the products and the quality of our overall offerings. Many of our principal competitors are established companies that have substantial financial resources, recognized brands, technological expertise and market experience, and these competitors sometimes have more established positions in certain product lines and geographies than we do. We also compete with smaller and sometimes newer companies, some of which are specialized with a narrower focus than our company, and with other Internet services companies and search providers. New and emerging technologies, including without limitation, AI, can also have the impact of allowing start-up companies to enter the market more quickly than they would have been able to in the past. In addition, some of our competitors combine competing products with complementary products as packaged solutions, which could pre-empt use of our products or solutions and some of our customers may decide to independently develop certain products and services. If we fail to compete effectively, our financial condition and results of operations would be adversely affected.
We generate a significant percentage of our revenues from recurring subscription-based arrangements and highly predictable re-occurring transactional ("re-occurring"(“re-occurring”) arrangements. If we are unable to maintain a high annual revenue renewal rate, our results of operations could be adversely affected.
For the twelve monthsyear ended December 31, 2020,2023, approximately 76.9%79% of our revenues were subscription-based and re-occurring based. Because most of the revenues we report in each quarter are the result of subscription and re-occurring agreements entered into or renewed in previous quarters, with subscription renewals historically concentrated in the first quarter, a decline in subscriptions in any one quarter may not affect our results in that quarter, but could reduce revenues in future quarters. Our operating results depend on our ability to achieve and sustain high renewal rates on our existing subscription and re-occurring arrangements and to obtain new subscriptions and re-occurring contracts with new and existing customers at competitive prices and other commercially acceptable terms. Uncertain global economic conditions, including inflationary pressures and rising interest rates, have had and may continue to have an adverse impact on our business, including on our revenues from re-occurring revenues arrangements. Failure to meet one or more of these subscription and re-occurring objectives could have a material adverse effect on our business, financial condition, and operating results.
Our introduction and use of AI, and the integration of AI with our products and services, may not be successful and may present business, compliance, and reputational challenges which could lead to operational or reputational damage, competitive harm, and additional costs, any of which could adversely affect our business, financial condition, and results of operations.
We have incorporated, and may continue to incorporate, AI in our products and services and this incorporation of AI in our business and operations may become more significant over time. The use of generative AI, a relatively new and emerging technology in the early stages of commercial use, exposes us to additional risks, such as damage to our reputation, competitive position, and business, and additional costs. While generative AI may help provide more tailored or personalized experiences or output, if the content, analyses, or recommendations produced by any of our products or services that use or incorporate generative AI are, or are perceived to be, deficient, inaccurate, biased, unethical, or otherwise flawed, our reputation, competitive position, and business may be materially and adversely affected. Additionally, if any of our employees, contractors, vendors, or service providers use any third-party software incorporating AI in connection with our business or the services they provide to us, it may lead to the inadvertent disclosure or incorporation of our confidential, sensitive, or proprietary information into publicly available training sets which may impact our ability to realize the benefit of, or adequately maintain, protect, and enforce our intellectual property or sensitive or confidential information, harming our competitive position and business. Our ability to mitigate risks associated with disclosure of our proprietary, sensitive, or confidential information, including in connection with the use of AI, will depend on our implementation, maintenance, monitoring, and enforcement of appropriate technical and administrative safeguards, policies, and procedures governing the use of AI in our business. Any output created by us using generative AI may not be subject to copyright protection, which may adversely affect our or our customers’ intellectual property rights in, or ability to commercialize or use, any such content. In addition, the use of AI may result in cybersecurity incidents that implicate the personal data of users of our AI tools or technologies. Furthermore, our competitors, customers, or other third parties may
incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively. If any third-party AI tools are trained using or otherwise leverage any of our proprietary data or data sets, our competitive advantage may be impaired, and our ability to commercialize our own AI tools or such data and data sets may be undermined, damaging our operations and business. The increasing use of generative AI by third parties may also negatively impact the integrity of our own proprietary data, data sets, and content databases if and to the extent that any invalid, inaccurate, biased, or otherwise flawed data produced by any such AI systems may inadvertently be incorporated in our proprietary data, data sets, or content databases, negatively affecting our reputation, relationship with publishers, and the value of our proprietary data, data sets, or content databases. As generative AI and other AI tools are relatively new, sophisticated and evolving quickly, we cannot predict all of the risks that may arise from our current or future use of AI in our business. We expect that the incorporation of AI in our business will require additional resources, including the incurrence of additional costs, to develop and maintain our AI-related products and services, to minimize potentially harmful or unintended consequences, to maintain or extend our competitive position, and to address any ethical, reputational, technical, operational, legal, or competitive issues which may arise and our customers may not accept or be able to pay a premium for advanced AI capabilities in certain of the markets in which we operate. Any of the foregoing and any similar issues, whether actual or perceived, could negatively impact our customers’ experience and diminish the perceived quality and value of our products and services. As a result, the challenges presented with our use of AI could adversely affect our business, financial condition, and results of operations.
Regulatory and legislative developments related to the use of AI could adversely affect our use of such technologies in our products, services, and business and expose us to litigation and other legal and regulatory risks.
We use AI, including machine learning and generative AI, in our business. To the extent that we do not have sufficient rights to use any data or other material or content produced by generative AI in our business, if we inadvertently expose third-party data or other material or content to AI, or if we experience cybersecurity incidents in connection with our use of AI, it could adversely affect our reputation and expose us to legal liability or regulatory risk, including with respect to third-party intellectual property, privacy, publicity, contractual, or other rights. The regulatory framework for AI and similar technologies, and automated decision making, is changing rapidly. New laws and regulations, or the interpretation of existing laws and regulations, in any of the jurisdictions in which we operate may affect our ability to leverage AI and may expose us to legal and regulatory risks, government enforcement, or civil suits and may result in increases in our operational and development expenses that impact our ability to develop, earn revenue from, or utilize any products or services incorporating AI. As the regulatory framework for machine learning technology, generative AI, and automated decision making evolves, our business, financial condition, and results of operations may be adversely affected. It is possible that new laws and regulations will be adopted in both U.S. and non-U.S. jurisdictions, such as the European Union’s (“EU”) proposed Artificial Intelligence Act, which, if enacted, would have a material impact on the way AI is regulated in the EU, including significant fines for violations related to offering prohibited AI systems or data governance, high-risk AI systems and for supplying incorrect, incomplete, or misleading information to EU and member state authorities. It is also possible that existing laws and regulations may be interpreted in ways that would affect the operation of our business, including our data analytics products and services and the way in which we use AI and similar technologies in our business. We may not be able to adequately anticipate or respond to these evolving laws and regulations, and we may need to expend additional resources to adjust our products or services in certain jurisdictions if applicable legal frameworks are inconsistent across jurisdictions. Furthermore, in the U.S., a number of civil lawsuits have been initiated related to AI, which may, among other things, require us to limit the ways in which our AI tools and technologies are trained, refined, or implemented, and may affect our ability to develop products or services using or incorporating AI. While AI-related lawsuits to date have generally focused on certain foundational AI service providers and LLMs, our use of any output produced by generative AI may expose us to claims, including without limitation related to the permitted uses of certain content, increasing our risks of liability. In addition, because these technologies are themselves highly complex and rapidly developing, it is not possible to predict all of the legal or regulatory risks that may arise relating to our use of such technologies. The costs related to any litigation and to comply with such laws or regulations could be significant and would increase our operating expenses, which could adversely affect our business, financial condition, and results of operations.
Failure to obtain, maintain, protect, defend, or enforce our intellectual property rights could adversely affect our business, financial condition, and results of operations.
We rely and expect to continue to rely on a combination of physical, operational, and managerial protections of our confidential information and intellectual property and proprietary rights, including trademark, copyright, patent, and trade secret protection laws, as well as confidentiality, assignment and license agreements with our employees, contractors, consultants, vendors, service providers, customers, and other third parties with whom we have relationships.
The steps we take to protect our intellectual property and proprietary rights require significant resources and may be inadequate. Effective trade secret, copyright, trademark, patent, and domain name protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and expenses and the costs of defending and enforcing our rights. Given the costs and expenses of obtaining, maintaining, protecting, defending, and enforcing our intellectual property rights, we may choose not to obtain, maintain, protect, defend, or enforce certain rights that later turn out to be important to our business. We cannot guarantee that our efforts to obtain, maintain, protect, defend, or enforce our intellectual property rights are adequate or that we have secured, or will be able to secure, appropriate permissions or protections for all of the intellectual property rights we use or rely on.
Our registered or unregistered trademarks, tradenames, or other intellectual property rights may be challenged, infringed, circumvented, misappropriated, or otherwise violated or declared invalid or unenforceable or determined to be infringing on other marks. Furthermore, even if we are able to obtain intellectual property rights, any challenge to our intellectual property rights could result in them being narrowed in scope or declared invalid or unenforceable. We may be unable to prevent the misappropriation or disclosure of our proprietary information or deter independent development of similar products and services by others, which may diminish the value of our brand and other intangible assets and allow competitors to more effectively mimic our products and services.
While it is our policy to require our employees, contractors, and other parties with whom we conduct business who may be involved in the conception or development of intellectual property for us to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party that conceives or develops intellectual property that we regard as ours. Additionally, any such assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Further, we cannot guarantee that we have entered into such agreements with each party that has or may have had access to our trade secrets, confidential information, software (including our AI tools), or other proprietary technology and, even if entered into, these agreements may otherwise fail to effectively prevent disclosure of our proprietary or confidential rights, information, or technologies, may be limited as to their term, or may not provide an adequate remedy in the event of unauthorized disclosure, misappropriation, use, or other violation of our trade secrets, confidential information, and other proprietary rights or technologies.
We strive to protect our intellectual property rights by relying on foreign, federal, state and common law rights, as well as contractual restrictions. We pursue the registration of our domain names, patents, copyrights, and trademarks in the United States and in certain jurisdictions abroad. However, effective intellectual property protection may not be available or may not be sought in every country in which our products or services are made available, in every class of goods and services in which we operate, and contractual disputes may affect the use of intellectual property rights governed by private contract. We may not be able to obtain, maintain, protect, defend, or enforce our intellectual property rights in every foreign jurisdiction in which we operate. The legal systems of certain countries do not favor the enforcement of patents, trademarks, copyrights, trade secrets, and other intellectual property protection, which could make it difficult for us to stop the infringement, misappropriation, or other violation of our intellectual property or marketing of competing products in violation of our intellectual property rights generally.
In addition, third parties that provide AI products and services, including some which are publicly available, may have trained their LLMs or other AI tools or technology on our content without our consent and it may be difficult to enforce our copyrights and other intellectual property rights in connection with such unauthorized use, which could reduce demand for our products and services. Any of the foregoing could adversely affect our business, financial condition, and results of operations.
Intellectual property litigation, including litigation related to content provided using our products and services, could result in reputational damage and significant costs, and could adversely affect our business, financial condition, and results of operations.
Companies in the technology industry are frequently subject to litigation based on allegations of infringement, misappropriation, or other violations of intellectual property rights. In addition, despite our efforts to ensure that our employees, contractors, consultants, vendors, and service providers do not use the intellectual property and other proprietary information or know-how of third-parties in their work for us, we may be subject to claims that we or our employees, contractors, consultants, vendors, or service providers have inadvertently or otherwise used or disclosed intellectual property, including copyrighted materials, trade secrets, know-how, software, or other proprietary information of a former employer or other third parties. Litigation may be necessary to defend against these claims and if we fail in defending any
such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. In addition, we may not qualify for the safe harbors established by laws in the United States and other countries protecting online service providers from claims related to content posted by users, or those laws could change in a manner making it difficult or impossible to qualify for such protection, increasing our exposure. While our terms and policies require users to respect the intellectual property rights of others, we have limited ability to influence the behavior of third parties, and there can be no assurance that these terms and policies will be sufficient to dissuade or prevent infringing activity by third parties using our products or services. Additionally, litigation may become necessary to enforce our intellectual property rights, protect our trade secrets, or determine the validity and scope of proprietary rights claimed by others. Litigation regarding intellectual property rights is inherently uncertain due to the complex issues involved, and we may not be successful in defending ourselves in such matters.
Any claims successfully brought against us could subject us to significant liability for damages and we may be required to stop using technology or other intellectual property alleged to be in violation of a third party’s rights. We also might be required to seek a license for third-party intellectual property. Even if a license is available, we could be required to pay significant royalties or submit to unreasonable terms, which would increase our operating expenses. We may also be required to develop alternative non-infringing technology, which could require significant time and expense. If we cannot license or develop technology for any allegedly infringing aspect of our business, we would be forced to limit our service and may be unable to compete effectively. In addition, some of our agreements with third-party partners require us to indemnify them for certain intellectual property claims against them, which could require us to incur considerable costs in defending such claims, and may require us to pay significant damages in the event of an adverse ruling. Such third-party partners may also discontinue their relationships with us as a result of injunctions or otherwise, which could result in loss of revenue and adversely impact our business operations. Our use of AI, including generative AI, may heighten the foregoing risks, any of which could adversely affect our business, financial condition, and results of operations.
Our use of “open source” software could negatively affect our ability to offer our solutions and subject us to possible litigation.
Our products and services include “open source” software, and we may incorporate additional open source software in the future. Open source software is generally freely accessible, usable, and modifiable. Certain open source licenses may, in certain circumstances, require us to: (i) offer our products or services that incorporate the open source software for no cost; (ii) make available source code for modifications or derivative works we create based upon, incorporating, or using the open source software and (iii) license such modifications or derivative works under the terms of the particular open source license or otherwise unfavorable terms. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that open source licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our products or services. While we try to insulate our proprietary software, including our AI tools, from the effects of such open source license provisions, we cannot guarantee that we will be successful, that all open source software is reviewed prior to use in our products, that our developers have not incorporated open source software into our products in potentially disruptive ways, or that they will not do so in the future. If an author or other third party that distributes open source software we use were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations. If such third parties are successful, we could be subject to liability, be required to make our proprietary software source code available under an open source license, purchase a license (which, if available, could be costly), or cease offering the implicated products or services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully on a timely basis, or at all. We could also be subject to suits by parties claiming ownership of what we believe to be open source software. Any litigation could be costly for us to defend, and adversely affect our business, financial condition, and results of operations.
In addition to risks related to open source license requirements, use of certain open source software may pose greater risks than use of third-party commercial software, since open source licensors generally do not provide warranties or controls on the origin of software or other contractual protections regarding infringement claims or the quality of the code, including with respect to security vulnerabilities. Moreover, some open source projects have known security and other vulnerabilities and architectural instabilities, or are otherwise subject to security attacks due to their wide availability, and are provided on an “as-is” basis. There is typically no support available for open source software, and we cannot ensure that the authors of such open source software will implement or push updates to address security risks or will not abandon further development and maintenance. Further, our use of any AI tools that use or incorporate any open source software may heighten any of the
foregoing risks. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could adversely affect our business, financial condition, and results of operations.
Any disruption in or unauthorized access to or breaches of our computer systems or those of third parties that we utilize in our operations, including those relating to cybersecurity or arising from cyberattacks, could adversely impact our business.
Our reputation and ability to attract, retain, and serve our customers is dependent upon the reliable performance and security of our computer systems and those of third parties that we utilize in our operations to collect, store, use, and otherwise process public records, IP, and proprietary, confidential, and sensitive data, including personal data. We expend significant resources to develop and secure our computer systems, IP, and proprietary, confidential, or sensitive data, including personal data, but they may be subject to damage or interruption from natural disasters, terrorist attacks, power loss, Internet and telecommunications failures, and cybersecurity risks such as cyberattacks, ransomware attacks, social engineering (including phishing attacks), computer viruses, denial of service attacks, physical or electronic break-ins, and similar disruptions from foreign governments, state-sponsored entities, hackers, organized cybercriminals, cyber terrorists, and individual threat actors (including malicious insiders), any of which may see their effectiveness further enhanced in the future by the use of AI. We have implemented certain systems and processes designed to thwart such threat actors and otherwise protect our computer systems and proprietary, confidential, or sensitive data, including personal data; however, the systems and processes we have adopted may not be effective, and, similar to many other global multinational companies, we have experienced and may continue to experience cyber-threats, cyberattacks and other attempts to breach the security of our systems or gain unauthorized access to our proprietary, confidential or sensitive data, including personal data. Any fraudulent, malicious, or accidental breach of our computer systems or data security protections (including due to malicious insiders or inadvertent employee errors) could result in unintentional disclosure of, or unauthorized access to, customer, vendor, employee, or our own confidential, proprietary sensitive data or other protected information, which could potentially result in additional costs to enhance security or to respond to such incidents, lost sales, violations of privacy or other laws, notifications to individuals, penalties, or litigation. Any failure of our computer systems, disruption to our operations, or unauthorized access to any of our computer systems or those of third parties upon whom we rely or with whom we partner, including our cloud computing and other service providers, vendors, contractors, and consultants, could result in, among other things, significant expense to repair, replace, or remediate such systems, equipment, or facilities, a loss of customers, legal or regulatory claims, and proceedings or fines and adversely affect our business and results of operations. Additionally, while we generally perform cybersecurity due diligence on our key vendors, service providers, contractors and consultants, if any of these third parties fail to adopt or adhere to adequate cybersecurity practices, or in the event of a breach, incident, disruption, or other compromise of their networks, computer systems, or applications, our or our customers’ proprietary, confidential, or sensitive data, including personal data, may be improperly lost, destroyed, modified, accessed, used, disclosed, or otherwise processed, which could subject us to claims, demands, proceedings, and liabilities. We do not have control over the operations of the facilities of the third-party cloud computing service or other key vendors, service providers, contactors, and consultants that we use. This, coupled with the fact that we cannot easily switch our computing operations and other computer systems to other service providers, means that any disruption of or interference with our use of our current third-party cloud computing service, or the services provided by our other vendors, service providers, contractors, and consultants could disrupt our operations, and our business could be adversely impacted. Although we may have contractual protections with our third-party vendors, service providers, contractors and consultants, any actual or perceived security breach, incident, or disruption could harm our reputation and brand, expose us to potential liability, or require us to expend significant resources on cybersecurity in responding to any such actual or perceived compromise, breach, incident, or disruption and negatively impact our business. Any contractual protections we may have from our third-party vendors, service providers, contractors, and consultants may not be sufficient to adequately protect us from any such liabilities and losses, and we may be unable to enforce any such contractual protections.
If our products and services do not maintain and/or achieve broad market acceptance, or if we are unable to keep pace with or adapt to rapidly changing technology, evolving industry standards, macroeconomic market conditions and changing regulatory requirements, our revenues could be adversely affected.
Our business is characterized by rapidly changing technology, evolving industry standards and changing regulatory requirements, including, but not limited to, with respect to AI. Our growth and success depend upon our ability to keep pace with such changes and developments and to meet changing customer needs and preferences. Our business could also be affected by macroeconomic factors beyond our control and our ability to keep pace with technology and business and regulatory changes is subject to a number of risks, including that we may find it difficult or costly to:
•update our products and services and develop new products and services quickly enough to meet our customers’ needs;
•leverage AI, including generative AI, in our existing or newly developed products and services;
•make some features of our products work effectively and securely or with new or changed operating systems; and
•update our products and services to keep pace with business, evolving industry standards, regulatory requirements and other developments in the markets in which our customers operate.
In addition, the principal customers for certain of our products and services are universities and government agencies, which fund purchases of these products and services from limited budgets that are sensitive to changes in private and governmental sources of funding. Recession, economic uncertainty or austerity have contributed, and may in the future contribute, to reductions in spending by such sources. Accordingly, any further decreases in budgets of universities or government agencies, which have remained under pressure, or changes in the spending patterns of private or governmental sources that fund academic institutions, could adversely affect our results of operations.
The loss of, or the inability to attract and retain, key personnel could impair our future success.
Our future success depends to a large extent on the continued service of our employees, including our experts in research and analysis, as well as colleagues in sales, marketing, product development, critical operational roles, and management, including our executive officers. We must maintain our ability to attract, motivate, and retain highly qualified employees in our respective segments in order to support our customers and achieve business results. In addition, as the world evolves in the wake of the COVID-19 pandemic, we have begun to adopt and implement return to office plans for our workforce. Certain of our employees who have benefited from the ability to work remotely may be resistant to calls to return to the office. To the extent plans we adopt are more restrictive than those of others in our industry, our ability to attract and retain talent may be materially and adversely affected. The loss of the services of key personnel and our inability to recruit effective replacements or to otherwise attract, motivate, or retain highly qualified personnel could have a material adverse effect on our business, financial condition, and operating results.
Our collection, storage, and use of confidential, sensitive, or personal information or data are subject to applicable data protection and privacy laws, and any failure to comply with such laws may harm our reputation and business or expose us to fines and other enforcement action.
In the ordinary course of business, we collect, store, use, and transmit certain types of information that are subject to different laws and regulations. In particular, data security and data protection laws and regulations that we are subject to often vary significantly by jurisdiction.
For example, in the U.S., there are numerous federal, state, and local privacy, data protection, and cybersecurity laws, rules, and regulations governing the collection, storage, transmission, use, and other processing of personal data and Congress has considered, and continues to consider, many proposals for additional comprehensive national data privacy and cybersecurity legislation. At the state level, we are subject to laws, rules, and regulations, such as the California Consumer Privacy Act (as amended by the California Privacy Rights Act (collectively, “CCPA”)), which imposes requirements, including disclosure requirements, access rights, opt out rights, and the right to request deletion of personal information, on covered companies that process California consumers’ personal information and provides for civil penalties for violations as well as a private right of action for certain data breaches. A number of other states have enacted, or are in the process of enacting or considering, similar comprehensive state-level privacy, data protection, and cybersecurity laws, rules, and regulations, creating the potential for a patchwork of overlapping but different state laws. In addition, all 50 states have laws that require the provision of notification for security breaches of personal information to affected individuals, state officers, or others. Possible consequences for non-compliance with these various state laws include enforcement actions in response to rules and regulations promulgated under the authority of federal agencies and state attorneys general and legislatures and consumer protection agencies.
Outside of the United States, an increasing number of laws, rules, regulations, and industry standards apply to privacy, data protection, and cybersecurity, such as the EU’s General Data Protection Regulation (“GDPR”) and the UK’s Data Protection Act 2018 as supplemented by the GDPR as implemented into UK law (collectively, “UK GDPR”), both of which impose similar, stringent data protection requirements. The GDPR and UK GDPR are wide-ranging in scope and impose numerous additional requirements on companies that process personal data, including imposing special requirements in respect of the processing of personal data, requiring that consent of individuals to whom the personal data relates is obtained in certain circumstances, requiring additional disclosures to individuals regarding data processing activities, requiring that safeguards are implemented to protect the security and confidentiality of personal data, creating mandatory data breach notification
requirements in certain circumstances, and requiring that certain measures (including contractual requirements) are put in place when engaging third-party processors. The GDPR and UK GDPR also provide individuals with various rights in respect of their personal data, including rights of access, erasure, portability, rectification, restriction, and objection. Failure to comply with the GDPR and the UK GDPR can result in significant fines and other liability. While the UK GDPR currently imposes substantially the same obligations as the GDPR, the UK GDPR will not automatically incorporate changes to the GDPR going forward, which creates a risk of divergent parallel regimes and related uncertainty, along with the potential for increased compliance costs and risks for affected businesses. Legal developments in the European Economic Area (“EEA”) and the UK, including rulings from the Court of Justice of the European Union, have also created complexity and uncertainty regarding processing and transfers of personal data from the EEA and the UK to the United States and other countries outside the EEA and the UK that have not been determined by the relevant data protection authorities to provide an adequate level of protection for privacy rights. Data security and data protection laws and regulations are continuously evolving and there are currently a number of legal challenges to the validity of EU mechanisms for adequate data transfers such as the EU-US Data Privacy Framework and the European Commission’s Standard Contractual Clauses. Although we have implemented policies and procedures that are designed to ensure compliance with applicable privacy and data security laws, rules and regulations, the efficacy and longevity of these policies and procedures remains uncertain, and if our privacy or data security measures fail to comply with applicable current or future laws and regulations, including, without limitation, the EU ePrivacy Regulation, GDPR, UK GDPR and CCPA as well as those of other countries such as India’s Digital Personal Data Protection Act 2023, we will likely be required to modify our data collection or processing practices and policies in an effort to comply with such laws and regulations, and we could be subject to increased costs, fines, litigation, regulatory investigations, and enforcement notices requiring us to change the way we use personal data or our marketing practices or other liabilities such as compensation claims by individuals affected by a personal data breach, as well as negative publicity and a potential loss of business. Additionally, we may be bound by contractual requirements applicable to our collection, storage, transmission, use, and other processing of proprietary, confidential, and sensitive data, including personal data, and may be bound or asserted to be bound by, or voluntarily comply with, self-regulatory or other industry standards relating to these matters.
Our business continuity plans may not be effective against events that may adversely impact our business.
We have established operational policies and procedures that manage the risks associated with business continuity and recovery from potential disruptions to our business. These policies and procedures are designed to increase the likelihood that we are prepared to continue operations during times of unexpected disruption, and we have taken steps to minimize risks that could lead to disruptions in our operations and to avoid our customers being harmed in the event of a significant disruption in our operations. Our goal is to ensure organizational resilience across product sets. However, there is no guarantee that these measures will be effective in minimizing any disruption from unexpected events that could result from a variety of causes, including human error, natural disasters (such as hurricanes and floods), infrastructure or network failures (including failures at third-party data centers, by third-party cloud-computing providers, or of aging technology assets), and a disruption to our business that we are not capable of managing could adversely affect us.
We may be unable to derive fully the anticipated benefits from organic growth, existing or future acquisitions, joint ventures, investments, or dispositions, including anticipated revenue and cost synergies, and costs associated with achieving synergies or integrating such acquisitions may exceed our expectations.
We seek to achieve our growth objectives by optimizing our offerings to meet the needs of our customers through organic development, including by delivering integrated workflow platforms, cross-selling our products across our existing customer base, acquiring new customers, implementing operational efficiency initiatives, and through acquisitions, joint ventures, investments and dispositions. However, we may not be able to achieve the expected benefits of our acquisitions, including anticipated revenue, cost synergies or growth opportunities and we may not succeed in cross-selling our products and services. Moreover, we may not be able to integrate the assets acquired in any such acquisition or achieve our expected cost synergies without increases in costs or other difficulties. Furthermore, future acquisitions may not be completed on acceptable terms, and we may ultimately divest unsuccessful acquisitions or investments. Any acquisitions, investments, and dispositions will be accompanied by the risks commonly encountered in such transactions, including, among other things, assuming potential liabilities of an acquired company, managing the potential disruption to our ongoing business, incurring expenses associated with the amortization of intangible assets, particularly for intellectual property and other intangible assets, incurring expenses associated with an impairment of all or a portion of goodwill and other intangible assets, and failing to implement or remediate controls, procedures, and policies appropriate for a larger public company at acquired companies that prior to the acquisition lacked such controls. If we are unable to successfully execute on our strategies to achieve our growth objectives, drive operational efficiencies, realize our anticipated cost or revenue synergies or if we
experience higher than expected operating costs that cannot be adjusted accordingly, our growth rates and profitability could be adversely affected, and the market price of our ordinary shares may decline. Furthermore, acquisitions may subject us to new types of risks to which we were not previously exposed.
Our brand and reputation are key assets and competitive advantages of our company, and our business may be affected by how we are perceived in the marketplace.
Our ability to attract and retain customers is affected by external perceptions of our brand and reputation.
Failure to protect the reputation of our brands may adversely impact our credibility as a trusted source of content and may have a negative impact on our business. In addition, in certain jurisdictions we engage sales agents in connection with the sale of certain of our products and services. Poor representation of our products and services by agents, or entities acting without our permission, could have an adverse effect on our brands, reputation, and our business.
The international scope of our operations may expose us to increased risk, and our international operations and corporate and financing structure may expose us to potentially adverse tax consequences.
We have international operations and, accordingly, our business is subject to risks resulting from differing legal and regulatory requirements, political, social and economic conditions and unforeseeable developments in a variety of jurisdictions. Our international operations are subject to the following risks, among others:
•political instability;
•international hostilities (including the ongoing war between Russia and Ukraine and related sanctions, the ongoing war between Israel and Hamas, the renewed tensions between Serbia and Kosovo, and related negative economic impacts), military actions, terrorist or cyber-terrorist activities, natural disasters, pandemics, (including a prolonged and delayed recovery from COVID-19), and infrastructure disruptions;
•China’s domestic policy and increased preference for nationalized content;
•differing economic cycles and adverse economic conditions;
•unexpected changes in regulatory environments and government interference in the economy;
•varying tax regimes, including with respect to the imposition of withholding taxes on remittances and other payments by our partnerships or subsidiarieseconomy and the possibility that athe U.S. person treated as owning at least 10% of our ordinary shares could be subject to adverse U.S. federal income tax consequences;default on its debt obligations;
•high inflationary pressures and consistently high interest rates;
•differing labor regulations in locations where we have a significant number of employees;
•foreign exchange controls and restrictions on repatriation of funds;
•fluctuations in currency exchange rates;
•insufficient protection against product piracy and differing protections for IP rights;
•varying regulatory and legislative frameworks regarding the use and implementation of AI;
•varying attitudes towards censorship and the treatment of information service providers by foreign governments, particularly in emerging markets;
•various trade restrictions (including trade and economic sanctions and export controls prohibiting or restricting transactions involving certain persons and certain designated countries or territories) and anti-corruption laws (including the U.S. Foreign Corrupt Practices Act and the UK Bribery Act 2010);
•Brexit-related developments and their potential consequences;
•possible difficulties in enforcing a U.S. judgment against us or our directors and officers residing outside the United States, or asserting securities law claims outside of the United States; and
•protecting your interests as a shareholder due to the differing rights of shareholders under Jersey law, where we are incorporated.
Our overall success as a global business depends, in part, on our ability to anticipate and effectively manage these risks, and there can be no assurance that we will be able to do so without incurring unexpected costs. If we are not able to manage the risks related to our international operations, our business, financial condition and results of operations may be materially affected.
TheIn addition, the international scope of our business operations subjects us to multiple overlapping tax regimes that can make it difficult to determine what our obligations are in particular situations. For example,situations, and relevant tax authorities may interpret rules differently over time. These tax regimes may relate to corporate income taxes, withholding taxes on remittances, payments by our partnerships or subsidiaries, withholding taxes on share-based compensation, and adverse tax consequences of a U.S. person exceeding a particular ownership threshold in our ordinary shares, among other issues. If any tax authority were to
dispute a position we have been advised that we should be able to delivertaken or may take in the Merger Shares, consistent with our obligations under the Sponsor Agreement, to the recipients thereof without withholding for U.K. employmentfuture and related taxes. However, it is possible that Her Majesty’s Revenue and Customs (“HMRC”) could dispute our position andsuccessfully proceed against us, for the amount of such taxes, which could be significant and, if sustained,this could adversely affect our cash flows and financial position. Althoughposition, and the amounts we believe we would ultimately prevail in any such a proceeding, there can be no assurance that we would notcould be required to pay a significant amount in settlement of any such a claim brought by HMRC.
Our indebtedness could adversely affect our business, financial condition, and results of operations.
Our indebtedness could have significant consequences on our future operations, including:
•making it more difficult for us to satisfy our debt obligations and our other ongoing business obligations, which may result in defaults;
•events of default if we fail to comply with the financial and other covenants contained in the agreements governing our debt instruments, which could result in all of our debt becoming immediately due and payable or require us to negotiate an amendment to financial or other covenants that could cause us to incur additional fees and expenses;
•sensitivity to interest rate increases on our variable rate outstanding indebtedness, including uncertainty relating to the likely phasing out of LIBOR by the end of 2021, which could result in increased interest under our credit facilities which could cause our debt service obligations to increase significantly;
•reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;
•limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate, and the overall economy;
•placing us at a competitive disadvantage compared to any of our competitors that have less debt or are less leveraged;
•increasing our vulnerability to the impact of adverse economic and industry conditions; and
•if we receive a downgrade of our credit ratings, our cost of borrowing could increase, negatively affecting our ability to access the capital markets on advantageous terms, or at all.
Our ability to meet our payment and other obligations under our debt instruments depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us under our existing or any future credit facilities or otherwise, in an amount sufficient to enable us to meet our debt obligations and to fund other liquidity needs. We may incur substantial additional indebtedness, including secured indebtedness, for many reasons, including to fund acquisitions. Such additional indebtedness may be subject to higher borrowing costs as a result of rising interest rates. If we add additional debt or other liabilities, the related risks that we face could intensify.
Our outstanding private placement warrants are accounted for as liabilities and are recorded at fair value with changes in fair value each period reported in earnings, which may cause volatility in our earnings and thus may have an adverse effect on the market price of our ordinary shares.
As described in our financial statements included in Part II, Item 8, to this Annual Report on Form 10-K/A, the Company accountsannual report, we account for its outstandingour private placement warrants as liabilities at fair value on the balance sheet. The private placement warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of change in fair value as of the end ofincome statement in each period for which earnings are reported. The CompanyWe will continue to adjust the liability for changes in fair value until the earlier of exercise or expiration of the warrants. The volatility introduced by changes in fair value on earnings may have an adverse effect on the market price of our ordinary shares.
In both 2023 and 2022, we recorded goodwill impairment charges that arose primarily due to worsening macroeconomic and market conditions. We review goodwill for impairment at least annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that carrying value may not be recoverable. If we continue to experience adverse or worsening macroeconomic or market conditions or if we experience other indicators of potential impairment, we may need to record additional impairment charges. In the event we are required to record additional non-cash impairment charges to our goodwill, other intangible assets, or long-lived assets, such a charge could have a material adverse effect on our financial condition and results of operations.
We have identified a material weaknessesweakness in our internal control over financial reporting, as of December 31, 2020, and if we are not able to remediate the material weaknesses,weakness, or if we identify additional material weaknesses in the future or otherwise fail to design
and maintain effective internal control over financial reporting, we may beunable to accurately report our results of operations,provide accurate financial statements, meet our reporting obligations, or prevent misstatements dueor detect material misstatements.
Pursuant to fraud or error.
During 2021,Section 404 of the Company identified certain errors in its historical annualSarbanes-Oxley Act of 2002, as amended, our management is required to report on, and interim consolidated financial statements relatedour independent registered public accounting firm is required to attest to, the accounting treatmenteffectiveness of our internal control over financial reporting. The rules governing the Private Placement Warrants, the accounting treatment of certain awards made by CPA Global under its equity plan and the accounting of tax balances associated with the opening balance sheets of acquired entities. We concludedstandards that we did not maintain effectivemust be met for management to assess our internal control over financial reporting as of December 31, 2020, due toare complex and require significant documentation, testing, and possible remediation. Annually, we perform activities that include reviewing, documenting, and testing our internal control over financial reporting.
As previously disclosed, we have identified a material weaknessesweakness in our internal control over financial reporting. Areporting related to the preparation and review of the footnote disclosures included in our consolidated financial statements, including controls related to the completeness and accuracy of the underlying information used in the preparation of the footnote disclosures. If left unremediated, this material weakness is a deficiency, or combinationcould result in additional misstatements of deficiencies,the footnote disclosures that would result in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of ourto the annual or interim financial statements willthat would not be prevented or detected, on a timely basis. The material weaknesses related to: (1) the lack ofand we would not be able to conclude that we have an effectively designedeffective internal control over the evaluation of settlement features used to determine the classification of warrant instruments, (2) the lack of an effectively designed control over the communication of modifications to pre-existing compensation agreements in an acquisition transaction between the legal function and the accounting function to ensure the accounting impact of the modifications could be evaluated, and (3) the lack of an effectively designed control with a sufficient level of precision to allow for an appropriate review of the tax balances associated with the opening balance sheet of acquired entities. Certain of these material weaknesses resulted in the restatement of the Company’s consolidated financial statements for the years ended December 31, 2019 and 2020, each of the quarters of 2020, and the quarters ended June 30 and September 30, 2019.
environment. If we fail to designachieve and maintain an effective internal control over financial reporting, thereenvironment, we could be material misstatements in our consolidated financial statements that we may not be able to prevent or detect on a timely basis and fail to meet our reporting obligations which would likelyand cause investors to lose confidence in our reported financial information. This could limit our accessresult in significant expenses to capital markets, adversely affect our results of operationsremediate any internal control deficiencies and lead to a decline in our stock price.
We have designed and implemented new control activities to address the trading pricematerial weakness, but the control activities have to operate for a sufficient period of time to allow management to test and conclude that the new controls are operating effectively. We may not be successful in remediating the material weakness or be able to identify and remediate additional control deficiencies, including material weaknesses, on a timely basis in the future. For further discussion of the ordinary shares. Additionally, ineffective internal control over financial reporting could expose us to an increased riskmaterial weakness, see Item 9A. Controls and Procedures of fraud or misappropriation of assets and subject us to potential delisting from the stock exchange on which we list or to other regulatory investigations and civil or criminal sanctions.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this annual reportreport.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Cybersecurity Risk Management and include statements regardingStrategy
At Clarivate, cybersecurity risk management is an integral part of our intentions, beliefs or current expectations concerning, among other things, anticipated cost savings, resultsEnterprise Risk Management program. Because we are a global information services provider, our business is highly dependent on the protection of operations, financial condition, liquidity, prospects, growth, strategiesour proprietary software and content, as well as the markets in whichtimeliness, accuracy, and availability of our offerings. Consequently, we operate. Such forward-looking statements are based on available current market material and management’s expectations, beliefs and forecasts concerning future events impacting us. Factorshighly sensitive to risks from cybersecurity threats to our information systems, particularly those threats that may impact such forward-looking statements include:
•any significant disruption in or unauthorizedwould affect our ability to continue to provide real-time access to our computer systems or those of third parties thatdatabase content and analysis. To mitigate these threats, we utilize inthe following processes and governance structure.
Our Information Security Risk Management program is based on recognized industry governance frameworks, including the International Organization for Standardization. It provides a framework to identify, assess, and control cybersecurity threats and incidents. We perform an annual information security risk assessment with the assistance of independent security companies, with the aim to embed information security principles and objectives into our operations, including those relating to cybersecurity or arising from cyber-attacks;
•our ability to maintain revenues if our products and services do not achieve and maintain broad market acceptance, or if we are unable to keep pace with or adapt to rapidly changing technology, evolving industry standards, macroeconomic market conditions and changing regulatory requirements;
•our loss of, or inability to attract and retain, key personnel;
•our ability to comply with applicable data protection and privacy laws;
•the effectiveness of ourculture, business continuity plans;
•our dependence on third parties, including public sources, for data, information and other services, and our relationships with such third parties;
•increased accessibility to free or relatively inexpensive information sources;
•our ability to derive fully the anticipated benefits from organic growth, existing or future acquisitions, joint ventures, investments or dispositions;
•our ability to compete in the highly competitive industry in which we operate, and potential adverse effects of this competition;
•our ability to maintain high annual revenue renewal rates;
•the strength of our brand and reputation;
•our exposure to risk from the international scope of our operations, and support functions.
Our cybersecurity efforts also include mandatory information security awareness training for all employees, clearly defined expectations for acceptable use policies, and certification of adherence to a code of conduct. The IT Governance, Risk, and Compliance (“IT GRC”) team conducts periodic audits to evaluate policy and regulatory compliance, recording findings for subsequent review and remediation initiatives. We also leverage internal and external security subject matter experts to conduct comprehensive risk assessments, including architecture reviews, vulnerability scans, penetration tests, application security evaluations, and technical compliance reviews.
We maintain a security threat intelligence system that collects and analyzes data from internal vulnerability management tools, vendors, and third-party security organizations. Our patch management standard is designed to ensure that appropriate patching practices are consistently applied to our exposure to potentially adverse tax consequences from the international scope oftechnology infrastructure, and a Security Operations Center enhances our operationsreal-time awareness, event correlation, and our corporate and financing structure;
•our substantial indebtedness, which could adversely affect our business, financial condition, and results of operations;
•volatility in our earnings due to changes in the fair value of our outstanding warrants each period; and
•other factors beyond our control.
The forward-looking statements contained in this annual report are based on our current expectationsand beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks and uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are notincident response capabilities.
limitedAs part of our risk management program, we also assess cybersecurity risks associated with third-party service providers. We have processes in place to oversee and identify material risks from cybersecurity threats associated with our engagement of such providers, including the use of cybersecurity risk criteria when determining the selection and oversight of those factors described underservice providers.
Cybersecurity Governance
The Board of Directors, acting directly and through its committees, is responsible for the heading “Item 1A.oversight of our risk management programs. The Board’s Risk Factors.” Should one or& Sustainability Committee has the delegated responsibility for the oversight of key enterprise risks, including risks from cybersecurity threats. The committee also provides oversight of our policies and processes for monitoring and mitigating such risks. Among other duties, the Risk & Sustainability Committee receives and reviews periodic reports from management pertaining to cybersecurity programs and data protection controls, as well as other information security reports that the committee deems appropriate. The committee meets at least quarterly, and the chair of the committee gives regular reports to the Audit Committee and the full Board of Directors on its activities.
Management is responsible for day-to-day risk management activities, including those relating to information systems and cybersecurity. We employ an internal chief information security officer (“CISO”) who has more than 25 years of technology industry leadership, cybersecurity expertise, and engineering and operations experience. Our CISO and his team of certified security subject matter experts (collectively, “Information Security”) have deep experience and expertise in cybersecurity and lead our organizational efforts to assess and manage material risks associated with our information systems and cybersecurity threats. Our dedicated Information Security Steering Committee regularly reviews our most significant information security risks, strategic projects, and KPIs. On a quarterly basis, Information Security also meets with business segment leadership to discuss the most significant risks, including identifying potentially material risks and developing, implementing, and applying reasonable risk mitigation processes.
Our risk management programs are developed, implemented, managed, and reviewed at the direction of Information Security and business segment leaders, with subsequent actions determined based on the results of these risks or uncertainties materialize, or should anypreventive and detective controls. We have implemented incident response procedures that define our approach when potential security incidents are identified, with clear definition of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We will not undertake any obligationescalation path, including when notification to update or revise any forward-looking statements, whether as a resultthe Risk & Sustainability Committee is required. Depending on the assessed severity of new information, future events or otherwise, except asthe incident, the Risk & Sustainability Committee may be required under applicable securities laws.notified immediately or at its next regularly scheduled meeting.
Item 1B. Unresolved Staff Comments
None.
Item 2. PropertiesProperties.
The Company’s primary office spaces as of December 31, 2020 are representedOur corporate headquarters is located in the table below:
| | | | | | | | | | | | | | |
Location | | Space Leased | | Lease Expiration |
Philadelphia, Pennsylvania, USA | | 78,778 square feet | | October 2029 |
Bangalore, India (Location #1) | | 57,850 square feet | | February 2022 |
Bangalore, India (Location #2) | | 56,891 square feet | | March 2027 |
Hyderabad, India | | 54,064 square feet | | July 2021 |
Belgrade, Serbia | | 53,841 square feet | | August 2027 |
London, UK | | 52,321 square feet | | December 2028 |
Chennai, India | | 47,522 square feet | | June 2021 |
Boston, Massachusetts, USA | | 35,600 square feet | | October 2024 |
Barcelona, Spain | | 32,000 square feet | | September 2023 |
Jersey | | 30,784 square feet | | September 2028 |
Bangalore, India | | 30,122 square feet | | March 2027 |
Chandler, Arizona, USA | | 30,000 square feet | | November 2027 |
Tokyo, Japan | | 29,788 square feet | | May 2022 |
Antwerp, Belgium | | 27,896 square feet | | December 2023 |
Alexandria, Virginia, USA | | 24,660 square feet | | December 2026 |
Milwaukee, Wisconsin, USA | | 24,016 square feet | | May 2027 |
Penang, Malaysia | | 23,639 square feet | | September 2023 |
Beijing, China | | 20,526 square feet | | March 2022 |
Burlington, Massachusetts, USA | | 20,026 square feet | | December 2027 |
San Francisco, California, USA | | 18,889 square feet | | October 2025 |
Gurugram, India | | 18,718 square feet | | November 2021 |
Toronto, Canada | | 16,786 square foot | | May 2025 |
leased premises located at 70 St. Mary Axe, London EC3A 8BE, United Kingdom. We lease office facilities at 56 locations; 24 are in the U.S. We believe that our properties, taken as a whole,facilities, generally used across each of our segments, are in good operating condition,well maintained and are suitable and adequate for our current business operations, and that additional or alternative space will be available on commercially reasonable terms for future use and expansion.
Item 3. Legal ProceedingsProceedings.
From time to time, we are a party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of our business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows. For additional discussion of legal proceedings, see Note 17 - Commitments and Contingencies included in Part II, Item 8 of this annual report.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity SecuritiesSecurities.
Market Price of Ordinary SharesInformation
Our ordinary shares are traded on the NYSENew York Stock Exchange under the symbol CLVT.“CLVT.”
Holders
As of December 31, 2020,2023, there were 41101 holders of record of ordinary shares. A substantially greater number of holders of our ordinary shares are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
Dividends
We did not pay any dividends to stockholdersordinary shareholders during the year ended December 31, 2020.2023. We presently intend to retain our earnings for use in business operations and, accordingly, we do not anticipate that our board will declare dividends related to ordinary shares in the foreseeable future. In addition, the terms of our credit facilities and the indentureindentures governing our secured notes due 2026 include restrictions that may impact our ability to pay dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information as of December 31, 2020,2023, with respect to compensation plans under which equity securities are authorized for issuance.
| | | | | | | | | | | | | | | | | | | | | | | |
| Equity Compensation Plan Information | | | | | |
| | Number of securities to be issued upon exercise of outstanding options, warrants and rights(a) | | Weighted-average exercise price of outstanding options, warrants, and rights(b) | | Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column)(a)(c) | |
| Equity Compensation Plans Approved by Security Holders | | | | | | | |
| 2019 Incentive Award Plan | | 10,544,489 | | (2) | $ | 12.95 | | (3) | 42,785,926 | | (4) |
Equity Compensation Plans Not Approved by Security Holders (1) | | | | | | | |
| Total | | 10,544,489 | | | $ | 12.04 | | | 42,785,926 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Plan Category | | (a) Number of securities to be issued upon exercise of outstanding options, warrants, and rights | | (b) Weighted-average exercise price of outstanding options, warrants, and rights | | Number of securities remaining available for issuance under equity compensation plans | |
| Equity Compensation Plans Approved by Security Holders | | | | | | | |
| 2019 Incentive Award Plan | | 16,625,898 | | (1) | $ | 13.41 | | (2) | 26,783,017 | | (3) |
| Equity Compensation Plans Not Approved by Security Holders | | N/A | | N/A | | N/A | |
| Total | | 16,625,898 | | | $ | 13.41 | | | 26,783,017 | | |
(1)See Item 11. Executive Compensation - Compensation Committee Interlocks and Insider Participation. See Item 8. Financial Statements and Supplementary Data - Notes to the Consolidated Financial Statements - Note 16 - Shareholders’ Equity for information regarding the Warrants.
(2)Includes (a) 7,860,618 of3,084,218 stock options, (b) 1,810,54610,765,638 restricted share units, and 2,776,042 performance share units at target performance levels that were issuedgranted with no exercise price or other consideration, and (c) 873,325 performance share units at grant that were issued with no exercise price or other consideration, and may not ultimately vest based on achievement of certain performance and market conditions.consideration.
(3)(2)The weighted-average exercise price is reported for the outstanding stock options reported in the first column. There are no exercise prices for the restricted share units or performance share units.
(4)(3)The total number of securities available to be issued under the 2019 Incentive Award Plan.
Issuer Purchases of Equity Securities
None.The following table sets forth the total number of shares purchased, the average price paid per share, the total number of shares purchased as part of publicly announced programs, and the approximate dollar value of shares that may yet be purchased under the programs during the three months ended December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased(1) | | Average Price Paid Per Share | | Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares That May Yet Be Purchased Under Plans or Programs(2) |
| October 1, 2023 - October 31, 2023 | | 8,705 | | | $ | 6.77 | | | — | | | $ | 400 | |
| November 1, 2023 - November 30, 2023 | | 604,463 | | | $ | 6.63 | | | — | | | $ | 400 | |
| December 1, 2023 - December 31, 2023 | | 32,430 | | | $ | 8.48 | | | — | | | $ | 400 | |
| Total | | 645,598 | | | | | — | | | |
(1) Consists of shares withheld to satisfy tax withholding obligations on behalf of employees that occur upon vesting and delivery of outstanding shares underlying stock options and restricted share units under the 2019 Incentive Award Plan.
(2)In February 2022, our Board of Directors approved the repurchase of up to $1,000.0 of our ordinary shares through open-market purchases, to be executed through December 31, 2023. In May 2023, our Board of Directors approved the extension of the share repurchase authorization through December 31, 2024, and reduced the authorization from $1,000.0 to $500.0. To enable the buybacks under the Board’s authorization, we obtained shareholder approval on July 27, 2023 to permit us to conduct open-market purchases of up to 100.0 million of our ordinary shares from time to time as approved by the Board of Directors at a minimum purchase price of $1 per share and maximum purchase price of $35 per share. As of December 31, 2023, we had approximately $400.0 of availability remaining under this program.
Performance Graph
The following graph compares our total cumulative stockholdershareholder return with the Standard & Poor’s Composite Stock Index (“S&P 500”) and a market capitalization-weighted peer index consisting of FactSet Research Systems Inc.,; Gartner, Inc., IHS Markit Ltd.,; Moody’s Corporation,Corporation; MSCI Inc.,; S&P Global Inc.; and Verisk Analytics, Inc.
The graph assumes a $100 cash investment on May 14, 2019, and the reinvestment of all dividends, where applicable. This graph is not indicative of future financial performance. The following graph is not filed but is furnished pursuant to Regulation S-K Item 201(e), Instruction 7.
Recent Sales of Unregistered Equity; Use of Proceeds from Registered Offerings
In March 2017, the Company adopted the management incentive plan under which certain employees of the Company may be eligible to purchase shares of the Company. In exchange for each share purchase subscription, the purchaser is entitled to a fully vested right to an ordinary share. Additionally, along with a subscription, employees received a corresponding number of options to acquire additional ordinary shares subject to five year vesting. The vesting of these options was accelerated on November 30, 2020. The Company did not receive any subscriptions during the years ended December 31, 2020 and 2019. As of December 31, 2020 and 2019, respectively, there were 127,060 and 358,313 shares issued and outstanding under the management incentive plan. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering.
Item 6. [Reserved]
Item 6. Selected Financial DataThe following should be read in conjunction with the consolidated financial statements, including the notes thereto, and Management's
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Part II of this Form 10-K.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| (in thousands except per share data) | 2020 (1)(2)(3) (As Restated) | | 2019 (4)(5)(6) (As Restated) | | 2018 (7)(8) | | 2017 (9) |
| Statement of Operations Data: | | | | | | | |
| Revenues, net | $ | 1,254,047 | | | $ | 974,345 | | | $ | 968,468 | | | $ | 917,634 | |
| Operating expenses: | | | | | | | |
Cost of revenues(18) | (438,787) | | | (352,000) | | | (430,326) | | | (413,030) | |
Selling, general and administrative costs(18) | (544,700) | | | (475,014) | | | (413,004) | | | (422,931) | |
| Depreciation | (12,709) | | | (9,181) | | | (9,422) | | | (6,997) | |
| Amortization | (290,441) | | | (191,361) | | | (227,803) | | | (221,466) | |
| Impairment on assets held for sale | — | | | (18,431) | | | — | | | — | |
Restructuring and impairment(18) | (56,138) | | | (15,670) | | | — | | | — | |
| Other operating income (expense), net | 52,381 | | | 4,826 | | | 6,379 | | | (237) | |
| Total operating expenses | (1,290,394) | | | (1,056,831) | | | (1,074,176) | | | (1,064,661) | |
| Income (loss) from operations | (36,347) | | | (82,486) | | | (105,708) | | | (147,027) | |
Mark to market adjustment on financial instruments (13) | (205,062) | | | (47,656) | | | | | |
| Legal settlement | — | | | 39,399 | | | — | | | — | |
| Income (loss) before interest expense and income tax | (241,409) | | | (90,743) | | | (105,708) | | | (147,027) | |
| Interest expense and amortization of debt discount, net | (111,914) | | | (157,689) | | | (130,805) | | | (138,196) | |
| Income (loss) before income tax | (353,323) | | | (248,432) | | | (236,513) | | | (285,223) | |
Benefit (provision) for income taxes(14) | 2,698 | | | (10,201) | | | (5,649) | | | 21,293 | |
| Net loss | $ | (350,625) | | | $ | (258,633) | | | $ | (242,162) | | | $ | (263,930) | |
| | | | | | | |
| Per share: | | | | | | | |
| Basic and diluted | $ | (0.82) | | | $ | (0.94) | | | $ | (1.11) | | | $ | (1.22) | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| (in thousands) | 2020 | | 2019 | | 2018 | | 2017 |
| Statement of Cash Flows data: | | | | | | | |
| Net cash provided by (used in) | | | | | | | |
| Operating activities | $ | 263,500 | | | $ | 117,580 | | | $ | (26,100) | | | $ | 6,667 | |
| Investing activities | (2,988,768) | | | (140,885) | | | 11,934 | | | (40,205) | |
| Financing activities | 2,926,580 | | | 75,215 | | | (32,605) | | | 22,818 | |
| Other Financial Data: | | | | | | | |
| Capital expenditures | (107,713) | | | (69,836) | | | (45,410) | | | (37,804) | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| (in thousands) | 2020(1)(2)(3)(10) (11)(15)(18) (As Restated) | | 2019(4)(6)(12)(13) (14)(15) (As Restated) | | 2018 (7) | | 2017 (9) |
| Balance Sheet data: | | | | | | | |
| Cash and cash equivalents | $ | 257,730 | | | $ | 76,130 | | | $ | 25,575 | | | $ | 53,186 | |
| Accounts receivable, net | 737,733 | | | 333,858 | | | 331,295 | | | 317,808 | |
| Computer hardware and other property, net | 36,267 | | | 18,042 | | | 20,641 | | | 23,010 | |
Total assets (17) | 14,790,698 | | | 3,791,371 | | | 3,709,674 | | | 4,005,111 | |
| Total current liabilities | 1,423,093 | | | 650,998 | | | 643,714 | | | 661,073 | |
Total long term liabilities(16) | 4,332,815 | | | 1,891,774 | | | 2,015,353 | | 2,057,932 |
| Total long term debt | 3,457,900 | | | 1,628,611 | | | 1,930,177 | | | 1,967,735 | |
| Total shareholders' equity | 9,034,790 | | | 1,248,599 | | | 1,050,607 | | | 1,286,106 | |
| | | | | | | |
| | | | | | | |
Footnotes to Key Financial Data
(1)(In February 2020, the Company completed the acquisition Decision Resources Group ("DRG"). DRG has been included in our consolidated results of operations and consolidated balance sheets starting on the acquisition date. In October 2020, the Company completed the acquisition of CPA Global. CPA Global has been included in our consolidated results of operations and consolidated balance sheets starting on the acquisition date. In October 2020, the Company completed the acquisition of Beijing IncoPat Technology Co., Ltd. ("IncoPat"). IncoPat has been included in our consolidated results of operations and consolidated balance sheets starting on the acquisition date. In November 2020, the Company completed the acquisition of Hanlim IPS. Co., Ltd. ("Hanlim"). Hanlim has been included in our consolidated results of operations and consolidated balance sheets starting on the acquisition date.
(2)Includes $28,140 gain on the sale of certain assets and liabilities of the Techstreet business.
(3)The As Restated 2020 column includes restatement adjustments pertaining to Amendment No. 1 relating to errors in the Private Placement Warrants that were initially issued by the SPAC and Amendment No. 2 relating to errors in the CPA Global Equity Plan that were incorrectly includedmillions, except option prices, ratios or as part of the acquisition accounting.
(4)In September 2019, the Company completed the acquisition of SequenceBase. SequenceBase has been included in our consolidated results of operations and consolidated balance sheets starting on the acquisition date. In November 2019, the Company completed the acquisition of Darts-ip. Darts-ip has been included in our consolidated results of operations and consolidated balance sheets starting on the acquisition date.
(5)Includes $18,431 of asset impairment charges related to assets held for sale, $15,670 of restructuring charges, and $39,399 gain related to a legal settlement.
(6)The As Restated 2019 column includes restatement adjustments pertaining to Amendment No. 1 relating to errors in the Private Placement Warrants that were initially issued by the SPAC.
(7)The Company completed the acquisitions of Kopernio and TrademarkVision in March 2018 and October 2018, respectively. Kopernio and TrademarkVision has been included in our consolidated results of operations starting and consolidated balance sheets on the acquisition date.
(8)Includes $36,072 gain on the sale of a business and $33,819 loss related to the write down of a tax indemnity asset.
(9)In June 2017, the Company completed the acquisition of Publons. Publons has been included in our consolidated results of operations and consolidated balance sheets starting on the acquisition date.
(10)Includes an incremental $1,960,000 of borrowings under our term loan facility in connection with the DRG and CPA Global acquisitions.
(11)Includes $6,565,477 from the issuance of up to 218,183,778 ordinary shares to Redtop Holdings Limited, a portfolio company of Leonard Green & Partners, L.P., in connection with the CPA Global acquisition.
(12)Reflects the impact of the adoption of ASC 842 Leases. See Item 8. Financial Statements and Supplementary Data - Notes to the Consolidated Financial Statements - Note 3 - Summary of Significant Accounting Policies for further discussion.
(13)Includes the impact of October 2019 Refinancing Transaction.
(14)Includes $200,000 related to the net impact of the tax receivable agreement and buyout agreement and $678,054 related to the merger recapitalization.
(15)The restated balance includes a mark to market adjustment on financial instruments which represents the correction and restatement as per Amendment No. 1 for the periods ended December 31, 2020 and 2019 in the amounts of $205,062 and $47,656, respectively. The restated balance also includes an adjustment to total assets of $406,149 to reflect the correction of an error in the acquisition accounting relating to the CPA Global Equity Plan as per Amendment No. 2, inclusive of an adjustment to goodwill in the amount of $209,672 for the period ended December 31, 2020. In addition, and separate from the CPA Global Equity Plan restatement in Amendment No 2, the Company has corrected the acquisition accounting understatement of deferred tax liabilities of $5,264 with an offset to goodwill associated with the CPA Global and DRG acquisitions.
(16)The restated balance includes the adjustment as per Amendment No. 1 to the Warrant liabilities as of December 31, 2020 and 2019 in the amounts of $312,751, and $111,813, respectively. The restated balance also includes an adjustment to total liabilities of $160,216 to reflect the correction of an error in the acquisition accounting relating to the CPA Global Equity Plan as per Amendment No. 2 for the period ended December 31, 2020.
(17)Includes a reduction to the income tax benefit of $(497) as a result of the restatement reflected in Amendment No. 1 which was offset to prepaid expenses on the Consolidated Balance Sheet.
(18)The share-based compensation charge adjustments recorded within Cost of revenues (an adjustment of $9,490), Selling, general and administrative costs (an adjustment of $21,119) and Restructuring and impairment (an adjustment of $8,543) in the As Restated 2020 column represent the correction and restatement per Amendment No. 2 for the period ended December 31, 2020.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.
The following discussion should be read in conjunction with our Consolidated Financial Statements, including the notes thereto, included elsewhere in this annual report. Certain statements in this section are forward-looking statements that involveas described in the Cautionary Note Regarding Forward-Looking Statements of this annual report. A detailed discussion of risks and uncertainties such as statements regarding our plans, objectives, expectations and intentions. Our futurethat could cause actual results and financial condition mayevents to differ materially from those we currently anticipate as a result of the factors we describesuch forward-looking statements is outlined under Item 1A. Risk Factors (restated). Certain income statement amounts discussed herein are presented on an actual and on a constant currency basis. We calculate constant currency by converting the non-U.S. dollar income statement balances for the most current year to U.S. dollars by applying the average exchange rates of the preceding year. Certain amounts that appear in this section may not sum due to rounding.
Restatement of Previously Issued Consolidated Financial Statements
We have restated our previously issued consolidated financial statements contained in this Amendment No. 2. Refer to the "Explanatory Note" preceding Item 1. Business, for background on the restatements, the fiscal periods impacted, control considerations, and other information. In addition, we have restated certain previously reported financial information at December 31, 2020 and for the fiscal years ended December 31, 2020 and December 31, 2019 in this Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, including but not limited to information within the Results of Operations, Non-GAAP Financial Measures and Liquidity and Capital Resource sections. We have also included certain restated quarterly information in Note 26 - Quarterly Financial Data.
Note 28 - Restatement of Previously Issued Financial Statements in Item 8, Financial Statements and Supplementary Data, for additional information related to the restatement, including descriptions of the misstatements and the impacts on our consolidated financial statements.
Overview
We offerare a collection of high quality, market leading global information services provider. We connect people and analytic products and solutions through our Science segment and Intellectual Property (“IP”) segment, which are also our reportable segments. Our Science segment consists of our Academic, and Life Science Product Lines, and our IP segment consists of our Patents, Trademarks, Domains and IP Management Product Lines. Our highly curated Web of Science products are offered primarilyorganizations to universities, helping them navigate scientific literature, facilitate research and evaluate and measure the quality of researchers, institutions and scientific journals across various academic disciplines. Our Life Sciences Product Line offerings serve the content and analytical needs of pharmaceutical and biotechnology companies across the drug development lifecycle, including content on discovery and pre-clinical research, competitive intelligence regulatory information and clinical trials. Our Derwent Product Line offerings help patent and legal professionals in R&D intensive businesses evaluate the novelty and patentability of new ideas and productsthey can trust to help protect and research patents. Our Trademark Product Line allow businesses and legal professionals to access our comprehensive trademark database. Our Domains Product Line offerings include enterprise web domain portfolio management products and services. Finally, our IP Management Product Line provides technology solutions and legal support services across the IP lifecycle, including renewal and validation of IP rights on behalf of customers and the development and provision of IP management software, as well as other patent activities including patent searching, IP filing, prosecution support and trademark watching.
Objective
The objective of the Management Discussion and Analysis is to detail material information, events, uncertainties and factors impacting the Company and provide investors an understanding from "Management's perspective". Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations (restated), Management highlights the critical areas for evaluating the Company's performance which includes a discussion of reportable segment information. In addition, refer to Item 1. Business for Management's discussion of forward looking transformational strategy and initiatives including operational improvements, revenue growth and pursuit of acquisition opportunities.
Factors Affecting the Comparability of Our Results of Operations
The following factors have affected the comparability of our results of operations between the periods presented in this annual report and may affect the comparability of our results of operations in future periods.
Strategic Acquisitions
Acquisition of Decision Resources Group
On February 28, 2020, we acquired 100% of the assets, liabilities and equity interests of Decision Resources Group ("DRG"), a premier provider of high-valuetransform their world. We bring together enriched data, analytics and insights, productsworkflow software, and expert services, togrounded in deep domain expertise across the healthcare industry, from Piramal Enterprises Limited ("PEL"spectrum of knowledge, research, and innovation. Our subscription and technology-based solutions cover the Academia & Government (“A&G”), which is a part of global business conglomerate Piramal Group. The acquisition helps us expand our core businessesIntellectual Property (“IP”), and provides us with the potential to grow in the Life Sciences Product Line.& Healthcare (“LS&H”) markets.
The aggregate consideration paid in connection with the closing of the DRG acquisition was $964,997, composed of $900,000 of base cash plus $6,100 of adjusted closing cash paid on the closing dateFor further information about our business, customers, segments, and up to 2,895,638 of the Company's ordinary shares to be issued to PEL following the one-year anniversary of closing. The contingent stock consideration was valued at $58,897 on the closing date and will be revalued at each period end andpeople, see Item 1. Business included in the Accrued expenses and other current liabilities in the Consolidated Balance Sheets.
AcquisitionPart I of CPA Global
On October 1, 2020, we acquired 100% of the assets, liabilities and equity interests of CPA Global, a global leader in intellectual property software and tech-enabled services. Clarivate acquired all of the outstanding shares of CPA Global in a cash and stock transaction. The aggregate consideration in connection with the closing of the CPA Global acquisition was $8,541,551, net of $102,010 cash acquired, including an equity hold-back consideration of $46,485. The aggregate consideration was composed of (i) $6,565,477 from the issuance of up to 218,183,778 ordinary shares to Redtop Holdings Limited, a portfolio company of Leonard Green & Partners, L.P., representing approximately 35% pro forma fully diluted ownership of Clarivate and (ii) approximately $2,078,084 in cash to fund the repayment of CPA Global's parent company outstanding debt of $2,055,822 and related interest swap termination fee of $22,262. Of the 218,306,663 ordinary shares issuable in the acquisition, Clarivate issued 210,357,918 ordinary shares on October 1, 2020. There were 6,325,860 shares that were transferred to Clarivate to fund an Employee Benefit Trust established for the CPA Global Equity Plan. Accordingly, these shares were excluded from purchase price consideration.
In conjunction with the closing of the transaction, the Company incurred an incremental $1,600,000 of term loans under our term loan facility and used the net proceeds from such borrowings, together with cash on hand, to fund the transaction. As a result of the additional term loan and the additional term loan associated with the DRG acquisition, we had $2,847,400 outstanding on our term loan facility at December 31, 2020.
Acquisition of Beijing IncoPat Technology Co, Ltd.
On October 26, 2020, we acquired 100% of the assets, liabilities and equity interests of Beijing IncoPat Technology Co., Ltd. (“IncoPat”), a leading patent information service provider in China via cash on hand for $52,133. IncoPat is complementary to Clarivate’s intellectual property portfolio.
Acquisition of Hanlim IPS. Co., Ltd.
On November 23, 2020, we acquired 100% of the assets, liabilities and equity interests of Hanlim IPS. Co., Ltd. ("Hanlim"), a leading patent renewal and information service provider in South Korea via cash on hand for $9,254. Hanlim is complementary to Clarivate’s intellectual property portfolio.
Dispositions
MarkMonitor Brand Protection, Antipiracy and Antifraud Disposition
In November 2019, we entered into an agreement with an unrelated third-party for the sale of certain assets and liabilities of our MarkMonitor Product Line within the IP Group. The divestment closed in January 2020 for a consideration of approximately $3,751. An impairment charge of $18,431 was recognized in the Statement of Operations during the fourth quarter of 2019 to reduce the Assets Held for Sale to their fair value. Accordingly, we recorded an immaterial loss on the divestiture during the year ended December 31, 2020.
Disposition of Techstreet
On November 6, 2020, the Company completed the sale of certain assets and liabilities of certain non-core assets and liabilities within the IP segment for a total purchase price of $42,832. A gain of $28,140 was recognized in the Consolidated Statements of Operations within Other operating income, net during the year ended December 31, 2020.
Public Ordinary Share Offerings
During 2020, the Company completed two underwritten public offerings of ordinary shares and used the proceeds it received to fund, in part, the acquisitions of the DRG and CPA Global businesses.
February 2020 Ordinary Share Offering
In February 2020, we completed an underwritten public offering of 27,600,000 of our ordinary shares, generating proceeds of $540,736, which we used to fund a portion of the cash consideration for the DRG acquisition. In addition, we incurred an incremental $360,000 of term loans under our term loan facility and used the net proceeds from such borrowings, together with cash on hand, to fund the remainder of the cash consideration for the DRG acquisition and to pay related fees and expenses.
June 2020 Ordinary Share Offering
In June 2020, we completed an underwritten public offering of 50,400,000 of our ordinary shares (including 2,400,000 ordinary shares pursuant to the underwriters' option to purchase up to an additional 7,200,000 ordinary shares from certain selling shareholders) at a share price of $22.50. Of the 50,400,000 ordinary shares, 14,000,000 ordinary shares were offered by Clarivate and 36,400,000 ordinary shares were offered by selling shareholders, including 20,821,765 ordinary shares from Onex, 8,097,354 ordinary shares from Baring and 7,480,881 ordinary shares from Directors, Executive Officers and other shareholders. The underwriters' option to purchase the remaining 4,800,000 ordinary shares from certain selling shareholders expired on July 3, 2020.
The Company received approximately $304,030 in net proceeds from the sale of ordinary shares offered by the Company, after deducting underwriting discounts and estimated offering expenses payable. We used the net proceeds, in conjunction with the new $1,600,000 incremental term loan facility available to Clarivate on October 1, 2020, to fund the repayment of CPA Global parent company's $2,052,926 of outstanding debt. The Company did not receive any proceeds from the secondary ordinary shares sold by the selling shareholders.
Restructuring
During both 2020 and 2019, we engaged a strategic consulting firm to assist us in optimizing our structure and cost base. As a result, we have implemented several cost-saving and margin improvement programs designed to generate substantial incremental cash flow including the Operation Simplification and Optimization Program, the DRG Acquisition Integration Program and the CPA Global Acquisition Integration and Optimization Program.
Operation Simplification and Optimization Program
During the fourth quarter of 2019, the Company approved restructuring actions designed to streamline our operations by simplifying our organization and focusing on two segments in planned phases. Approximately $42,317 costs have been incurred to date under the program which was substantially complete as of December 31, 2020.
During the year ended December 31, 2020, the Company recorded pre-tax charges of $26,647, recognized within Restructuring and impairment in the Consolidated Statements of Operations. These charges were composed of $6,011 of lease impairment and location exit costs, $4,567 of contract exit costs and legal and advisory fees, and $16,069 of severance and related benefit costs, respectively.
DRG Acquisition Integration Program
During the second quarter of 2020, the Company approved restructuring actions designed to eliminate duplicative costs in planned phases following the acquisition of DRG. Approximately $6,597 of costs have been incurred to date under the program which was substantially complete as of December 31, 2020.
During the year ended December 31, 2020, the Company recorded pre-tax charges of $6,597 recognized in Restructuring and impairment in the Consolidated Statements of Operations composed of $977 of lease impairment and location exit costs, $487 of contract exit costs and legal and advisory fees and $5,133 of severance and related benefit costs, respectively.
CPA Global Acquisition Integration and Optimization Program
During the fourth quarter of 2020, the Company approved restructuring actions designed to eliminate duplicative costs following the acquisition of CPA Global and to streamline our operations simplifying our organization and reducing our leasing portfolio. As a result of these actions, the company expects to record total pre-tax restructuring charges of approximately $109,898 for all phases of the program. Approximately $22,895 of costs have been incurred to date under the program and $87,003 are expected to be incurred in a future period. This estimate includes approximately $26,415 for severance related charges, approximately $54,060 of estimated maximum lease exit costs, assuming no sublease agreements are entered into, and $6,528 of other exit costs. To the extent vesting of awards was accelerated for colleagues who were involuntarily terminated relating to the acquired CPA Global Equity Plan, the Company accounted for these as a modification and acceleration of share-based compensation charges of $8,543 within the Restructuring and impairment line item of the Consolidated Statement of Operations.
During the year ended December 31, 2020, the Company recorded pre-tax charges of $22,895, respectively, recognized in Restructuring and impairment in the Consolidated Statements of Operations comprised of $707 of lease impairment and location exit costs, $3,472 of contract exit costs and legal and advisory fees and $18,716 of severance and related benefit costs, respectively.
Effect of Currency Fluctuations
As a result of our geographic reach and operations across regions, we are exposed to currency transaction and currency translation impacts. Currency transaction exposure results when we generate revenues in one currency and incur expenses in another. While we seek to limit our currency transaction exposure by matching revenues and expenses, we are not always able to do so. For example, our revenues were denominated approximately 74% in U.S. dollars, 11% in euros, 8% in British pounds and 6% in other currencies for the year ended December 31, 2020, 81% in U.S. dollars, 9% in euros, 3% in British pounds and 7% in other currencies for the year ended December 31, 2019 and 79% in U.S. dollars, 7% in euros, 7% in British pounds and 7% in other currencies for the year ended December 31, 2018, while our direct expenses before depreciation and amortization, tax and interest in 2020, 2019 and 2018, were denominated approximately 69%, 70%, and 70%% in U.S. dollars, 9%, 9%, and 9% in euros, 13%, 13%, and 11% in British pounds and 9%, 8%, and 10% in various other currencies, respectively.
The financial statements of our subsidiaries outside the U.S. and the UK are typically measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the balance sheet date exchange rates, while income and expense items are translated at the average monthly exchange rates. Resulting translation adjustments are recorded in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheets.
Subsidiary monetary assets and liabilities that are denominated in currencies other than the functional currency are remeasured using the month-end exchange rate in effect during each month, with any related gain or loss recorded in Other operating expense, net within the Consolidated Statements of Operations.
In September 2020, the Company entered into two foreign exchange forward contracts to reduce its exposure to variability in cash flows relating to funding of the repayment of CPA Global's parent company outstanding debt on October 1, 2020. The Company recognized a gain from the mark to market adjustment of $2,903, in Other operating income, net on the Consolidated Statements of Operations for the year ended December 31, 2020. The nominal amount of outstanding foreign currency contracts was $0 as of December 31, 2020 and December 31, 2019.
Additionally, the Company periodically enters into foreign currency contracts. The purpose of these derivative instruments is to help manage the Company’s exposure to foreign exchange rate risks within the acquired CPA Global business. These contracts generally do not exceed 180 days in duration. See Item 7a. Quantitative and Qualitative Disclosures About Market Risk and Item 8. Financial Statements and Supplementary Data (restated) - Note 10 to the Consolidated Financial Statements - Derivative Instruments, for additional information.
Key Performance Indicators
We regularly monitor the following key performance indicators to evaluate our business and trends, measure our performance, prepare financial projections, and make strategic decisions.
Adjusted Revenues
We present Adjusted Revenues, which excludes the impact of the deferred Organic revenue purchase accounting adjustments, which is allowable under the Company's debt covenant calculation, and revenues from divestitures. We present these measures because we believe it is useful to readers to better understand the underlying trends in our operations. See - Certain Non-GAAP Measures - Adjusted Revenues below for important information on the limitations of Adjusted Revenues and their reconciliation to the respective revenues measures under U.S. GAAP.
growth, Annualized Contract Value, Annual Renewal Rates, Adjusted EBITDA, and Adjusted EBITDA margin,
Adjusted EBITDA is presented and Free Cash Flow are key performance indicators because it isthey are a basis upon which our management assesses our performance and we believe it is useful for investors to understandthey reflect the underlying trends and indicators of our operations. See Certain Non-GAAP Measures - business by allowing management to focus on the most meaningful indicators of our continuous operational performance.
Adjusted EBITDA, and Adjusted EBITDA margin, and Free Cash Flow are financial measures that are not prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”). Although we believe these measures may be useful to investors for important information on the limitationssame reasons described above, these measures are not a substitute for GAAP financial measures or disclosures. Reconciliations of Adjusted EBITDAour non-GAAP measures to the corresponding most closely related measures calculated in accordance with GAAP are provided further below.
Organic revenue growth
We review year-over-year organic revenue growth in our segments as a key measure of our success in addressing customer needs. We also review year-over-year organic revenue growth by transaction type to help us identify and its reconciliationaddress broad changes in product mix, and by geography to our Net loss under U.S. GAAP. Adjusted EBITDA represents net loss before provision for income taxes, depreciationhelp us identify and amortization, interest incomeaddress changes and expense adjusted to exclude acquisition or disposal-related transaction costs (such costs include net income from continuing operations before provision for income taxes, depreciationrevenue trends by region. We measure organic revenue growth excluding acquisitions, disposals, and amortization and interest income and expense from divestitures), losses on extinguishment of debt, share-based compensation, unrealized foreign currency gains/(losses), costs associated withimpacts. We define these components as follows:
•Organic: Revenue generated from pricing, up-selling, securing new customers, sales of new or enhanced product offerings, and any other revenue change drivers except for changes from acquisitions, disposals, and foreign currency.
•Acquisitions: Revenue generated from acquired products and services from the transitiondate of acquisition to the first anniversary date of that acquisition.
•Disposals: Revenue generated in the prior year comparative period from product lines, services, agreement with Thomson Reuters, which we entered intoand/or businesses divested from the date of the sale in connection with our separation from Thomson Reuters in 2016, separationthe current period presented or included within a disposal group.
•Foreign Currency (“FX”): The difference between current revenue at current exchange rates and integration costs, transformational and restructuring expenses, acquisition-related adjustments to deferred revenues, costs related to our merger with Churchill Capital Corp in 2019, non-cash income/(loss) on equity and cost method investments, non-operating income or expense,current revenue at the impact of certain non-cash, legal settlements, and other items that are included in net income for thecorresponding prior period that the Company does not consider indicative of its ongoing operating performance and certain unusual items impacting results in a particular period. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by Adjusted Revenues.exchange rates.
Annualized Contract Value
Annualized Contract Value (“ACV”), at a given point in time, represents the annualized value for the next 12 months of subscription-based client license agreements with our customers, assuming that all expiring license agreements during that period
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
are renewed at their current price level. License agreements may cover more than one product and the standard subscription period for each license agreement typically runs for no less than 12 months. The renewal period for our subscriptions generally starts 90 days before the end of the current subscription period, during which customers must provide notice of whether they intend to renew or cancel the license agreement.
An initial subscription period for new customers may be for a term of less than 12 months, in certain circumstances. Most of our customers, however, opt to enter into a full 12-month initial subscription period, resulting in renewal periods spread throughout the calendar year. Customers that license more than one subscription-based product may, at any point during the renewal period, provide notice of their intent to renew only certain subscriptions within the license agreement and cancel other subscriptions, which we typically refer to as a downgrade. In other instances, customers may upgrade their license agreements by adding additional subscription-based products to the original agreement.period. Our calculation of ACV includes the impact of downgrades, upgrades, price increases, and cancellations that have occurred as ofduring the reporting period. For avoidance of doubt, ACV does not include fees associated with transactional revenues.
We monitor ACV because it represents a leading indicator of the potential subscription revenues that may be generated from our existing customer base over the upcoming 12-month period. Measurement of subscription revenues as a key operating metric is particularly relevant because a majority of our revenues are generated throughfrom subscription-based license agreements. Actual subscription revenues that we recognize during any 12-month period are likely to differ from ACV at the beginning of that period, sometimes significantly. This may occur for various reasons, including subsequent changes in annual renewal rates, impacts of price increases (or decreases), cancellations, upgrades and re-occurring revenues, which accounted for 76.9%, 82.6%,downgrades, and 81.7% of our total revenues for the years ended December 31, 2020, 2019acquisitions and 2018, respectively.divestitures. We calculate and monitor ACV for each of our segments and use the metric as part of our evaluation of our business and trends.
The amount of actual subscription revenues that we earn over any 12-month period are likely to differ from ACV at the beginning of that period, sometimes significantly. This may occur for numerous reasons, including subsequent changes in annual revenue renewal rates, impact of price increases (or decreases), cancellations, upgrades and downgrades, and acquisitions and divestitures.
We calculate the ACV on a constant currency basis to exclude the effect of foreign currency fluctuations.
The following table presents our ACV as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, | | Change | | Change |
| (dollars in thousands) | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 |
| Annualized Contract Value | $ | 906,554 | | | $ | 793,727 | | | $ | 767,021 | | | 14.2 | % | | 3.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, | | Change |
| 2023 | | 2022 | | 2021 | | 2023 vs. 2022(1) | | 2022 vs. 2021(2) |
| Annualized Contract Value | $ | 1,591.9 | | | $ | 1,581.9 | | | $ | 1,611.8 | | | 0.6 | % | | (1.9) | % |
(1) The change in ACV was primarily from organic ACV growth of 2.6% attributed to the impact of price increases, offset by changes in FX rates. |
(2) The change in ACV is primarily due to the disposition of MarkMonitor in October 2022, supplemented by organic ACV growth of 2.6%. |
Annual Revenue Renewal Rates
Our revenues are primarily subscription based, which leads to high revenue predictability. Our ability to retain existing subscription customers is a key performance indicator that helps explain the evolution of our historical results and is a leading indicator of our revenues and cash flows for the subsequent reporting period.
“Annual revenue renewal rate” is the metric we use to determine renewal levels by existing customers across all of our Segments,segments, and is a leading indicator of renewal trends, which impact the evolution of our ACV and results of operations. We calculate the annual revenue renewal rate for a given period by dividing (a) the annualized dollar value of existing subscription product license agreements that are renewed during that period, including the value of any product downgrades, by (b) the annualized dollar value of existing subscription product license agreements that come up for renewal in that period. “Open renewals,” which we define as existing subscription product license agreements that come up for renewal but are neither renewed nor canceled by customers during the applicable repostingreporting period, are excluded from both the numerator and denominator of the calculation. We calculate the annual revenue renewal rate to reflect the valueimpact of product downgrades but not the valueimpact of product upgrades upon renewal, because upgrades reflect the purchase of additional services.
The impact of upgrades, new subscriptions, and product price increases is reflected in ACV, but not in annual revenue renewal rates. Our annual revenue renewal rates were 91.2%92%, 90.1%91%, and 91.7% (which for the avoidance of doubt, does not reflect the impact of upgrades, new subscriptions or product price increases)91% for the years ended December 31, 2020, 20192023, 2022, and 2018,2021, respectively.
Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA is presented because it is a basis upon which our management assesses our performance, and we believe it is useful for investors to understand the underlying trends of our operations. Adjusted EBITDA represents Net income (loss) before the Provision (benefit) for income taxes, Depreciation and amortization, and Interest expense, net, adjusted to exclude acquisition and/or disposal-related transaction costs, share-based compensation, mandatory convertible preferred share dividend expense, unrealized foreign currency gains/losses, restructuring expenses, non-operating income and/or expense, the impact of certain non-cash fair value adjustments on financial instruments, legal settlements, impairments, and other items that are included in Net income (loss) for the period that we do not consider indicative of our ongoing operating performance. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by Revenues, net.
Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed as an inference that our future results will be unaffected by any of the adjusted items, or that our projections and estimates will be realized in their entirety or at all. In addition, because of these limitations, Adjusted EBITDA should not be considered as a measure of liquidity or discretionary cash available to us to fund our cash needs, including investing in the growth of our business and meeting our obligations.
CLARIVATE PLC
Key ComponentsManagement’s Discussion and Analysis of OurFinancial Condition and Results of Operations
Revenues, net(In millions, except option prices, ratios or as noted)
The Company disaggregates revenue based on revenue recognition pattern. Subscription based revenues recognize revenue over time, whereasFree Cash Flow
We use Free Cash Flow in our transactionaloperational and re-occurring revenues recognize revenue atfinancial decision-making and believe Free Cash Flow is useful to investors because similar measures are frequently used by securities analysts, investors, ratings agencies, and other interested parties to measure the ability of a pointcompany to service its debt. Our presentation of Free Cash Flow should not be construed as a measure of liquidity or discretionary cash available to us to fund our cash needs, including investing in time. The Company believes subscription, transactionthe growth of our business and re-occurring is reflective of how the Company manages the business.meeting our obligations.
Subscription-based revenues
Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires management to make significant judgments and estimates that affect the amounts reported in the consolidated financial statements. We base our estimates on historical experience and various other assumptions that we believe are recurring revenuesreasonable under the circumstances, and we review these estimates on an ongoing basis. We consider the following accounting policies and associated estimates to be critical to understanding our financial statements because the application of these policies requires management’s subjective or complex judgments about the effects of matters that are earned underinherently uncertain. These significant judgments could have a material impact on our financial statements if actual performance should differ from historical experience or from our initial estimates, or if our assumptions were to change. For further information about our significant accounting policies, including the policies discussed below, see Note 1 - Nature of Operations and Summary of Significant Accounting Policies included in Part II, Item 8 of this annual multi-year, or evergreen contracts, pursuant to which we license the right to usereport.
Revenue Recognition
Most of our products toand services are provided under agreements containing standard terms and conditions. The majority of our customers. Revenuesrevenue is derived from the sale of subscription dataarrangements, which generally are initially deferred and analytics solutions are typically invoiced annually in advance andthen recognized ratably over the year as revenues are earned. Subscription revenues are driven by annualcontract term. These arrangements typically do not require any significant judgments or estimates about when revenue renewal rates, new subscriptionshould be recognized.
A limited number of re-occurring and transaction agreements contain multiple performance obligations. We apply judgment in identifying the separate performance obligations to be delivered under the arrangement and allocating the transaction price based on the estimated standalone selling price of each performance obligation.
Business Combinations
We apply the acquisition method of accounting to our business price increases on existing subscription business and subscription upgrades and downgrades from recurring customers.combinations. Substantially all of our historical deferred revenues purchase accounting adjustmentsthe assets acquired, liabilities assumed, and contingent consideration are allocated based on their estimated fair values, which requires significant management judgment. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. We estimate the fair value of customer relationships intangible assets through a discounted cash flow (“DCF”) model using the multi-period excess earnings method, which involves the use of significant estimates and assumptions related to subscription revenues.
Transactional revenues are earned under contracts for specific deliverables that are typically quoted onprojected revenue growth rates, EBITDA margins, projected cash flows, royalty rates, tax rates, discount rates, tax amortization benefits, and customer attrition rates, among other items. We estimate the fair value of technology, databases, and trade name intangible assets through a product, data set or project basisDCF model using the relief-from-royalty method, which involves the use of significant estimates and often derived from repeat customers, including customers that also generate subscription-based revenues. Transactional productsassumptions related to projected revenue growth rates, royalty rates, tax rates, discount rates, tax amortization benefits, and services are invoiced accordingobsolescence rates. Significant estimates and assumptions used in determining the fair value of intangible assets may change during the finalization of the purchase price allocation as additional information about assets at the date of acquisition becomes available; as a result, we may make adjustments to the termsinitial provisional amounts recorded for intangible assets acquired in the year following acquisition.
When a business combination involves contingent consideration, we record a liability for the estimated cost of such contingencies when expenditures are probable and reasonably estimable. A significant amount of judgment is required to estimate and quantify the potential liability in these matters. We engage outside experts as deemed necessary or appropriate to assist in the calculation of the contract, typically in arrears. Transactional content revenues are usually delivered toliability; however, management is responsible for evaluating the customer instantly or in a short period of time, at which time revenues are recognized. Transactional revenues also include, to a lesser extent, professional services, which are typically performed under contracts that vary in length from several months to years for multi-year projects and are typically invoiced based onestimate. We reassess the achievement of milestones. The most significant components of our transactional revenues include our “clearance searching” and “backfiles” products. Recurring revenues are earned under contracts for specific deliverables that are typically quoted on a product, data set or project basis and often derived from repeat customers. These contracts include either evergreen clauses, in which at least six month advance notice is required prior to cancellation, or the contract is for multiple years.
Re-occurring revenues are usually delivered to the customer instantly or in a short period of time, at which time revenues are recognized. These contracts include either evergreen clauses, in which at least six month advance notice is required prior to cancellation, or the contract is for multiple years. The most significant components of our re-occurring revenues is our 'renewal' business within CPA Global.
Cost of Revenues
Cost of revenues consists of costs related to the production, servicing and maintenance of our products and are composed primarily of related personnel costs, such as salaries, benefits, and bonuses for employees, fees for contracted labor, and data center services and licensing costs. Cost of revenues also includes the costs to acquire or produce content, royalties payable and non-capitalized R&D expenses. Cost of revenues does not include production costs related to internally generated software, which are capitalized.
Selling, General and Administrative
Selling, general and administrative costs consist primarily of salaries, benefits, commission and bonuses for the executive, finance and accounting, human resources, administrative, sales and marketing personnel, third-party professional services fees, such as legal and accounting expenses, facilities rent and utilities and technology costs associated with our corporate infrastructure. Also included within these costs are: 1) transaction expenses including costs incurred to complete business combination transactions, including acquisitions, dispositions and capital market activities and include advisory, legal, and other professional and consulting costs; and 2) transition, integration and other related expenses, including transformation expenses, mainly reflect the costs of transitioning certain activities performed under the transition services agreement by Thomson Reuters and certain consulting costs related to standing up our back-office systems to enable our operation on a stand-alone basis.
Depreciation
Depreciation expense relates to our fixed assets, including mainly computer hardware and leasehold improvements, furniture and fixtures. These assets are depreciated over their expected useful lives, and in the case of leasehold improvements over the shorter of their useful life or the durationestimated fair value of the related lease.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
AmortizationGoodwill and Indefinite-Lived Intangible Assets
Amortization expense relates toGoodwill
We perform goodwill impairment testing during the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that carrying value may not be recoverable. In assessing whether a potential impairment event has occurred, we evaluate various factors, many of which are subjective and require significant judgment. Examples of such factors include significant negative industry or economic trends, persistent declines in our finite-lived intangible assets, including mainly databasesmarket value, significant changes in regulatory requirements or the legal environment, and content, customer relationships, internally generated computer software and trade names. These assets are amortized over periods of between two and twenty three years. Definite-lived intangible assets are tested for impairment when indicators are present, and, if impaired, are written down tosegment changes.
We estimate the fair value basedof a reporting unit using a DCF model. Our DCF model relies significantly on discountedour internal forecasts of future cash flows.flows and long-term growth rates. Significant judgments and estimates made in this analysis include projected revenue growth rates and EBITDA margins, tax rates, terminal values, and discount rates. Changes in these estimates and assumptions could materially affect the determination of estimated fair value and we could be required to record additional impairment charges.
ImpairmentIn 2023, we performed our annual goodwill impairment assessment in the fourth quarter using a quantitative approach. The annual assessment coincided with a change in our reporting units wherein the legacy ProQuest and Web of Science Group reporting units were combined into a single reporting unit, A&G. The goodwill impairment assessment included an analysis of the impacted reporting units immediately before and immediately after the change and concluded there was no impairment in either scenario. Based on Assets Held for Sale
Impairment on assets held for sale represents anthe quantitative analysis, we determined that the carrying value of the IP and LS&H segment reporting units exceeded their respective fair values, resulting in a goodwill impairment charge of $844.7. The impairment charge recorded for certain assets classified as assets heldthe IP reporting unit represented a total write-off of the associated goodwill. The impairments were primarily due to worsening macroeconomic and market conditions.
In completing the annual quantitative goodwill impairment assessment, we used weighted average cost of capital (“WACC”) discount rate assumptions of 9.5%, 10%, and 11% for sale.
Restructuringthe A&G, LS&H, and Impairment
RestructuringIP reporting units, respectively. The discount rates were derived using a capital asset pricing model and impairment expense includes costs associatedanalyzing published rates for industries relevant to each reporting unit to estimate the cost of equity financing. We used discount rates we believe to be commensurate with involuntary termination benefits, including the acceleration of share-based compensation charges resulting from modification accounting, provided to employees underrisks and uncertainty inherent in the termsrespective reporting units and in our internally developed forecasts. The use of a one-time benefit arrangement, certain contract termination costs,different set of assumptions and other costs associated withestimates could have resulted in materially different results. For our LS&H reporting unit, a 50 basis point increase in the discount rate would result in an exit or disposal activity.incremental impairment charge of less than $90.0.
Other Operating Income, Net
Other operating income, net consistsIn September 2022, we performed a quantitative goodwill impairment test that resulted in a goodwill impairment charge of gains or losses related to the disposal$4,407.9 across three of our assets, asset impairments or write-downs andfour reporting units at the consolidated impact of re-measurementtime; the impairment charge resulted in a full goodwill write-off for two of the assetsfour reporting units. Similar to our 2023 analysis, our 2022 analysis utilized discount rates derived from a capital asset pricing model and liabilitiesan analysis of published rates for industries relevant to each reporting unit. For those reporting units whose estimated fair values exceeded their carrying values, we applied a hypothetical sensitivity analysis by increasing the discount rate by 100 basis points and, in a separate test, by reducing the fair value of those reporting units by 10%. As a result of either scenario, the IP reporting unit’s fair value was approximately equal to its carrying value. All other reporting units evaluated under either scenario reflected fair values well in excess of carrying values by at least 40%. We subsequently performed our company, sublease income, gain recognized on foreign exchange contract settlement and our subsidiaries that are denominated in currencies other than each relevant entity's functional currency.
Mark to Market Adjustment on Financial Instruments
Mark to market adjustment on financial instruments consists of the mark to market accounting adjustments related to certain of the Company's Private Placement Warrants issued to the founders of Churchill Capital Corp,annual goodwill impairment test by applying a special purpose acquisition company or “SPAC” with which the Company consummated a business combination transaction in May 2019.
Legal Settlement
Legal settlement represents a net gain recorded for cash received in relation to closure of a confidential legal matter.
Interest Expense and Amortization of Debt Discount, Net
Interest expense and amortization of debt discount, net consists of expense related to interest on our borrowings under our term loan facility and our secured notes due 2026, the amortization and write off of debt issuance costs and original discount, and interest related to certain derivative instruments.
Provision for Income Taxes
A provision for income tax is calculated for each of the jurisdictionsqualitative assessment, in which we operate. considered factors such as those described above, as well as the historical significant level of headroom. We did not identify any additional impairment charge requirements as a result of the annual test performed in the fourth quarter of 2022.
If any of our DCF assumptions or estimates fall short of our projections, we could experience additional impairment events in the future.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets consist of purchased brand trade names. In 2023 and 2022, we used a qualitative assessment to evaluate events and circumstances that might impact the value of each trade name. In 2021, we performed a quantitative assessment using the relief-from-royalty method that indicated that the fair value of our trade names was significantly in excess of carrying value. We did not identify any impairments of our indefinite-lived intangible assets in 2023, 2022, or 2021.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Long-Lived Assets (including Other Intangible Assets)
We evaluate long-lived assets, including property and equipment, definite-lived intangible assets, and right-of-use lease assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, we assess recoverability by comparing the carrying amount of the asset to our estimate of the future undiscounted cash flows expected to be generated by the asset over its remaining life. We exercise judgment in selecting the appropriate assumptions to use in the estimated future undiscounted cash flows analysis. If the carrying amount of the asset exceeds its estimated future cash flows, we recognize an impairment charge equal to the amount by which the carrying amount of the asset exceeds its fair value.
Share-Based Compensation
Share-based compensation expense includes cost associated with stock options, restricted share units (“RSUs”) and performance share units (“PSUs”) granted to certain key members of management.
The benefit or provisionshare-based compensation cost of time-based RSU and PSU grants is calculated by multiplying the grant date fair value by the number of shares granted. We engage a third-party valuation expert to perform a Monte Carlo simulation that estimates the grant date fair value for PSUs that have a market-based modifier component. We recognize compensation expense over the vesting period of the award on a graded-scale basis, and we recognize forfeitures as they occur. Each quarter, we estimate the number of shares that are expected to vest and adjust our expense accordingly.
Income Taxes
We recognize income taxes is determined usingunder the asset and liability approach of accounting formethod. Our income taxes. Under this approach,tax expense, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The benefit or provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the book and tax bases of assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated current and future taxes to be paid. Significant judgments and estimates are adjustedrequired in determining the consolidated income tax expense for financial statement purposes. In assessing the realizability of deferred tax assets, we consider all available positive and negative evidence factors. Evidence considered includes historical and projected future taxable income by tax jurisdiction, character and timing of income or loss, and prudent and feasible tax planning strategies. We record a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized. Unforeseen future events, such as changes in market conditions and changes in tax rates andlaws, could have a material impact on the realizability of deferred tax assets.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws when changes are enacted. Valuation allowances are recorded to reduce deferredand regulations in a multitude of jurisdictions across our global operations. We record tax assetsbenefits when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. Because of the complexity of some of these uncertainties, the ultimate resolution of our uncertain tax positions may result in a payment that is materially different from our current estimates. These differences will be reflected as increases or decreases to income tax benefitexpense in the period in which new information is available.
Recently Issued Accounting Pronouncements
We do not believe that any recently issued accounting pronouncements will not be realized. Interest accruedhave a material impact on our financial condition or results of operations. For additional information related to unrecognized tax benefitsrecently issued and income tax related penalties areadopted accounting pronouncements, see Note 1 - Nature of Operations and Summary of Significant Accounting Policies included in the provision for income taxes.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Results of Operations
The following table presents the results of operations for the years ended December 31, 2020, 2019 and 2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change
2020 vs. 2019 | | Change
2019 vs. 2018 |
| (in thousands, except percentages) | 2020 (As Restated) (3) | | 2019 (As Restated) (4) | | 2018 | | % | | % |
| Revenues, net | $ | 1,254,047 | | | $ | 974,345 | | | $ | 968,468 | | | 28.7 | % | | 0.6 | % |
| Operating expenses: | | | | | | | | | |
Cost of revenues (2) | (438,787) | | | (352,000) | | | (430,326) | | | 24.7 | % | | (18.2) | % |
Selling, general and administrative costs (2) | (544,700) | | | (475,014) | | | (413,004) | | | 14.7 | % | | 15.0 | % |
| Depreciation | (12,709) | | | (9,181) | | | (9,422) | | | 38.4 | % | | (2.6) | % |
| Amortization | (290,441) | | | (191,361) | | | (227,803) | | | 51.8 | % | | (16.0) | % |
| Impairment on assets held for sale | — | | | (18,431) | | | — | | | N/M | | 100% |
Restructuring and impairment (2) | (56,138) | | | (15,670) | | | — | | | N/M | | 100% |
| Other operating income, net | 52,381 | | | 4,826 | | | 6,379 | | | N/M | | (24.3) | % |
| Total operating expenses | (1,290,394) | | | (1,056,831) | | | (1,074,176) | | | 22.1 | % | | (1.6) | % |
| Income (loss) from operations | (36,347) | | | (82,486) | | | (105,708) | | | N/M | | (22.0) | % |
Mark to market adjustment on financial instruments (1) | (205,062) | | | (47,656) | | | — | | | 330.3 | % | | 100 | % |
| Legal settlement | — | | | 39,399 | | | — | | | N/M | | 100% |
| Income (loss) before interest expense and income tax | (241,409) | | | (90,743) | | | (105,708) | | | N/M | | 14.2 | % |
| Interest expense and amortization of debt discount, net | (111,914) | | | (157,689) | | | (130,805) | | | (29.0) | % | | 20.6 | % |
| Loss before income tax | (353,323) | | | (248,432) | | | (236,513) | | | 42.2 | % | | 5.0 | % |
| Benefit (provision) for income taxes | 2,698 | | | (10,201) | | | (5,649) | | | N/M | | 80.6 | % |
| Net loss | $ | (350,625) | | | $ | (258,633) | | | $ | (242,162) | | | 35.6 | % | | 6.8 | % |
(1) The mark to market adjustment on financial instruments represents the correction and restatement per Amendment No. 1 for the periods ended December 31, 2020 and 2019 in the amounts of $205,062 and $47,656, respectively.
(2) The share-based based compensation charge adjustments recorded within Cost of revenues (an adjustment of $9,490), Selling, general and administrative costs (an adjustment of $21,119) and Restructuring and impairment (an adjustment of $8,543) in the As Restated 2020 column represent the correction and restatement per Amendment No. 2 for the period ended December 31, 2020.
(3) The As Restated 2020 column includes adjustments pertaining to both Amendment No. 1 relating to errors in the Private Placement Warrants that were initially issued by the SPAC and Amendment No. 2 relating to errors in the CPA Global Equity Plan that were incorrectly included as part of the acquisition accounting. See Note 28 - Restatement of Previously Issued Financial Statements for further details.
(4) TheAs Restated 2019 column includes adjustments pertaining to Amendment No. 1 relating to errors in the Private Placement Warrants that were initially issued by the SPAC. See Note 28 - Restatement of Previously Issued Financial Statements for further details.
Revenues, net
Total Revenue
Revenues, net of $1,254,047 in 2020 increased by $279,702, or 28.7%, from $974,345 in 2019. On a constant currency basis, Revenues, net increased by $276,176, or 28.3%.
Adjusted Revenues of $1,277,148, which excludes the impact of the deferred revenues adjustment, in 2020 increased by $302,365, or 31.0%, from $974,783 in 2019. On a constant currency basis, Adjusted Revenues increased by $298,839, or 30.7%.
Revenues, net of $974,345 in 2019 increased by $5,877, or 0.6%, from $968,468 in 2018. On a constant currency basis, Revenues, net increased by $11,806, or 1.2%.
Adjusted Revenues of $951,170, which excludes the impact of the deferred revenues adjustment, in 2019 increased by $23,613, or 2.5%, from $951,170 in 2018. On a constant currency basis, Adjusted Revenues increased by $29,542, or 3.1%.
The comparability of our Revenues, net between periods was impacted by several factors described under “Factors Affecting the Comparability of Our Results of Operations” above. The tables below presents the items that impacted the change in our revenues, net between periods.
| | | | | | | | | | | |
| Variance 2020 vs. 2019 |
| (in thousands, except percentages) | $ | | % |
| Revenue change driver | | | |
| Decrease due to deferred revenues adjustment | $ | (22,663) | | | (2.3) | % |
| Decrease due to disposals | (64,815) | | | (6.7) | % |
| Increase from acquisitions | 353,195 | | | 36.2 | % |
| Foreign currency translation | 3,526 | | | 0.4 | % |
| Revenue increase from organic business | 10,459 | | | 1.1 | % |
| Revenues, net (total change) | $ | 279,702 | | | 28.7 | % |
| | | | | | | | | | | |
| Variance 2019 vs. 2018 |
| (in thousands, except percentages) | $ | | % |
| Revenue change driver | | | |
| Increase due to deferred revenues adjustment | $ | 2,714 | | | 0.3 | % |
| Decrease due to disposals | (20,450) | | | (2.1) | % |
| Foreign currency translation | (5,929) | | | (0.6) | % |
| Revenue increase from organic business | 29,542 | | | 3.1 | % |
| Revenues, net (total change) | $ | 5,877 | | | 0.6 | % |
| | | |
Revenues, net from our ongoing business improved for both our segments, led by Science, reflecting a trend consistent with the increase in our ACV between periods, mainly due to product price increases and new business. The evolution of our recurring business is discussed further below.
Revenue by Transaction Type
The following tables present the amounts of our subscription, transactional and re-occurring revenues for the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Variance Increase/(Decrease) | | Percentage of Factors Increase/(Decrease) |
| Year Ended
December 31, | | Total Variance (Dollars) | Total Variance (Percentage) | | Acquisitions | Disposals | FX Impact | | Organic |
| (in thousands, except percentages) | 2020 | | 2019 | | | | | | | | | |
| Subscription revenues | $ | 867,731 | | | $ | 805,518 | | | $ | 62,213 | | 7.7 | % | | 12.1 | % | (7.4) | % | 0.3 | % | | 2.7 | % |
| Transactional revenues | 294,889 | | | 169,265 | | | 125,624 | | 74.2 | % | | 83.3 | % | (3.0) | % | 0.4 | % | | (6.5) | % |
| Re-occurring revenues | 114,528 | | | — | | | 114,528 | | N/M | | 100.0 | % | — | % | — | % | | — | % |
Deferred revenues adjustment (1) | (23,101) | | | (438) | | | (22,663) | | N/M | | N/M | — | % | — | % | | 69.2 | % |
| Revenues, net | $ | 1,254,047 | | | $ | 974,345 | | | $ | 279,702 | | 28.7 | % | | 33.9 | % | (6.7) | % | 0.4 | % | | 1.1 | % |
Deferred revenues adjustment (1) | 23,101 | | | 438 | | | 22,663 | | N/M | | N/M | — | % | — | % | | (69.2) | % |
| Adjusted revenues, net | $ | 1,277,148 | | | $ | 974,783 | | | $ | 302,365 | | 31.0 | % | | 36.2 | % | (6.7) | % | 0.4 | % | | 1.2 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1)Reflects the deferred revenues adjustment made as a result of purchase accounting
Subscription revenues of $867,731 in 2020 increased by $62,213, or 7.7% from $805,518 in 2019. On a constant currency basis, subscription revenues increased by $59,411, or 7.4%. Acquisitive subscription growth was generated from the Darts-ip Transaction, DRG Transaction, and CPA Global Transaction. Disposal subscription revenues reduction was derived from the MarkMonitor Transaction and Techstreet Transaction. Organic subscription revenues increased primarily due to price increases and new business.
Transactional revenues of $294,889 increased by $125,624, or 74.2% from $169,265 in 2019. On a constant currency basis, transactional revenues increased by $124,900, or 73.8%. Acquisitive transactional growth was generated from the DRG Transaction and CPA Global Transaction. Disposal transactional reduction was derived from the MarkMonitor Transaction and Techstreet Transaction. Organic transactional revenues decreased due to an overall decrease in demand primarily driven by economic conditions resulting from the COVID-19 pandemic.
Re-occurring revenues of $114,528 in 2020 increased by $114,528, or 100.0% from 2019 due to acquisitive growth generated from the CPA Global Transaction.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Variance Increase/(Decrease) | | Percentage of Factors Increase/(Decrease) |
| Year Ended
December 31, | | Total Variance (Dollars) | Total Variance (Percentage) | | Acquisitions | Disposals | FX Impact | Organic |
| (in thousands, except percentages) | 2019 | | 2018 | | | | | | | | |
| Subscription revenues | $ | 805,518 | | | $ | 794,097 | | | $ | 11,421 | | 1.4 | % | | — | % | (2.2) | % | (0.6) | % | 4.2 | % |
| Transactional revenues | 169,265 | | | 177,523 | | | (8,258) | | (4.7) | % | | — | % | (1.6) | % | (0.8) | % | (2.3) | % |
Deferred revenues adjustment (1) | (438) | | | (3,152) | | | 2,714 | | 86.1 | % | | — | % | — | % | — | % | 86.1 | % |
| Revenues, net | $ | 974,345 | | | $ | 968,468 | | | $ | 5,877 | | 0.6 | % | | — | % | (1.9) | % | (0.6) | % | 3.1 | % |
Deferred revenues adjustment (1) | 438 | | | 3,152 | | | (2,714) | | (86.1) | % | | — | % | — | % | — | % | (86.1) | % |
IPM Product Line (2) | — | | | (20,450) | | | 20,450 | | (100) | % | | — | % | (100.0) | % | — | % | — | % |
| Adjusted revenues, net | $ | 974,783 | | | $ | 951,170 | | | $ | 23,613 | | 2.5 | % | | — | % | — | % | (0.6) | % | 3.1 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1)Reflects the deferred revenues adjustment made as a result of purchase accounting
(2)Reflects the revenue generated by the IPM Product Line for the year ended December 31, 2018. We sold the IPM Product Line in October 2018.
Subscription revenues of $805,518 in 2019 increased by $11,421, or 1.4% from $794,097 in 2018. On a constant currency basis, subscription revenues decreased by $15,959, or 2.0%. Subscription revenues from ongoing business increased primarily due to price increases and new business within the Science Product Group, consistent with the growth in the annualized contract value and revenue increases related to upgrade of the Techstreet product offerings. This revenue growth was offset by a decrease due to the IPM Product Line divestiture.
Transactional revenues of $169,265 in 2019 decreased by $8,258, or 4.7% from $177,523 in 2018. On a constant currency basis, transactional revenues decreased by $6,867, or 3.9%. The decline in transactional revenues is due to the loss of income related to the IPM Product Line divestiture, demand for patent services in the period and reflected timing and product offerings within the IP segment. The revenues decline was offset partially by increased revenues related to the upgrades of the Techstreet product offerings.
Revenue by Geography
The below tables present our revenues split by geographic region, separating the impacts of the deferred revenues adjustment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Variance Increase/(Decrease) | | Percentage of Factors Increase/(Decrease) |
| Year Ended December 31, | | Total Variance (Dollars) | Total Variance (Percentage) | | Acquisitions | Disposals | FX Impact | Organic |
| (in thousands, except percentages) | 2020 | | 2019 | | | | | | | | |
| Americas | $ | 631,222 | | | $ | 463,041 | | | $ | 168,181 | | 36.3 | % | | 46.4 | % | (9.4) | % | — | % | (0.7) | % |
| Europe/Middle East/Africa | 365,599 | | | 278,738 | | | 86,861 | | 31.2 | % | | 35.3 | % | (5.9) | % | 0.7 | % | 1.0 | % |
| Asia Pacific | 280,327 | | | 233,004 | | | 47,323 | | 20.3 | % | | 17.2 | % | (2.1) | % | 0.6 | % | 4.6 | % |
Deferred revenues adjustment (1) | (23,101) | | | (438) | | | (22,663) | | (5,174.2) | % | | N/M | — | % | — | % | 69.2 | % |
| Revenues, net | $ | 1,254,047 | | | $ | 974,345 | | | $ | 279,702 | | 28.7 | % | | 33.9 | % | (6.7) | % | 0.4 | % | 1.1 | % |
Deferred revenues adjustment (1) | 23,101 | | | 438 | | | 22,663 | | — | | | N/M | — | % | — | % | (69.2) | % |
| Adjusted revenues, net | $ | 1,277,148 | | | $ | 974,783 | | | $ | 302,365 | | 31.0 | % | | 36.2 | % | (6.7) | % | 0.4 | % | 1.2 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1)Reflects the deferred revenues adjustment made as a result of purchase accounting
Acquisitive growth for all regions was related to the Darts-ip Transaction, DRG Transaction, and CPA Global Transaction. Disposal reduction for all regions was derived from the MarkMonitor Transaction and Techstreet Transaction. On a constant currency basis, Americas revenues increased by $167,982, or 36.3%, with an organic decline due to lower transactional revenues due to an overall decrease in demand primarily driven by economic conditions resulting from the COVID-19 pandemic, partially offset by improved subscription revenues. On a constant currency basis, Europe/Middle East/Africa revenues increased by $84,955, or 30.5%, primarily due to acquisitive growth and improved subscription revenues partially offset by a decline in transactional revenues. On a constant currency basis, Asia Pacific revenues increased $45,902, or 19.7%, primarily due to acquisitive growth and improved subscription revenues partially offset by a decline in transactional revenues driven by economic conditions resulting from the COVID-19 pandemic.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Variance Increase/(Decrease) | | Percentage of Factors Increase/(Decrease) |
| Year Ended
December 31, | | Total Variance (Dollars) | Total Variance (Percentage) | | Acquisitions | Disposals | FX Impact | Organic |
| (in thousands, except percentages) | 2019 | | 2018 | | | | | | | | |
| Americas | $ | 463,041 | | | $ | 456,281 | | | $ | 6,760 | | 1.5 | % | | — | % | — | % | (0.1) | % | 1.6 | % |
| Europe/Middle East/Africa | 278,738 | | | 272,910 | | | 5,828 | | 2.1 | % | | — | % | — | % | (2.0) | % | 4.1 | % |
| Asia Pacific | 233,004 | | | 221,979 | | | 11,025 | | 5.0 | % | | — | % | — | % | 0.1 | % | 4.9 | % |
Deferred revenues adjustment(1) | (438) | | | (3,152) | | | 2,714 | | 86.1 | % | | — | % | — | % | — | % | 86.1 | % |
IPM Product Line(2) | — | | | 20,450 | | | (20,450) | | (100.0) | % | | — | % | — | % | — | % | — | % |
| Revenues, net | $ | 974,345 | | | $ | 968,468 | | | $ | 5,877 | | 0.6 | % | | 0.0 | % | 0.0 | % | (0.6) | % | 3.1 | % |
Deferred revenues adjustment (1) | 438 | | | 3,152 | | | (2,714) | | (86.1) | % | | — | % | — | % | — | % | (86.1) | % |
IPM Product Line (2) | — | | | (20,450) | | | 20,450 | | (100) | % | | — | % | (100.0) | % | — | % | — | % |
| Adjusted revenues, net | $ | 974,783 | | | $ | 951,170 | | | $ | 23,613 | | 2.5 | % | | — | % | — | % | (0.6) | % | 3.1 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1)Reflects the deferred revenues adjustment made as a result of purchase accounting
(2)Reflects the revenue generated by the IPM Product Line for the year ended December 31, 2018. We sold the IPM Product Line in October 2018
On a constant currency basis, Americas revenues increased by $7,205, or 1.6%, primarily due to improved subscription revenues partially offset by a decline in transactional revenues, consistent with the explanations above. On a constant currency basis, Europe/Middle East/Africa revenues increased by $11,396, or 4.1%, primarily due to improved subscription revenues and an increase in transactional revenues as the result of increased demand and product offerings. On a constant currency basis, Asia Pacific revenues increased $10,941, or 4.9%, primarily due to improved subscription revenues partially offset by a decline in transactional revenues.
Revenue by Segment
The following tables, and the discussions that follow, present our revenues by segment for the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Variance Increase/(Decrease) | | Percentage of Factors Increase/(Decrease) |
| Year Ended December 31, | | Total Variance (Dollars) | Total Variance (Percentage) | | Acquisitions | Disposals | FX Impact | Organic |
| (in thousands, except percentages) | 2020 | | 2019 | | | | | | | | |
| Science Segment | $ | 743,641 | | | $ | 547,542 | | | $ | 196,099 | | 35.8 | % | | 34.0 | % | — | % | 0.3 | % | 1.5 | % |
| IP Segment | 533,507 | | | 427,241 | | | 106,266 | | 24.9 | % | | 39.0 | % | (15.2) | % | 0.4 | % | 0.6 | % |
Deferred revenues adjustment(1) | (23,101) | | | (438) | | | (22,663) | | (5,174.2) | % | | NM | — | % | — | % | 69.2 | % |
| Revenues, net | $ | 1,254,047 | | | $ | 974,345 | | | $ | 279,702 | | 28.7 | % | | 33.9 | % | (6.7) | % | 0.4 | % | 1.1 | % |
Deferred revenues adjustment (1) | 23,101 | | | 438 | | | 22,663 | | — | | | NM | — | % | — | % | (69.2) | % |
| Adjusted revenues, net | $ | 1,277,148 | | | $ | 974,783 | | | $ | 302,365 | | 31.0 | % | | 36.2 | % | 6.7 | % | (0.4) | % | 1.2 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1)Reflects the deferred revenues adjustment made as a result of purchase accounting
Science Segment: Revenues of $743,641 in 2020 increased by $196,099, or 35.8%, from $547,542 in 2019. On a constant currency basis, revenues increased by $194,385, or 35.6%, primarily due to acquisitive growth and organic subscription revenue growth. Acquisitive growth was generated from the DRG Transaction. Organic revenues increased due to price increases and new business in subscription revenues, partially offset by lower transactional revenues due to a decline in demand primarily driven by economic conditions resulting from the COVID-19 pandemic.
Intellectual Property Segment: Revenues of $533,507 in 2020, increased by $106,266, or 24.9%, from $427,241 in 2019. On a constant currency basis, revenues increased by $104,454, or 24.4%. Acquisitive growth was generated from the Darts-IP Transaction and CPA Global Transaction. Disposal reductions were derived from the MarkMonitor Transaction and Techstreet Transaction. Organic revenues remained consistent due to an increase in subscription revenue driven by content upgrades, offset by lower transactional revenues due to a decline in demand primarily driven by economic conditions resulting from the COVID-19 pandemic.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Variance Increase/(Decrease) | | Percentage of Factors Increase/(Decrease) | |
| Year Ended December 31, | | Total Variance (Dollars) | Total Variance (Percentage) | | Acquisitions | Disposals | FX Impact | Organic | |
| (in thousands, except percentages) | 2019 | | 2018 | | | | | | | | | |
| Science Segment | $ | 547,542 | | | $ | 527,877 | | | $ | 19,665 | | 3.7 | % | | — | % | — | % | (0.4) | % | 4.1 | % | |
| IP Segment | 427,241 | | | 423,293 | | | 3,948 | | 0.9 | % | | — | % | — | % | (0.9) | % | 1.8 | % | |
Deferred revenues adjustment(1) | (438) | | | (3,152) | | | 2,714 | | 86.1 | % | | — | % | — | % | — | % | 86.1 | % | |
IPM Product Line(2) | — | | | 20,450 | | | (20,450) | | (100.0) | % | | — | % | — | % | — | % | — | % | |
| Revenues, net | $ | 974,345 | | | $ | 968,468 | | | $ | 5,877 | | 0.6 | % | | — | % | — | % | (0.6) | % | 3.1 | % | |
Deferred revenues adjustment (1) | 438 | | | 3,152 | | | (2,714) | | (86.1) | % | | — | % | — | % | — | % | (86.1) | % | |
IPM Product Line (2) | — | | | (20,450) | | | 20,450 | | (100) | % | | — | % | (100.0) | % | — | % | — | % | |
| Adjusted revenues, net | $ | 974,783 | | | $ | 951,170 | | | $ | 23,613 | | 2.5 | % | | — | % | — | % | (0.6) | % | 3.1 | % | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1)Reflects the deferred revenues adjustment made as a result of purchase accounting related to our separation from Thomson Reuters in 2016
(2)Reflects the revenue generated by the IPM Product Line for the year ended December 31, 2018. We sold the IPM Product Line in October 2018
Science Segment: Revenues of $547,542 in 2019 increased by $19,665, or 3.7%, from $527,877 in 2018. On a constant currency basis, revenues increased by $21,671, or 4.1%, driven by organic subscription revenue growth, primarily due to price increases and new business across the product offerings, consistent with the growth in the ACV. Additionally transactional revenues increased slightly due to increased demand and timing of the product offerings.
Intellectual Property Segment: Revenues of $427,241 in 2019, increased by $3,948, or 0.9%, from $423,293 in 2018. On a constant currency basis, revenues increased by $7,868, or 1.9%, driven by revenues related to the Techstreet product upgrades. This increase was offset by a decrease from the transactional revenues due to a demand for patent services in the period, and timing and product offerings.
Cost of Revenues
Cost of revenues of $438,787 in 2020, increased by $86,787, or 24.7%, from $352,000 in 2019. On a constant currency basis, cost of revenues increased by $85,383, or 24.3%, primarily due to additional costs related to CPA Global and DRG, which were acquired in October and February 2020, offset by a decrease in costs associated with the transition service agreement, employee related costs and outside services including consulting fees, as well as the Techstreet and MarkMonitor transactions in November and January 2020, respectively.
Cost of revenues of $352,000 in 2019, decreased by $78,326, or 18.2%, from $430,326 in 2018. On a constant currency basis, cost of revenues decreased by $73,295, or 17.0%. The decrease is primarily due to a decrease in transition services agreement data center costs, and a decrease in costs associated with the divestiture of the IPM Product Line.
Selling, General and Administrative
Selling, general and administrative expense of $544,700 in 2020, increased by $69,686, or 14.7%, from $475,014 in 2019. On a constant currency basis, selling, general and administrative expense increased by $67,837, or 14.3% primarily due to additional costs related to CPA Global and DRG, which were acquired in October and February 2020, increased transaction expenses associated with the DRG acquisition, the CPA Global acquisition, the MarkMonitor divestiture, the Techstreet divestiture and other finance merger and acquisition related activities during 2020, offset by costs incurred in association with our merger with Churchill Capital Corp in 2019, and a decrease in costs associated with transition service agreement, employee related costs, outside services including consulting fees and marketing costs.
Selling, general and administrative expense of $475,014 in 2019, increased by $62,010, or 15.0%, from $413,004 in 2018. On a constant currency basis, selling, general, and administrative expense increased by $67,196, or 16.3%. The increase is primarily driven by transaction expenses related to costs incurred in association with our merger with Churchill Capital Corp in 2019 coupled with costs related to the debt refinancing, secondary offerings, contingent payment earn out adjustments and divestitures and acquisitions. The increase is also attributed to accelerated vesting and expense related to our merger with Churchill Capital Corp in 2019 and higher people-related costs which is due to the increase in headcount for the stand-alone transition. The increase was partially offset by a decrease in transition, integration, and other expenses due to the slowing pace of costs incurred in connection with establishing our standalone company infrastructure following our separation from Thomson Reuters in 2016, as well as decreased contract labor, transition services agreement fees and costs related to the divestiture of the IPM product line.
Depreciation
Depreciation expense of $12,709 in 2020, increased by $3,528, or 38.4%, from $9,181 in 2019, driven by the additional depreciation on assets acquired through the Darts Transaction, DRG Transaction, and CPA Global Transaction. This increase was offset by run-off of previously purchased capital assets.
Depreciation expense of $9,181 in 2019, decreased by $241, or 2.6%, from $9,422 in 2018, driven by the run-off of previously purchased capital expenditures. This decrease was partially offset by new purchases of fixed assets.
Amortization
Amortization expense of $290,441 in 2020, increased by $99,080, or 51.8%, from $191,361 in 2019, driven by an increase in the amortization of intangible assets acquired through the Darts-ip Transaction, DRG Transaction, and CPA Global Transaction. This increase was offset by a decrease in amortization related to intangible assets acquired in connection with
our separation from Thomson Reuters in 2016 that are now fully amortized and reduction of amortization from the Techstreet Transaction and MarkMonitor Transaction.
Amortization expense of $191,361 in 2019, decreased by $36,442, or 16.0%, from $227,803 in 2018, primarily related to intangible assets acquired in connection with our separation from Thomson Reuters in 2016 that are now fully amortized, coupled with the divestiture of the IPM Product Line and related assets.
Impairment on Assets Held for Sale
The year ended December 31, 2019 includes an impairment on assets held for sale of $18,431. On November 3, 2019, the Company entered into an agreement with OpSec Security for the sale of certain assets and liabilities of its MarkMonitor Product Line within its IP Group. At December 31, 2019, an impairment charge of $18,431 was recognized in the Statement of Operations during the fourth quarter to reduce the Assets Held for Sale to their fair value. There were no impairment on assets held for sale during the year ended December 31, 2020.
Restructuring and Impairment
Restructuring and impairment charges of $56,138 in 2020, increased by $40,468, from $15,670 in 2019. The increase is related to initiatives, following our merger with Churchill Capital Corp in 2019 and, acquisitions of DRG in February 2020 and CPA Global in October 2020, to streamline our operations by simplifying our organization and focusing on two segments.
Restructuring and impairment charges of $15,670 in 2019, increased by $15,670, from $0 in 2018. The increase is related to an initiative, following our merger with Churchill Capital Corp in 2019, to streamline our operations by simplifying our organization and focusing on two segments.
Legal Settlement
The year ended December 31, 2019 includes a gain for a confidential legal settlement of $39,399. There were no legal settlements during the year ended December 31, 2020.
Other Operating Income (Expense), Net
Other operating income (expense), net of $52,381 in 2020, increased by $47,555 from $4,826 in 2019. The increase is primarily driven by the gain on the sale of certain assets and liabilities of the Techstreet business, along with the consolidated impact of the remeasurement of the assets and liabilities of our Company that are denominated in currencies other than each relevant entity’s functional currency.
Other operating income (expense), net of $4,826 in 2019, decreased by $1,553, or 24.3% from $6,379 in 2018, attributable to the consolidated impact of the remeasurement of the assets and liabilities of our company that are denominated in currencies other than each relevant entity’s functional currency.
Interest Expense, Net
Interest expense, net of $111,914 in 2020, decreased by $45,775, or 29.0%, from $157,689 in 2019. The change was due to lower interest payments resulting from lower interest rates on the Company's borrowings as the result of the refinancing transaction in October 2019. In addition, the decrease is attributed to the write down of deferred financing charges and original issuance discount on our prior term loan facility in proportion to the principal paydown in 2019 that did not reoccur in 2020, which was partially offset by the additional $1,960,000 incremental term loan borrowings in connection with the CPA Global and DRG acquisitions.
Interest expense, net of $157,689 in 2019, increased by $26,884, or 20.6%, from $130,805 in 2018. The increase was attributable to the write down of deferred financing charges and original issuance discount on our prior term loan facility in proportion to the principal paydown; in addition to debt extinguishment and refinancing related costs on the October 2019 refinancing of our prior credit facilities and notes. This was offset by lower interest payments due to lower interest and LIBOR rates as a result of the refinancing and the voluntary prepayment of our prior term loan in connection with the closing of our merger with Churchill Capital Corp in 2019.
Mark to Market Adjustment on Financial Instruments
Under Accounting Standards Codification 815, Derivatives and Hedging, ("ASC 815"), warrant instruments that do not meet the criteria to be considered indexed to an entity's own stock shall be initially classified as a liability at their estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash. In periods subsequent to issuance, changes in the estimated fair value of the liabilities are reported through earnings.
The change in fair value of the Private Placement Warrants in 2020 increased by $205,559 from the revaluation of the Private Placement Warrant liabilities of $312,751 due primarily to an increase in the Company's stock price and increased expected volatility of the Company’s and the peer group’s stock prices.
The change in fair value of the Private Placement Warrants in 2019 increased by $47,656 from the revaluation of the Private Placement Warrant liabilities of $111,813 due primarily to an increase in the Company's stock price and to increased expected volatility of the Company’s and the peer group’s stock prices.
Benefit (Provision) for Income Taxes
Benefit (provision) for income taxes of 2,698 on a pre-tax book loss of $(353,323) in 2020, increased by $12,899 from a provision of $10,201 on a pre-tax book loss of $(248,432) in 2019. The effective tax rate being 0.8%in 2020 compared to (4.1)% in 2019. The overall decrease in tax expense is due to the increased benefit of share-based compensation, offset by recording valuation allowances against losses in certain jurisdictions where it has been deemed the losses are not recognizable and an increase in the Base Erosion Anti-Abuse Tax ("BEAT"). The current year effective tax rate may not be indicative of our effective tax rates for future periods.
Provision for income tax of $10,201 in 2019, increased by $4,552, or 80.6%, from $5,649 in 2018. The increase in tax expense is due to the base erosion and anti-abuse (BEAT) tax and tax on mergers, offset by deferred tax movements. Our effective tax rate is (5.1)% in 2019 and was (2.4)% in 2018. Differences in effective tax rates for the reported periods are attributable to changes in valuation allowance, BEAT tax, non-deductible capitalization costs and changes in income/losses for the different rates in various jurisdictions. The current year effective tax rate may not be indicative of our effective tax rates for future periods.
Certain Non-GAAP MeasuresFree Cash Flow
We include non-GAAP measures in this annual report, including Adjusted EBITDA, Adjusted EBITDA margin anduse Free Cash Flow because they are a basis upon whichin our management assesses our performanceoperational and wefinancial decision-making and believe they reflect the underlying trends and indicators of our business by allowing management to focus on the most meaningful indicators of our continuous operational performance.
Although we believe these measures are useful for investors for the same reasons, we recommend users of the financial statements to note these measures are not a substitute for GAAP financial measures or disclosures. We provide reconciliations of these non-GAAP measures to the corresponding most closely related GAAP measure.
Adjusted Revenues
We present Adjusted Revenues, which excludes the impact of the deferred revenues purchase accounting adjustments. We present this measure because we believe itFree Cash Flow is useful to readersinvestors because similar measures are frequently used by securities analysts, investors, ratings agencies, and other interested parties to better understandmeasure the underlying trends in our operations.ability of a company to service its debt. Our presentation of Adjusted Revenues is for informational purposes only and is not necessarily indicative of our future results. You should compensate for these limitations by relying primarily on our GAAP results and only using non-GAAP measures for supplementary analysis.
The following table presents our calculation of Adjusted Revenues for the years ended December 31, 2020, 2019 and 2018, and a reconciliation of this measure to our Revenues, net for the same periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change 2020 vs. 2019 | | Change 2019 vs. 2018 |
| (in thousands, except percentages) | 2020 | | 2019 | | 2018 | | % | | % |
| Revenues, net | $ | 1,254,047 | | | $ | 974,345 | | | $ | 968,468 | | | 28.7 | % | | 0.6 | % |
| Deferred revenues adjustment | 23,101 | | | 438 | | | 3,152 | | | N/M | | (86.1) | % |
| Revenue attributable to IPM Product Line | — | | | — | | | (20,450) | | | — | | | (100.0) | % |
| Adjusted revenues, net | $ | 1,277,148 | | | $ | 974,783 | | | $ | 951,170 | | | 31.0 | % | | 2.5 | % |
Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA is presented because it is a basis upon which our management assesses our performance, and we believe it is useful for investors to understand the underlying trends of our operations. See “— Certain Non-GAAP Measures — Adjusted EBITDA and Adjusted EBITDA margin” for important information on the limitations of Adjusted EBITDA and its reconciliation to our Net loss under GAAP. Adjusted EBITDA represents net (loss) income before provision for income taxes, depreciation and amortization, interest income and expense adjusted to exclude acquisition or disposal-related transaction costs (such costs include net income from continuing operations before provision for income taxes, depreciation and amortization and interest income and expense from divestitures), losses on extinguishment of debt, share-based compensation, unrealized foreign currency gains/(losses), costs associated with the transition services agreement with Thomson Reuters, which we entered into in connection with our separation from Thomson Reuters in 2016, separation and integration costs, transformational and restructuring expenses, acquisition-related adjustments to deferred revenues, costs related to our merger with Churchill Capital Corp in 2019, non-cash income/(loss) on equity and cost method investments, non-operating income or expense, the impact of certain non-cash, legal settlements, mark to market adjustments on financial instruments and other items that are included in net income for the period that the Company does not consider indicative of its ongoing operating performance and certain unusual items impacting results in a particular period. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by Revenues.
Our presentation of Adjusted EBITDA and Adjusted EBITDA marginFree Cash Flow should not be construed as an inference that our future results will be unaffected by any of the adjusted items, or that our projections and estimates will be realized in their entirety or at all. In addition, because of these limitations, Adjusted EBITDA should not be considered as a measure of liquidity or discretionary cash available to us to fund our cash needs, including investing in the growth of our business and meeting our obligations. You should compensate for
We define Free Cash Flow as Net cash provided by (used for) operating activities less Capital expenditures. For further discussion on free cash flow, including a reconciliation to cash flows provided by (used for) operating activities, refer to Liquidity and Capital Resources - Cash Flows below.
Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires management to make significant judgments and estimates that affect the amounts reported in the consolidated financial statements. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, and we review these limitations by relying primarilyestimates on an ongoing basis. We consider the following accounting policies and associated estimates to be critical to understanding our financial statements because the application of these policies requires management’s subjective or complex judgments about the effects of matters that are inherently uncertain. These significant judgments could have a material impact on our U.S. GAAP resultsfinancial statements if actual performance should differ from historical experience or from our initial estimates, or if our assumptions were to change. For further information about our significant accounting policies, including the policies discussed below, see Note 1 - Nature of Operations and only use Adjusted EBITDASummary of Significant Accounting Policies included in Part II, Item 8 of this annual report.
Revenue Recognition
Most of our products and Adjusted EBITDA margin for supplementary analysis.services are provided under agreements containing standard terms and conditions. The majority of our revenue is derived from subscription arrangements, which generally are initially deferred and then recognized ratably over the contract term. These arrangements typically do not require any significant judgments or estimates about when revenue should be recognized.
The following table presents our calculationA limited number of Adjusted EBITDA forre-occurring and transaction agreements contain multiple performance obligations. We apply judgment in identifying the years ended December 31, 2020, 2019,separate performance obligations to be delivered under the arrangement and 2018, and reconciles these measuresallocating the transaction price based on the estimated standalone selling price of each performance obligation.
Business Combinations
We apply the acquisition method of accounting to our Net loss forbusiness combinations. Substantially all of the same periods:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands, except percentages) | 2020 (As Restated)(10) | | 2019 (As Restated)(11) | | 2018 |
| Net loss (As Restated) | $ | (350,625) | | | $ | (258,633) | | | $ | (242,162) | |
| (Benefit) provision for income taxes | (2,698) | | | 10,201 | | | 5,649 | |
| Depreciation and amortization | 303,150 | | | 200,542 | | | 237,225 | |
| Interest, net | 111,914 | | | 157,689 | | | 130,805 | |
Transition services agreement costs(1) | 650 | | | 10,481 | | | 55,764 | |
Transition, transformation and integration expense(2) | 3,440 | | | 24,372 | | | 69,185 | |
Deferred revenues adjustment(3) | 23,101 | | | 438 | | | 3,152 | |
Transaction related costs(4) | 99,286 | | | 46,214 | | | 2,457 | |
| Share-based compensation expense | 70,472 | | | 51,383 | | | 13,715 | |
| Gain on sale of IPM Product Line | — | | | — | | | (36,072) | |
IPM adjusted operating margin(5) | — | | | — | | | (5,897) | |
| Gain on sale of Techstreet | (28,140) | | | — | | | — | |
Tax indemnity asset(6) | — | | | — | | | 33,819 | |
Restructuring and impairment(7) | 56,138 | | | 15,670 | | | — | |
| Legal Settlement | — | | | (39,399) | | | — | |
| Impairment on assets held for sale | — | | | 18,431 | | | — | |
Mark to market adjustment on financial instruments(9) | 205,062 | | | 47,656 | | | — | |
Other(8) | (5,150) | | | 9,021 | | | 5,221 | |
| Adjusted EBITDA | $ | 486,600 | | | $ | 294,066 | | | $ | 272,861 | |
| Adjusted EBITDA margin | 38.1 | % | | 30.2 | % | | 28.7 | % |
(1)In 2020, this is related to a new transition services agreementassets acquired, liabilities assumed, and offset by the reverse transition services agreement from the sale of MarkMonitor assets. In 2019, this includes payments to Thomson Reuters under the Transition Services Agreement.
(2)Includes costs incurred in connection with and after our separation from Thomson Reuters in 2016 relating to the implementation of our standalone company infrastructure and related cost-savings initiatives. These costs include mainly transition consulting, technology infrastructure, personnel and severance expenses relating to our standalone company infrastructure, whichcontingent consideration are recorded in transition, integration, and other line-items of our income statement, as well as expenses related to the restructuring and transformation of our business following our separation from Thomson Reuters in 2016 mainly related to the integration of separate business units into one functional organization and enhancements in our technology.
(3)Reflects the deferred revenues adjustment as a result of purchase accounting.
(4)Includes costs incurred to complete business combination transactions, including acquisitions, dispositions and capital market activities and include advisory, legal, and other professional and consulting costs.
(5)Reflects the IPM Product Line’s operating margin, excluding amortization and depreciation, prior to its divestiture in October 2018.
(6)Reflects the write down of a tax indemnity asset.
(7)Reflects costs incurred in connection with the initiative, following our merger with Churchill Capital Corp in 2019, to streamline our operations by simplifying our organization and focusingallocated based on two segments. This also includes restructuring related costs following the acquisition of DRG and CPA Global in 2020.
(8)Includes primarily the net impact of foreign exchange gains and losses related to the re-measurement of balances and other items that do not reflect our ongoing operating performance.
(9)Reflects mark to market adjustments on financial instruments under Accounting Standards Codification 815, Derivatives and Hedging, ("ASC 815"). Warrant instruments that do not meet the criteria to be considered indexed to an entity's own stock shall be initially classified as a liability at their estimated fair values, regardlesswhich requires significant management judgment. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. We estimate the fair value of customer relationships intangible assets through a discounted cash flow (“DCF”) model using the multi-period excess earnings method, which involves the use of significant estimates and assumptions related to projected revenue growth rates, EBITDA margins, projected cash flows, royalty rates, tax rates, discount rates, tax amortization benefits, and customer attrition rates, among other items. We estimate the fair value of technology, databases, and trade name intangible assets through a DCF model using the relief-from-royalty method, which involves the use of significant estimates and assumptions related to projected revenue growth rates, royalty rates, tax rates, discount rates, tax amortization benefits, and obsolescence rates. Significant estimates and assumptions used in determining the fair value of intangible assets may change during the finalization of the likelihood thatpurchase price allocation as additional information about assets at the date of acquisition becomes available; as a result, we may make adjustments to the initial provisional amounts recorded for intangible assets acquired in the year following acquisition.
When a business combination involves contingent consideration, we record a liability for the estimated cost of such instruments will ever be settledcontingencies when expenditures are probable and reasonably estimable. A significant amount of judgment is required to estimate and quantify the potential liability in cash. In periods subsequentthese matters. We engage outside experts as deemed necessary or appropriate to issuance, changesassist in the calculation of the liability; however, management is responsible for evaluating the estimate. We reassess the estimated fair value of the liabilities are reported through earnings.contingent consideration at the end of each quarter and record any changes in value as necessary.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
(10)The As Restated 2020 column includes adjustments pertainingGoodwill and Indefinite-Lived Intangible Assets
Goodwill
We perform goodwill impairment testing during the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that carrying value may not be recoverable. In assessing whether a potential impairment event has occurred, we evaluate various factors, many of which are subjective and require significant judgment. Examples of such factors include significant negative industry or economic trends, persistent declines in our market value, significant changes in regulatory requirements or the legal environment, and segment changes.
We estimate the fair value of a reporting unit using a DCF model. Our DCF model relies significantly on our internal forecasts of future cash flows and long-term growth rates. Significant judgments and estimates made in this analysis include projected revenue growth rates and EBITDA margins, tax rates, terminal values, and discount rates. Changes in these estimates and assumptions could materially affect the determination of estimated fair value and we could be required to both Amendment No. 1 relating to errorsrecord additional impairment charges.
In 2023, we performed our annual goodwill impairment assessment in the Private Placement Warrantsfourth quarter using a quantitative approach. The annual assessment coincided with a change in our reporting units wherein the legacy ProQuest and Web of Science Group reporting units were combined into a single reporting unit, A&G. The goodwill impairment assessment included an analysis of the impacted reporting units immediately before and immediately after the change and concluded there was no impairment in either scenario. Based on the quantitative analysis, we determined that the carrying value of the IP and LS&H segment reporting units exceeded their respective fair values, resulting in a goodwill impairment charge of $844.7. The impairment charge recorded for the IP reporting unit represented a total write-off of the associated goodwill. The impairments were initially issuedprimarily due to worsening macroeconomic and market conditions.
In completing the annual quantitative goodwill impairment assessment, we used weighted average cost of capital (“WACC”) discount rate assumptions of 9.5%, 10%, and 11% for the A&G, LS&H, and IP reporting units, respectively. The discount rates were derived using a capital asset pricing model and analyzing published rates for industries relevant to each reporting unit to estimate the cost of equity financing. We used discount rates we believe to be commensurate with the risks and uncertainty inherent in the respective reporting units and in our internally developed forecasts. The use of a different set of assumptions and estimates could have resulted in materially different results. For our LS&H reporting unit, a 50 basis point increase in the discount rate would result in an incremental impairment charge of less than $90.0.
In September 2022, we performed a quantitative goodwill impairment test that resulted in a goodwill impairment charge of $4,407.9 across three of our four reporting units at the time; the impairment charge resulted in a full goodwill write-off for two of the four reporting units. Similar to our 2023 analysis, our 2022 analysis utilized discount rates derived from a capital asset pricing model and an analysis of published rates for industries relevant to each reporting unit. For those reporting units whose estimated fair values exceeded their carrying values, we applied a hypothetical sensitivity analysis by increasing the discount rate by 100 basis points and, in a separate test, by reducing the fair value of those reporting units by 10%. As a result of either scenario, the IP reporting unit’s fair value was approximately equal to its carrying value. All other reporting units evaluated under either scenario reflected fair values well in excess of carrying values by at least 40%. We subsequently performed our annual goodwill impairment test by applying a qualitative assessment, in which we considered factors such as those described above, as well as the historical significant level of headroom. We did not identify any additional impairment charge requirements as a result of the annual test performed in the fourth quarter of 2022.
If any of our DCF assumptions or estimates fall short of our projections, we could experience additional impairment events in the future.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets consist of purchased brand trade names. In 2023 and 2022, we used a qualitative assessment to evaluate events and circumstances that might impact the value of each trade name. In 2021, we performed a quantitative assessment using the relief-from-royalty method that indicated that the fair value of our trade names was significantly in excess of carrying value. We did not identify any impairments of our indefinite-lived intangible assets in 2023, 2022, or 2021.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Long-Lived Assets (including Other Intangible Assets)
We evaluate long-lived assets, including property and equipment, definite-lived intangible assets, and right-of-use lease assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, we assess recoverability by comparing the carrying amount of the asset to our estimate of the future undiscounted cash flows expected to be generated by the SPAC and Amendment No. 2 relatingasset over its remaining life. We exercise judgment in selecting the appropriate assumptions to errorsuse in the CPA Global Equity Plan that were incorrectly included as partestimated future undiscounted cash flows analysis. If the carrying amount of the acquisition accounting. See Note 28 - Restatementasset exceeds its estimated future cash flows, we recognize an impairment charge equal to the amount by which the carrying amount of Previously Issued Financial Statementsthe asset exceeds its fair value.
Share-Based Compensation
Share-based compensation expense includes cost associated with stock options, restricted share units (“RSUs”) and performance share units (“PSUs”) granted to certain key members of management.
The share-based compensation cost of time-based RSU and PSU grants is calculated by multiplying the grant date fair value by the number of shares granted. We engage a third-party valuation expert to perform a Monte Carlo simulation that estimates the grant date fair value for further details.PSUs that have a market-based modifier component. We recognize compensation expense over the vesting period of the award on a graded-scale basis, and we recognize forfeitures as they occur. Each quarter, we estimate the number of shares that are expected to vest and adjust our expense accordingly.
(11)Income Taxes
We recognize income taxes under the asset and liability method. Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated current and future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income tax expense for financial statement purposes. In assessing the realizability of deferred tax assets, we consider all available positive and negative evidence factors. Evidence considered includes historical and projected future taxable income by tax jurisdiction, character and timing of income or loss, and prudent and feasible tax planning strategies. We record a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized. Unforeseen future events, such as changes in market conditions and changes in tax laws, could have a material impact on the realizability of deferred tax assets.
The As Restated 2019 column includes adjustments pertaining to both Amendment No. 1 relating to errorscalculation of our tax liabilities involves dealing with uncertainties in the Private Placement Warrantsapplication of complex tax laws and regulations in a multitude of jurisdictions across our global operations. We record tax benefits when it is more likely than not that were initiallythe position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. Because of the complexity of some of these uncertainties, the ultimate resolution of our uncertain tax positions may result in a payment that is materially different from our current estimates. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
Recently Issued Accounting Pronouncements
We do not believe that any recently issued by the SPAC. See accounting pronouncements will have a material impact on our financial condition or results of operations. For additional information related to recently issued and adopted accounting pronouncements, see Note 281 - RestatementNature of Previously Issued Financial Statements for further details.Operations and Summary of Significant Accounting Policies included in Part II, Item 8 of this annual report.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Free Cash Flow
We use free cash flowFree Cash Flow in our operational and financial decision-making and believe free cash flowFree Cash Flow is useful to investors because similar measures are frequently used by securities analysts, investors, ratings agencies, and other interested parties to evaluate our competitors and to measure the ability of companiesa company to service theirits debt.
Our presentation of free cash flowFree Cash Flow should not be construed as a measure of liquidity or discretionary cash available to us to fund our cash needs, including investing in the growth of our business and meeting our obligations. You should compensate for these limitations by relying primarily on our U.S. GAAP results.
We define free cash flowFree Cash Flow as netNet cash provided by (used for) operating activities less capitalCapital expenditures. For further discussion on free cash flow, including a reconciliation to cash flows provided by (used for) operating activities, refer to “— Liquidity and Capital Resources —- Cash Flows”Flows below.
Critical Accounting Policies and Estimates
Revenue Recognition
Most of our products and services are provided under agreements containing standard terms and conditions. The majority of our revenue is derived from subscription arrangements, which generally are initially deferred and then recognized ratably over the contract term. These arrangements typically do not require any significant judgments or estimates about when revenue should be recognized.
A limited number of re-occurring and transaction agreements contain multiple performance obligations. We apply judgment in identifying the separate performance obligations to be delivered under the arrangement and allocating the transaction price based on the estimated standalone selling price of each performance obligation.
Business Combinations
We apply the acquisition method of accounting to our business combinations. Substantially all of the assets acquired, liabilities assumed, and contingent consideration are allocated based on their estimated fair values, which requires significant management judgment. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. We estimate the fair value of customer relationships intangible assets through a discounted cash flow (“DCF”) model using the multi-period excess earnings method, which involves the use of significant estimates and assumptions related to projected revenue growth rates, EBITDA margins, projected cash flows, royalty rates, tax rates, discount rates, tax amortization benefits, and customer attrition rates, among other items. We estimate the fair value of technology, databases, and trade name intangible assets through a DCF model using the relief-from-royalty method, which involves the use of significant estimates and assumptions related to projected revenue growth rates, royalty rates, tax rates, discount rates, tax amortization benefits, and obsolescence rates. Significant estimates and assumptions used in determining the fair value of intangible assets may change during the finalization of the purchase price allocation as additional information about assets at the date of acquisition becomes available; as a result, we may make adjustments to the initial provisional amounts recorded for intangible assets acquired in the year following acquisition.
When a business combination involves contingent consideration, we record a liability for the estimated cost of such contingencies when expenditures are probable and reasonably estimable. A significant amount of judgment is required to estimate and quantify the potential liability in these matters. We engage outside experts as deemed necessary or appropriate to assist in the calculation of the liability; however, management is responsible for evaluating the estimate. We reassess the estimated fair value of the contingent consideration at the end of each quarter and record any changes in value as necessary.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Goodwill and Indefinite-Lived Intangible Assets
Goodwill
We perform goodwill impairment testing during the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that carrying value may not be recoverable. In assessing whether a potential impairment event has occurred, we evaluate various factors, many of which are subjective and require significant judgment. Examples of such factors include significant negative industry or economic trends, persistent declines in our market value, significant changes in regulatory requirements or the legal environment, and segment changes.
We estimate the fair value of a reporting unit using a DCF model. Our DCF model relies significantly on our internal forecasts of future cash flows and long-term growth rates. Significant judgments and estimates made in this analysis include projected revenue growth rates and EBITDA margins, tax rates, terminal values, and discount rates. Changes in these estimates and assumptions could materially affect the determination of estimated fair value and we could be required to record additional impairment charges.
In 2023, we performed our annual goodwill impairment assessment in the fourth quarter using a quantitative approach. The annual assessment coincided with a change in our reporting units wherein the legacy ProQuest and Web of Science Group reporting units were combined into a single reporting unit, A&G. The goodwill impairment assessment included an analysis of the impacted reporting units immediately before and immediately after the change and concluded there was no impairment in either scenario. Based on the quantitative analysis, we determined that the carrying value of the IP and LS&H segment reporting units exceeded their respective fair values, resulting in a goodwill impairment charge of $844.7. The impairment charge recorded for the IP reporting unit represented a total write-off of the associated goodwill. The impairments were primarily due to worsening macroeconomic and market conditions.
In completing the annual quantitative goodwill impairment assessment, we used weighted average cost of capital (“WACC”) discount rate assumptions of 9.5%, 10%, and 11% for the A&G, LS&H, and IP reporting units, respectively. The discount rates were derived using a capital asset pricing model and analyzing published rates for industries relevant to each reporting unit to estimate the cost of equity financing. We used discount rates we believe to be commensurate with the risks and uncertainty inherent in the respective reporting units and in our internally developed forecasts. The use of a different set of assumptions and estimates could have resulted in materially different results. For our LS&H reporting unit, a 50 basis point increase in the discount rate would result in an incremental impairment charge of less than $90.0.
In September 2022, we performed a quantitative goodwill impairment test that resulted in a goodwill impairment charge of $4,407.9 across three of our four reporting units at the time; the impairment charge resulted in a full goodwill write-off for two of the four reporting units. Similar to our 2023 analysis, our 2022 analysis utilized discount rates derived from a capital asset pricing model and an analysis of published rates for industries relevant to each reporting unit. For those reporting units whose estimated fair values exceeded their carrying values, we applied a hypothetical sensitivity analysis by increasing the discount rate by 100 basis points and, in a separate test, by reducing the fair value of those reporting units by 10%. As a result of either scenario, the IP reporting unit’s fair value was approximately equal to its carrying value. All other reporting units evaluated under either scenario reflected fair values well in excess of carrying values by at least 40%. We subsequently performed our annual goodwill impairment test by applying a qualitative assessment, in which we considered factors such as those described above, as well as the historical significant level of headroom. We did not identify any additional impairment charge requirements as a result of the annual test performed in the fourth quarter of 2022.
If any of our DCF assumptions or estimates fall short of our projections, we could experience additional impairment events in the future.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets consist of purchased brand trade names. In 2023 and 2022, we used a qualitative assessment to evaluate events and circumstances that might impact the value of each trade name. In 2021, we performed a quantitative assessment using the relief-from-royalty method that indicated that the fair value of our trade names was significantly in excess of carrying value. We did not identify any impairments of our indefinite-lived intangible assets in 2023, 2022, or 2021.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Long-Lived Assets (including Other Intangible Assets)
We evaluate long-lived assets, including property and equipment, definite-lived intangible assets, and right-of-use lease assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, we assess recoverability by comparing the carrying amount of the asset to our estimate of the future undiscounted cash flows expected to be generated by the asset over its remaining life. We exercise judgment in selecting the appropriate assumptions to use in the estimated future undiscounted cash flows analysis. If the carrying amount of the asset exceeds its estimated future cash flows, we recognize an impairment charge equal to the amount by which the carrying amount of the asset exceeds its fair value.
Share-Based Compensation
Share-based compensation expense includes cost associated with stock options, restricted share units (“RSUs”) and performance share units (“PSUs”) granted to certain key members of management.
The share-based compensation cost of time-based RSU and PSU grants is calculated by multiplying the grant date fair value by the number of shares granted. We engage a third-party valuation expert to perform a Monte Carlo simulation that estimates the grant date fair value for PSUs that have a market-based modifier component. We recognize compensation expense over the vesting period of the award on a graded-scale basis, and we recognize forfeitures as they occur. Each quarter, we estimate the number of shares that are expected to vest and adjust our expense accordingly.
Income Taxes
We recognize income taxes under the asset and liability method. Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated current and future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income tax expense for financial statement purposes. In assessing the realizability of deferred tax assets, we consider all available positive and negative evidence factors. Evidence considered includes historical and projected future taxable income by tax jurisdiction, character and timing of income or loss, and prudent and feasible tax planning strategies. We record a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized. Unforeseen future events, such as changes in market conditions and changes in tax laws, could have a material impact on the realizability of deferred tax assets.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. We record tax benefits when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. Because of the complexity of some of these uncertainties, the ultimate resolution of our uncertain tax positions may result in a payment that is materially different from our current estimates. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
Recently Issued Accounting Pronouncements
We do not believe that any recently issued accounting pronouncements will have a material impact on our financial condition or results of operations. For additional information related to recently issued and adopted accounting pronouncements, see Note 1 - Nature of Operations and Summary of Significant Accounting Policies included in Part II, Item 8 of this annual report.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | % Change |
| (in millions) | 2023 | | 2022 | | 2021 | | 23 vs ’22 | | 22 vs ’21 |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | 1,876.9 | | | (1)% | | 42% |
| Operating expenses: | | | | | | | | | |
| Cost of revenues | 906.4 | | | 954.0 | | | 626.1 | | | (5)% | | 52% |
| Selling, general and administrative costs | 739.7 | | | 729.9 | | | 643.0 | | | 1% | | 14% |
| Depreciation and amortization | 708.3 | | | 710.5 | | | 537.8 | | | —% | | 32% |
| Goodwill and intangible asset impairments | 979.9 | | | 4,449.1 | | | — | | | (78)% | | N/M |
| Restructuring and other impairments | 40.0 | | | 66.7 | | | 129.5 | | | (40)% | | (48)% |
| Other operating expense (income), net | (10.8) | | | (324.8) | | | 27.5 | | | (97)% | | N/M |
| Total operating expenses | 3,363.5 | | | 6,585.4 | | | 1,963.9 | | | | | |
| Income (loss) from operations | (734.7) | | | (3,925.6) | | | (87.0) | | | | | |
| Fair value adjustment of warrants | (15.9) | | | (206.8) | | | (81.3) | | | (92)% | | N/M |
| Interest expense, net | 293.7 | | | 270.3 | | | 252.5 | | | 9% | | 7% |
| Income (loss) before income tax | (1,012.5) | | | (3,989.1) | | | (258.2) | | | | | |
| Provision (benefit) for income taxes | (101.3) | | | (28.9) | | | 12.3 | | | N/M | | N/M |
| Net income (loss) | (911.2) | | | (3,960.2) | | | (270.5) | | | | | |
| Dividends on preferred shares | 75.4 | | | 75.4 | | | 41.5 | | | —% | | 82% |
| Net income (loss) attributable to ordinary shares | $ | (986.6) | | | $ | (4,035.6) | | | $ | (312.0) | | | | | |
| N/M - Represents a change approximately equal or in excess of 100% or not meaningful. |
As discussed below and in the notes to the financial statements, the following factors had a significant impact on the comparability of our results of operations between the periods presented and may affect the comparability of our results of operations in future periods:
•In 2022 and 2023, we recognized substantial goodwill impairments.
•On October 31, 2022, we completed the sale of the MarkMonitor Domain Management business within our IP segment.
•On December 1, 2021, we completed the acquisition of ProQuest, reported primarily within our A&G segment.
•In 2021, we completed public equity and debt offerings.
•In 2021 and 2022, we implemented a number of restructuring programs to integrate acquisitions and to simplify and optimize operations.
Revenues, net
The tables below present the changes in revenues by transaction type, segment, and by geographic region, as well as the components driving the changes between periods.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Revenues by transaction type
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Change | % of Change |
| 2023 | | 2022 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Subscription revenues | $ | 1,618.1 | | | $ | 1,618.8 | | | $ | (0.7) | | — | % | — | % | (3.7) | % | 1.3 | % | 2.4 | % |
| Re-occurring revenues | 444.6 | | | 441.9 | | | 2.7 | | 0.6 | % | — | % | — | % | 0.4 | % | 0.2 | % |
| Transactional and other revenues | 566.1 | | | 599.1 | | | (33.0) | | (5.5) | % | — | % | (0.7) | % | 0.6 | % | (5.4) | % |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | (31.0) | | (1.2) | % | — | % | (2.4) | % | 0.9 | % | 0.3 | % |
| | | | | | | | | | |
| | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | |
| 2022 | | 2021 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Subscription revenues | $ | 1,618.8 | | | $ | 1,030.4 | | | $ | 588.4 | | 57.1 | % | 59.7 | % | (1.1) | % | (4.9) | % | 3.4 | % |
| Re-occurring revenues | 441.9 | | | 453.2 | | | (11.3) | | (2.5) | % | — | % | — | % | (7.7) | % | 5.2 | % |
| Transactional and other revenues | 599.1 | | | 393.3 | | | 205.8 | | 52.3 | % | 58.3 | % | (0.2) | % | (3.1) | % | (2.7) | % |
| Revenues, net | $ | 2,659.8 | | | $ | 1,876.9 | | | $ | 782.9 | | 41.7 | % | 45.0 | % | (0.7) | % | (5.2) | % | 2.6 | % |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2023 vs. 2022
Subscription revenues decreased primarily due to the divestiture of the MarkMonitor business partially offset by organic growth driven by price increases, reflecting a trend consistent with the increase in our ACV between periods, and an FX benefit. Transactional and other revenues decreased primarily due to lower LS&H real world data sales and IP trademarks transactional volumes and patent search & analytics revenue.
2022 vs. 2021
Subscription revenues increased primarily due to the acquisition of ProQuest, further supplemented by organic growth driven by price increases and the benefit of net installations, reflecting a trend consistent with the increase in our ACV between periods. Re-occurring revenues decreased due to FX headwinds, partially offset by strong organic growth driven by increases in patent renewal volumes and improvements in yield per case. Transactional and other revenues increased due to the acquisition of ProQuest, partially offset by FX headwinds and lower trademark transactional volumes and patent filing revenue.
Revenues by segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Change | % of Change |
| 2023 | | 2022 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Academia & Government | $ | 1,323.3 | | | $ | 1,280.1 | | | $ | 43.2 | | 3.4 | % | — | % | — | % | 1.2 | % | 2.2 | % |
| Intellectual Property | 862.7 | | | 927.1 | | | (64.4) | | (6.9) | % | — | % | (6.9) | % | 0.7 | % | (0.7) | % |
| Life Sciences & Healthcare | 442.8 | | | 452.6 | | | (9.8) | | (2.2) | % | — | % | — | % | 1.0 | % | (3.2) | % |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | (31.0) | | (1.2) | % | — | % | (2.4) | % | 0.9 | % | 0.3 | % |
| | | | | | | | | | |
| | | | |
| 2022 | | 2021 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Academia & Government | $ | 1,280.1 | | | $ | 489.4 | | | $ | 790.7 | | 161.6 | % | 164.7 | % | — | % | (4.9) | % | 1.8 | % |
| Intellectual Property | 927.1 | | | 974.3 | | | (47.2) | | (4.8) | % | 0.3 | % | (1.3) | % | (6.1) | % | 2.3 | % |
| Life Sciences & Healthcare | 452.6 | | | 413.2 | | | 39.4 | | 9.5 | % | 8.6 | % | — | % | (3.2) | % | 4.1 | % |
| Revenues, net | $ | 2,659.8 | | | $ | 1,876.9 | | | $ | 782.9 | | 41.7 | % | 45.0 | % | (0.7) | % | (5.2) | % | 2.6 | % |
2023 vs. 2022
A&G segment revenues increased from organic growth, primarily related to subscription revenues driven by price increases, reflecting a trend consistent with the increase in our ACV between periods. IP segment revenues decreased primarily due to the divestiture of the MarkMonitor business with organic decline due to lower trademarks transactional volumes and patent search & analytics revenue. LS&H segment revenues decreased primarily due to lower LS&H real world data sales.
2022 vs. 2021
A&G revenues increased primarily due to the acquisition of ProQuest, further supplemented by organic growth driven by increased subscription revenues from price increases and the benefit of net installations. IP segment revenues decreased primarily due to FX headwinds that weren’t fully offset by organic growth driven by increases in patent renewal volumes and improvements in yield per case. LS&H segment revenues increased primarily due to the acquisition of ProQuest, further
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
supplemented by organic growth driven by increased subscription revenues from price increases, the benefit of net installations, and increases in custom data sales.
Revenues by geography
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Change | % of Change |
| 2023 | | 2022 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Americas | $ | 1,405.5 | | | $ | 1,462.3 | | | $ | (56.8) | | (3.9) | % | — | % | (3.6) | % | 0.4 | % | (0.7) | % |
| Europe/Middle East/Africa | 707.5 | | | 698.3 | | | 9.2 | | 1.3 | % | — | % | (1.3) | % | 1.9 | % | 0.7 | % |
| Asia Pacific | 515.8 | | | 499.2 | | | 16.6 | | 3.3 | % | — | % | (0.5) | % | 1.5 | % | 2.3 | % |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | (31.0) | | (1.2) | % | — | % | (2.4) | % | 0.9 | % | 0.3 | % |
| | | | | | | | | | |
| | | | |
| 2022 | | 2021 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Americas | $ | 1,462.3 | | | $ | 924.7 | | | $ | 537.6 | | 58.1 | % | 57.8 | % | (1.1) | % | (2.1) | % | 3.5 | % |
| Europe/Middle East/Africa | 698.3 | | | 555.8 | | | 142.5 | | 25.6 | % | 35.5 | % | (0.3) | % | (8.3) | % | (1.3) | % |
| Asia Pacific | 499.2 | | | 396.4 | | | 102.8 | | 25.9 | % | 28.3 | % | (0.2) | % | (7.9) | % | 5.7 | % |
| Revenues, net | $ | 2,659.8 | | | $ | 1,876.9 | | | $ | 782.9 | | 41.7 | % | 45.0 | % | (0.7) | % | (5.2) | % | 2.6 | % |
2023 vs. 2022
Americas revenues decreased primarily due to the divestiture of the MarkMonitor business and from organic decline, due to lower LS&H real world data and IP re-occurring and transactional revenue. EMEA revenues organic growth was driven by A&G subscription and IP re-occurring revenue. APAC revenues organic growth was driven primarily by A&G subscription revenue.
2022 vs. 2021
In all regions, revenues increased primarily due to the acquisition of ProQuest, partially offset by FX headwinds and reductions from the divestiture of the MarkMonitor business. Americas organic growth of 3.5% was driven by improved subscription and re-occurring revenues and APAC’s organic growth of 5.7% was led by A&G and LS&H subscription revenues increases.
Cost of revenues
Cost of revenues consists of costs related to the production, servicing, and maintenance of our products and are composed primarily of related personnel costs, data center services and licensing costs, and costs to acquire or produce content including royalty fees.
The decrease of 5.0% compared to 2022 was primarily driven by effective contractor spend management and the divestiture of the MarkMonitor business, partially offset by product-related agent costs. As a percentage of revenues, Cost of revenues decreased by 1.4% from the prior year.
The increase of 52.4% compared to 2021 was primarily driven by the acquisition of ProQuest, partially offset by a reduction in product and people-related costs driven by our cost-savings and margin improvement restructuring programs. As a percentage of revenues, Cost of revenues increased by 2.5% from the prior year.
Selling, general and administrative costs
Selling, general and administrative costs (“SG&A”) include nearly all business costs not directly attributable to the production, servicing, and maintenance of our products and are composed primarily of related personnel costs, third-party professional services fees, facility costs like rent and utilities, technology costs associated with our corporate infrastructure, and transaction expenses associated with acquisitions, divestitures, and capital market activities including advisory, legal, and other professional and consulting costs.
The increase of 1.3% compared to 2022 was primarily attributed to increased technology costs associated with increased technology costs to support the business.
The increase of 13.5% compared to 2021 was primarily driven by our acquisition of ProQuest, partially offset by reductions in outside services, share-based compensation, legal, rent, and other miscellaneous business operating expenses.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Depreciation and amortization
Depreciation expense relates to our fixed assets, including mainly computer hardware and leasehold improvements, furniture and fixtures. Amortization expense relates to our definite-lived intangible assets, including mainly technology and content, customer relationships, internally generated computer software, and trade names.
2023 was consistent with 2022. As a percentage of revenues, Depreciation and amortization increased by 0.2% from the prior year.
The increase of 32.1% compared to 2021 was primarily driven by the additional amortization from the intangible assets acquired from the ProQuest acquisition. As a percentage of revenues, Depreciation and amortization decreased by 2.0% from the prior year.
Goodwill and intangible asset impairments
In both 2023 and 2022, we completed quantitative goodwill impairment assessments using a DCF analysis to estimate the fair value of each of our reporting units. Based on these quantitative analyses performed, we recorded a total goodwill impairment charge of $844.7 and $4,449 in 2023 and 2022, respectively. Additionally, during the year ended December 31, 2023, in connection with intangible assets classified as assets held-for-sale as of December 31, 2023, we recorded an impairment charge of $132.2 and a $3.0 goodwill impairment charge associated with the disposal group’s allocated portion of the IP segment reporting unit’s goodwill balance.
For additional information regarding our recent goodwill and intangible asset impairments, see Note 6 - Other Intangible Assets, net and Goodwill included in Part II, Item 8 of this annual report.
Restructuring and other impairments
Restructuring and impairment expense includes costs associated with involuntary termination benefits provided to employees under the terms of a one-time benefit arrangement, ongoing benefit arrangements, certain contract termination costs, other costs associated with an exit or disposal activity and impairment charges associated with right-of-use assets in which we’ve ceased the use of during the period. We’ve incurred total lifetime costs of approximately $302 related to approved restructuring plans to streamline operations within targeted areas of our business dating back to 2019, primarily related to acquisition integration programs. As of December 31, 2023, we expect to incur approximately $20 of additional restructuring costs associated with the Segment Optimization Program, which we expect to incur primarily within 2024. Restructuring and other impairments also includes write-downs associated with equity investments of $6.1 in 2023. For further information regarding each of our restructuring initiatives and impairment impacts, see Note 13 - Restructuring and Other Impairments included in Part II, Item 8 of this annual report.
The decrease of 40.0% compared to 2022 was driven by the wind-down of expenses associated with the ProQuest Acquisition Integration and OneClarivate Program, partially offset by an increase to expenses incurred related to the Segment Optimization Program and the impact of the equity investment write-downs.
The decrease of 48.5% compared to 2021 was driven by the wind-down of expenses associated with the CPA Global Acquisition Integration and Optimization Program, DRG Acquisition Integration Program, and Operation Simplification and Optimization Program, partially offset by increased expenses incurred related to the One Clarivate and ProQuest Acquisition Integration Program.
Other operating expense (income), net
The change of $314.0 in 2023 compared to 2022 was driven by a $278.5 gain on sale from the divestiture of the MarkMonitor business in the prior year, and, to a lesser extent, a net loss on foreign exchange remeasurement in 2023 compared to a net gain in the prior year with the largest impact derived from transactions denominated in GBP. These factors were partially offset by a gain on legal settlement of $49.4 in 2023.
The change of $352.3 in 2022 compared to the $27.5 net expense in 2021 was driven by a $278.5 gain on sale from the divestiture of the MarkMonitor business, and, to a lesser extent, a net gain on foreign exchange remeasurement compared to a net loss in the prior year with the largest impacts derived from transactions denominated in GBP.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Fair value adjustment of warrants
We account for our outstanding private placement warrants as liabilities at fair value on the balance sheet, which are subject to remeasurement at each balance sheet date and any change in fair value is recognized as of the end of each period for which earnings are reported. The adjustments in fair value, resulting in a gain in the current and comparative years, was driven primarily by changes in the risk-free rate, our share price, and the impact of those changes as key inputs to the Black-Scholes option valuation model.
Interest expense, net
The increase of 8.7% compared to 2022 was primarily driven by higher floating interest rates on borrowings under the Term Loan Facility, partially offset by gains under our interest rate swap program and debt prepayments.
The increase of 7.0% compared to 2021 was primarily driven by higher floating interest rates on borrowings under the Term Loan Facility and from our private placement offerings and subsequent exchange offers of the Senior Secured Notes due 2028 and Senior Notes due 2029, which took place in the second and third quarter of 2021, respectively.
Provision (benefit) for income taxes
The increased benefit in 2023 compared to 2022 was primarily due to one-time tax benefits recorded in the year ended December 31, 2023, offset by one-time tax benefits recorded in 2022. In 2023, we recorded a tax benefit from settlement of an open tax dispute, a tax benefit associated with the impairment of intangible assets, a tax benefit relating to the partial release of valuation allowance recorded against certain U.S. tax attributes, and a tax benefit resulting from goodwill impairment. In 2022, we recorded tax benefits from the release of a valuation allowance upon the execution of an internal legal entity restructuring, and from the release of an uncertain tax position that was favorably resolved.
In December 2021, the Organization for Economic Co-operation and Development (“OECD”) issued model rules for a new global minimum tax framework under its “Pillar Two” initiative, and various governments around the world have issued, or have announced that they plan to issue, legislation consistent with the OECD model rules. We are within the scope of the OECD Pillar Two model rules.
During Q3 2023, the United Kingdom enacted legislation consistent with the OECD model rules, which will be effective beginning January 1, 2024. We are in the process of assessing the impact of legislation enacting global minimum tax rules in various jurisdictions. Based on our most recent tax filings, country-by-country reporting, and financial information available, we believe that most of the jurisdictions in which we operate will meet the requirements for transitional safe harbor relief. Therefore, we do not expect the global minimum tax to have a material impact in 2024. However, future legislation or changes in our financial results could materially increase our global minimum tax expense in future years.
The benefit in 2022 compared to the provision in 2021 was driven by one-time tax benefits from the release of a valuation allowance upon the execution of an internal legal entity restructuring effective December 31, 2022, and from the release of an uncertain tax position that was favorably resolved. These benefits were partially offset by tax expense accruals on a significant fair value adjustment gain on our outstanding private placement warrants and on an increase in taxable income in tax-paying jurisdictions.
Dividends on preferred shares
Dividends on our mandatory convertible preferred shares are calculated at an annual rate of 5.25% of the liquidation preference of $100.00 per share. We may pay declared dividends on March 1, 2024 and June 1, 2024 prior to the automatic conversion of these shares.
Adjusted EBITDA and Adjusted EBITDA margin (non-GAAP measure)
The following table presents our calculation of Adjusted EBITDA and Adjusted EBITDA margin for the years ended December 31, 2023, 2022, and 2021, and reconciles these measures to our Net income (loss) for the same periods:
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net income (loss) attributable to ordinary shares | $ | (986.6) | | $ | (4,035.6) | | $ | (312.0) |
| Dividends on preferred shares | 75.4 | | 75.4 | | 41.5 |
| Net income (loss) | (911.2) | | (3,960.2) | | (270.5) |
| Provision (benefit) for income taxes | (101.3) | | (28.9) | | 12.3 |
| Depreciation and amortization | 708.3 | | 710.5 | | 537.8 |
| Interest expense, net | 293.7 | | 270.3 | | 252.5 |
| | | | | |
Transaction related costs(1) | 8.2 | | 14.2 | | 46.2 |
| Share-based compensation expense | 108.9 | | 102.2 | | 139.6 |
| Gain on sale from divestitures | — | | (278.5) | | — |
| Goodwill and intangible asset impairments | 979.9 | | 4,449.1 | | — |
| Restructuring and other impairments | 40.0 | | 66.7 | | 129.5 |
| Fair value adjustment of warrants | (15.9) | | (206.8) | | (81.3) |
Other(2) | 6.6 | | (25.9) | | 34.3 |
| Adjusted EBITDA | $ | 1,117.2 | | $ | 1,112.7 | | $ | 800.4 |
| Adjusted EBITDA margin | 42.5% | | 41.8% | | 42.6% |
(1) Includes costs incurred to complete business combination transactions, including acquisitions, dispositions, and capital market activities, and includes advisory, legal, and other professional and consulting costs. 2021 also includes the mark-to-market adjustment (gains) on the contingent stock consideration associated with the CPA Global and DRG acquisitions. |
(2) Primarily reflects the net impact of foreign exchange gains and losses related to the remeasurement of balances and other items that do not reflect our ongoing operating performance. 2023 also includes a $49.4 gain on legal settlement (for further information, see Note 17 - Commitments and Contingencies included in Part II, Item 8 of this annual report). |
Liquidity and Capital Resources
Liquidity describes the abilityWe finance our operations primarily through cash generated by operating activities and through borrowing activities. As of a company to generate sufficient cash flows to meet the cash requirementsDecember 31, 2023, we had $370.7 of its business operations, including working capital needs, capital expenditures, debt service, acquisitions, other commitments and contractual obligations. Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our Consolidated Balance Sheets and amounts available under our revolving credit facility. We consider liquidity in terms$740.8 of the sufficiency of these resources to fund our operating, investing and financing activities for a period of 12 months after the financial statement issuance date.
Our cash flows from operations are generated primarily from payments from our subscription and recurring transaction customers. As described above, the standard term of a subscription is typically 12 months. When a customer enters into a new subscription agreement, or submits a notice to renew their subscription, we typically invoice for the full amount of the subscription period, record the balance to deferred revenues, and ratably recognize the deferral throughout the subscription period. As a result, we experience cash flow seasonality throughout the year, with a heavier weighting of operating cash inflows occurring during the first half, and particularly first quarter, of the year, when most subscription invoices are sent, as compared to the second half of the year.
We require and will continue to need significant cash resources to, among other things, meet our debt service requirements under our credit facilities, the secured notes due 2026 and any future indebtedness, fund our working capital requirements, make capital expenditures (including related to product development), and expand our business through acquisitions. Based on our forecasts, we believe that cash flow from operations, available cash on hand and available borrowing capacity under our revolving credit facility will be adequate to service debt, meet liquidity needs and fund necessary capital expenditures for at least the next 12 months. Our future capital requirements will depend on many factors, including the number of future acquisitions and the timing and extent of spending to support product development efforts. We could be required, or could elect, to seek additional funding through public or private equity or debt financings; however, additional funds may not be available on terms acceptable to us.
Unrestricted cash and cash equivalents were $257,730, $76,130, and $25,575 as of December 31, 2020, December 31, 2019 and December 31, 2018, respectively. As of December 31, 2020, we had approximately $3,547,400 of debt, consisting primarily of $2,847,400 in borrowings under our term loan facility, $700,000 in outstanding principal of senior secured notes due 2026 and $0 of borrowings under our revolving credit facility. On February 28, 2020, we incurred an incremental $360,000 of term loans under our term loan facility and used the net proceeds from such borrowings, together with cash on hand, to fund a portion of the cash consideration for the DRG acquisition and to pay related fees and expenses. On October
1, 2020, in connection with the CPA Global acquisition, the Company incurred an incremental $1,600,000 of borrowings under our term loan facility and used the net proceeds from such borrowings to fund a portion of the repayment of CPA Global's outstanding debt. See “—Debt Profile” below.
Cash Flows
We have historically generated significant cash flows from our operating activities. Our subscription-based revenue model provides a steady and predictable source of revenue and cash flow for us, as we typically receive payments from our customers at the start of the subscription period (usually 12 months) and recognize revenue ratably throughout that period. Our high customer renewal rate, stable margins, and efforts to improve operating efficiencies and working capital management also contribute to our ability to generate solid operating cash flows, The following table discloses our consolidated cash flows provided by (used in) operating, investing and financing activitiesactivity for the periods presented:
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in thousands) | 2020 | | 2019 | | 2018 | | |
| Net cash provided by operating activities | $ | 263,500 | | | $ | 117,580 | | | $ | (26,100) | | | |
| Net cash used in investing activities | (2,988,768) | | | (140,885) | | | 11,934 | | | |
| Net cash provided by (used in) financing activities | 2,926,580 | | | 75,215 | | | (32,605) | | | |
| Effect of exchange rates | (5,043) | | | (971) | | | (5,193) | | | |
| Increase (Decrease) in cash and cash equivalents | 196,269 | | | 50,939 | | | (51,964) | | | |
| Cash and cash equivalents, and restricted cash beginning of the year | 76,139 | | | 25,584 | | | 77,548 | | | |
| Less: Cash included in assets held for sale, end of period | — | | | (384) | | | — | | | |
| Cash and cash equivalents, and restricted cash end of the year | $ | 272,408 | | | $ | 76,139 | | | $ | 25,584 | | | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net cash provided by (used for) operating activities | $ | 744.2 | | | $ | 509.3 | | | $ | 323.8 | |
| Net cash provided by (used for) investing activities | (237.4) | | | 57.3 | | | (4,044.5) | |
| Net cash provided by (used for) financing activities | (496.5) | | | (759.2) | | | 4,032.2 | |
Cash Flows Provided by (Used in)for) Operating Activities
Net cash provided by operating activities consists of net loss adjusted for non-cash items, such as: depreciation and amortization of property and equipment and intangible assets, deferred income taxes, share-based compensation, mark to market adjustment on financial instruments, deferred finance charges and for changes in net working capital assets and liabilities.
Net cash provided by operating activities was $263,500 for the year ended December 31, 2020 compared to net cash provided by operating activities of $117,580 for the year ended December 31, 2019. The $263,500 of net cash provided by operating activities for the year ended December 31, 2020 includes net loss of $350,625 offset with $506,885 of non-cash adjustments and changes in operating assets and liabilities of $107,240. The increase of $234.9 in operating cash flows was driven by year over year increases in earnings driven by increases in revenue, lower operating expenses and cash provided by acquired businesses related to DRG and CPA Global in 2020.
Net cash provided by operating activities was $117,580 for the year ended December 31, 2019 compared to net cash used in operating activities of $26,100 for the year ended December 31, 2018. The $117,580 of net cash provided by operating activities for the year ended December 31, 2019 includes net loss of $258,633 offset with $372,498 of non-cash adjustments and changes in operating assets and liabilities of $3,715. The improvement in operating cash flows was driven by: (1) continual increase in deferred revenue illustrating an increase in sales year over year; (2) lower operating loss, which included the impact of a $39,399 gain on legal settlement and (3) a decrease of $47,043 in Transition, integration and other related expenses as a result of establishing a standalone company infrastructure.
Net cash used in operating activities was $26,100 for the year ended December 31, 2018 compared to net cash provided by operating activities of $6,667 for the year ended December 31, 2017. The $32,767 negative change in 20182023 was primarily due to a $27,200 changematerially lower one-time costs as acquisition integration is complete, as well as improvements in operating working capital. Accounts receivable increased
The increase of $185.5 in 2022 was primarily due to price increases across our Product Lines along with a slight increase inhigher earnings excluding the agingnon-cash goodwill impairment charge, as well as working capital timing.
CLARIVATE PLC
Management’s Discussion and 2017 reflecting continued increases in sales year over year. Accounts payable continues to decrease, reflecting the shorteningAnalysis of our accounts payable outstanding period to a normalized level, compared to the prior year backlog in payments.Excluding the reduction in Accrued expenses for the IPM Product Line Divesture, the activity in both years was consistent.While the current year change was minimal, the 2017 change in Other assets is a resultFinancial Condition and Results of sales commission capitalization in connection with the adoption of ASC 606.Operations
Cash Flows Provided by (Used in)for) Investing Activities
Net cash usedThe $(294.7) change in investing activities2023 was $2,988,768 forprimarily due to the proceeds received in the prior year ended December 31, 2020. Cash flows used in investing is attributable to: (1) $2,916,471 used to acquire key business intangible assets from CPA Global, DRG, IncoPat, and Hanlim, (2) $107,713 in capital expenditures and (3) $5,982 of key business intangible assets acquired from CustomersFirst Now. This activity was offset by cash flows provided by investing related to $41,398 of divestitures related to the sale of Techstreet and the MarkMonitor AntiFraud, Antipiracy,business and Brand Protection products.increased capital spending to fuel product innovation.
NetThe $4,101.8 change in 2022 was driven by the significant level of cash usedpaid for business acquisitions in investing activities was $140,885 for the year ended December 31, 2019. Cash flows used in investing reflects the following activity: (1) $69,836 in capital expenditures; (2) $68,424 for the acquisition of Darts-ip, a provider of global IP case law data2021, and analytics headquartered in Brussels, Belgium; (3) $2,625 for the acquisition of key business assets of SequenceBase.
Net cash provided by investing activities was $11,934 for the year ended December 31, 2018. Cash flows used in investing reflects the following activity: (1) $80,883 in net proceeds from the IPM Product Line divestiture (netproceeds of restricted cash and cash included in normalized working capital, as well as a working capital adjustment$285.0 from the sale of $6,135), partially offset by (2) $45,410 in capital expenditures and (3) $23,539 in acquisitions, mainly TradeMarkVision and Kopernio.
Our capital expenditures in 2020, 2019 and 2018 consisted primarily of capitalized labor, consulting and other costs associated with product development.
Cash Flows Provided by (Used in)for) Financing Activities
Net cash providedThe $262.7 change in 2023 was primarily driven by financing activities was $2,926,580 for the year ended December 31, 2020. Key driversuses of cash flows provided by financing include: (1) $1,960,000 fromin the issuance of incremental term loans associated with the CPA Global and DRG acquisitions; (2) proceeds of $843,744 from the issuance of ordinary shares related toprior year that were not repeated. We had no outstanding balance on our public offerings; (3) $277,526 and $2,122 from the exercise of warrants and employee share options, respectively; and (4) $60,000 borrowed on the existing Revolving Credit Facility after using $175.0 in the prior year to fundrepay the outstanding balance and we used $100.0 to repurchase our ordinary shares, which was $75.0 less than the amount used in the prior year.
The $(4,791.4) change in 2022 was driven by the equity and debt extinguishment costs in connection with fundingofferings completed during 2021 to raise cash to finance the purchase price of the repaymentProQuest acquisition in December 2021. In addition, during 2022, we made a prepayment of CPA Global's outstanding debt. This activity was offset by cash flows used in financing related to: (1) $125,000 repayment of borrowings under the revolving credit facility; (2) $38,340 payment of debt issuance costs related to the issuance of the incremental term loan (3) $33,056 of payments related to tax withholdings for stock-based compensation; (4) $12,600 principle payment on the term loan facility; and (5) $7,816 payment related to the TradeMark Vision and Publons contingent earn-outs, and
Net cash provided by financing activities was $75,215 for the year ended December 31, 2019. Key drivers of the cash flows provided by financing include: (1) $1,600,000 of proceeds related to the refinance of debt as described in Note 14 - Debt; (2) $682,087 of proceeds from our merger with Churchill Capital Corp in 2019, net of cash acquired; (3) $200,000 related to the tax receivable agreement (See Item 8. Financial Statements and Supplementary Data - Notes to the Consolidated Financial Statements - Note 21 - Tax Receivable Agreement for additional detail); (4) $70,000 in proceeds from our revolving credit facility; (5) $1,582 for the exercise of warrants and employee share options. This activity was offset by cash flows used in financing due to: (1) $1,342,651 due to the extinguishment of old debt; (2) payment of $641,509$300.0 on our prior term loan facility upon consummation ofTerm Loan Facility, we repaid the transaction with Churchill (includes $11,509 of recurring term loan principal repayments); (3) $50,000 repayment of borrowings under our prior revolving credit facility, and (4) $41,923 of debt issuance costs pursuant to the new debt.
Net cash used in financing activities was $32,605 for the year ended December 31, 2018. Key drivers of the cash flows used in financing include: (1) $46,709 in net repayments of debt under our term loan facility, mainly driven by an excess cash repayment of $31,378 following the IPM Product Line divestiture and standard recurring principle repayments of $15,000; (2) $30,000 repayment of borrowings under our revolving credit facility and (3) $2,470 contingent purchase price paid as a result of Publons achieving the first tier of milestones and performance metrics. This activity was offset by cash flows provided by financing due to: (1) $45,000 draw$175.0 balance on our revolving credit facilityRevolving Credit Facility that was borrowed in the second half of 2018,2021, and (2) 1,574 for the exercise of warrants and employee share options.
In February 2020, we completed an underwritten public offering of 27,600,000repurchased $175.0 of our ordinary shares, generating net proceeds of $540,736, which we used to fund a portion of the cash consideration for the DRG acquisition. In addition, we incurred an incremental $360,000 of term loans under our term loan facility and used the net proceeds from such
borrowings, together with cash on hand, to fund the remainder of the cash consideration for the DRG acquisition and to pay related fees and expenses.
In June 2020, we completed an underwritten public offering of 50,400,000 of our ordinary shares at a share price of $22.50. Of the 50,400,000 ordinary shares, 14,000,000 were primary ordinary shares offered by Clarivate and 36,400,000 were secondary ordinary shares offered by selling shareholders including 20,821,765 ordinary shares from Onex, 8,097,354 ordinary shares from Baring and 7,480,881 ordinary shares from Directors, Executive Officers and other shareholders. The Company did not receive any proceeds from the sale of secondary ordinary shares by the selling shareholders. The Company received approximately $304,030 in net proceeds from the sale of ordinary shares offered by the Company, after deducting underwriting discounts and estimated offering expenses payable, for general corporate purposes.
During the period January 1, 2020 through February 21, 2020, 24,132,666 of the Company’s outstanding warrants were exercised for one ordinary share per whole warrant at a price of $11.50 per share. On February 20, 2020, we announced the redemption of all of our outstanding public warrants to purchase our ordinary shares that were issued as part of the units sold in the Churchill Capital Corp initial public offering that remained outstanding at 5:00 p.m. New York City time on March 23, 2020, for a redemption price of $0.01 per public warrant. In addition, our board of directors elected that, upon delivery of the notice of the redemption on February 20, 2020, all public warrants were to be exercised only on a “cashless basis.” Accordingly, by virtue of the cashless exercise of public warrants, exercising public warrant holders received 0.4626 of an ordinary share for each public warrant, and 4,747,432 ordinary shares were issued for public warrants exercised on a cashless basis and 4,649 public warrants were redeemed for $0.01 per public warrant. As of December 31, 2020, no public warrants were outstanding.shares.
Free Cash Flow (non-GAAP measure)
The following table reconciles free cash flow measure, which is aour non-GAAP Free Cash Flow measure to netNet cash provided by (used for) operating activities: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net cash provided by (used for) operating activities | $ | 744.2 | | | $ | 509.3 | | | $ | 323.8 | |
| Capital expenditures | (242.5) | | | (202.9) | | | (118.5) | |
| Free Cash Flow | $ | 501.7 | | | $ | 306.4 | | | $ | 205.2 | |
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| (in thousands) | 2020 | | 2019 | | 2018 | | |
| Net cash provided by operating activities | $ | 263,500 | | | $ | 117,580 | | | (26,100) | | | |
| Capital expenditures | (107,713) | | | (69,836) | | | (45,410) | | | |
| Free cash flow | $ | 155,787 | | | $ | 47,744 | | | $ | (71,510) | | | |
Free cash flow was $155,787 for the year ended December 31, 2020, compared to $47,744 for the year ended December 31, 2019 and a use of $71,510 for the year ended December 31, 2018. The increase in freeFree Cash Flow in 2023 and 2022, as compared to the respective prior year, was driven by significant increases in cash flow was primarily due to higher net cash provided bygenerated from operating activities, partially offset by an increaseincreased capital expenditures. Our capital expenditures in capital expenditures.
Required Reported Data - Standalone Adjusted EBITDA
We are required to report Standalone Adjusted EBITDA, which is identical to Consolidated EBITDA2023, 2022, and EBITDA as such terms are defined under our credit facilities, dated as2021 consisted primarily of October 31, 2019 and the indenture governing our secured notes due 2026 issued by Camelot Finance S.A. and guaranteed by certain of our subsidiaries, respectively. In addition, the credit facilities and the indenture contain certain restrictive covenants that govern debt incurrence and the making of restricted payments, among other matters. These restrictive covenants utilize Standalone Adjusted EBITDA as a primary component of the compliance metric governing our ability to undertake certain actions otherwise proscribed by such covenants. Standalone Adjusted EBITDA reflects further adjustments to Adjusted EBITDA for cost savings already implemented and excess standalone costs.
Because Standalone Adjusted EBITDA is required pursuant to the terms of the reporting covenants under the credit facilities and the indenture and because this metric is relevant to lenders and noteholders, management considers Standalone Adjusted EBITDA to be relevant to the operation of its business. It is also utilized by management and the compensation committee of the Board as an input for determining incentive payments to employees.
Excess standalone costs are the difference between our actual standalone company infrastructure costs, and our estimated steady state standalone infrastructure costs. We make an adjustment for the difference because we have had to incur costs
under the transitioncapitalized labor, contract services, agreement with Thomson Reuters after we had implemented the infrastructure to replace the services provided pursuant to the transition services agreement, thereby incurring dual running costs. Furthermore, there has been a ramp up period for establishing and optimizing the necessary standalone infrastructure. Since our separation from Thomson Reuters, we have had to transition quickly to replace services provided under the transition services agreement, with optimization of the relevant standalone functions typically following thereafter. Cost savings reflect the annualized “run rate” expected cost savings, net of actual cost savings realized, related to restructuring and other cost savings initiatives undertaken during the relevant period.costs associated with product and content development.
Standalone Adjusted EBITDA is calculated under the credit facilities and the indenture by using our consolidated net income (loss) for the trailing 12-month period (defined in the credit facilities and the indenture as our U.S. GAAP net income adjusted for certain items specified in the credit facilities and the indenture) adjusted for items including: taxes, interest expense, depreciation and amortization, non-cash charges, expenses related to capital markets transactions, acquisitions and dispositions, restructuring and business optimization charges and expenses, consulting and advisory fees, run-rate cost savings to be realized as a result of actions taken or to be taken in connection with an acquisition, disposition, restructuring or cost savings or similar initiatives, “run rate” expected cost savings, operating expense reductions, restructuring charges and expenses and synergies related to the transition projected by us, costs related to any management or equity stock plan, other adjustments that were presented in the offering memorandum used in connection with the issuance of the secured notes due 2026 and earn-out obligations incurred in connection with an acquisition or investment.
The following table reconciles Standalone Adjusted EBITDA to our Net loss for the periods presented:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 (As Restated)(13) | | 2019 (As Restated)(13) | | 2018 |
| (in thousands) | | | | | |
| Net loss (As Restated) | $ | (350,625) | | | $ | (258,633) | | | $ | (242,162) | |
| (Benefit) provision for income taxes | (2,698) | | | 10,201 | | | 5,649 | |
| Depreciation and amortization | 303,150 | | | 200,542 | | | 237,225 | |
| Interest, net | 111,914 | | | 157,689 | | | 130,805 | |
Transition services agreement costs(1) | 650 | | | 10,481 | | | 55,764 | |
Transition, transformation and integration expense(2) | 3,440 | | | 24,372 | | | 69,185 | |
Deferred revenues adjustment(3) | 23,101 | | | 438 | | | 3,152 | |
Transaction related costs(4) | 99,286 | | | 46,214 | | | 2,457 | |
| Share-based compensation expense | 70,472 | | | 51,383 | | | 13,715 | |
| Gain on sale of IPM Product Line | — | | | — | | | (36,072) | |
IPM adjusted operating margin(5) | — | | | — | | | (5,897) | |
| Gain on sale of Techstreet | (28,140) | | | — | | | — | |
Tax indemnity asset(6) | — | | | — | | | 33,819 | |
Restructuring and impairment(7) | 56,138 | | | 15,670 | | | — | |
| Legal Settlement | — | | | (39,399) | | | — | |
| Impairment on assets held for sale | — | | | 18,431 | | | — | |
Mark to market adjustment on financial instruments(12) | 205,062 | | | 47,656 | | | — | |
Other(8) | (5,150) | | | 9,021 | | | 5,221 | |
| Adjusted EBITDA | 486,600 | | | 294,066 | | | 272,861 | |
| Realized foreign exchange gain | (2,431) | | | (3,500) | | | — | |
DRG Adjusted EBITDA impact(9) | (2,668) | | | — | | | — | |
CPA Adjusted EBITDA impact(9) | 193,930 | | | — | | | — | |
IncoPat Adjusted EBITDA impact(9) | (459) | | | — | | | — | |
Hanlim Adjusted EBITDA impact(9) | 479 | | | — | | | — | |
Cost savings(10) | 86,659 | | | 15,500 | | | 12,700 |
Excess standalone costs(11) | — | | | 30,000 | | | 25,407 | |
| Standalone Adjusted EBITDA | $ | 762,110 | | | $ | 336,066 | | | $ | 310,968 | |
(1)In 2020, this is related to a new transition services agreement and offset by the reverse transition services agreement from the sale of MarkMonitor assets. In 2019, this includes payments to Thomson Reuters under the Transition Services Agreement.
(2)Includes costs incurred in connection with and after our separation from Thomson Reuters in 2016 relating to the implementation of our standalone company infrastructure and related cost-savings initiatives. These costs include mainly transition consulting, technology infrastructure, personnel and severance expenses relating to our standalone company infrastructure, which are recorded in Transition, integration, and other line-item of our income statement, as well as expenses related to the restructuring and transformation of our business following our separation from Thomson Reuters in 2016 mainly related to the integration of separate business units into one functional organization and enhancements in our technology.
(3)Reflects the deferred revenues adjustment as a result of acquisition accounting.
(4)Includes costs incurred to complete business combination transactions, including acquisitions, dispositions and capital market activities and include advisory, legal, and other professional and consulting costs.
(5)Reflects the IPM Product Line’s operating margin, excluding amortization and depreciation, prior to its divestiture in October 2018.
(6)Reflects the write down of a tax indemnity asset.
(7)Reflects costs incurred in connection with the initiative, following our merger with Churchill Capital Corp in 2019, to streamline our operations by simplifying our organization and focusing on two segments. This also includes restructuring related costs following the acquisition of DRG and CPA Global in 2020.
(8)Includes primarily the net impact of foreign exchange gains and losses related to the re-measurement of balances and other items that do not reflect our ongoing operating performance.
(9)Represents the acquisition Adjusted EBITDA for the period beginning January 1, 2020 through the respective acquisition date of each acquired business to reflect the company's Standalone EBITDA as though material acquisitions occurred at the beginning of the presented period.
(10)Reflects the estimated annualized run-rate cost savings, net of actual cost savings realized, related to restructuring and other cost savings initiatives undertaken during the period (exclusive of any cost reductions in our estimated standalone operating costs), including synergies related to acquisitions.
(11)Reflects the difference between our actual standalone company infrastructure costs, and our estimated steady operating costs, which were as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands) | 2020 | | 2019 | | 2018 |
| Actual standalone company infrastructure costs | $ | — | | | $ | 162,000 | | | 153,607 | |
| | | | | |
| Steady state standalone cost estimate | — | | | (132,000) | | | (128,200) | |
| Excess standalone costs | $ | — | | | $ | 30,000 | | | $ | 25,407 | |
(12) Reflects mark to market adjustments on financial instruments under Accounting Standards Codification 815, Derivatives and Hedging, ("ASC 815"). Warrant instruments that do not meet the criteria to be considered indexed to an entity's own stock shall be initially classified as a liability at their estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash. In periods subsequent to issuance, changes in the estimated fair value of the liabilities are reported through earnings.
(13) The As Restated 2020 column includes restatement adjustments pertaining to Amendment No. 1 relating to errors in the Private Placement Warrants that were initially issued by the SPAC and Amendment No. 2 relating to errors in the CPA Global Equity Plan that were incorrectly included as part of the purchase accounting. The As Restated 2019 column includes restatements pertaining to Amendment No. 1 relating to errors in the Private Placement Warrants that were initially issued by the SPAC.
The foregoing adjustments (10) and (11) are estimates and are not intended to represent pro forma adjustments presented within the guidance of Article 11 of Regulation S-X. Although we believe these estimates are reasonable, actual results may differ from these estimates, and any difference may be material. See “Cautionary Statement Regarding Forward-Looking Statements.”
Debt Profile
Secured Notes Due 2026
On October 31, 2019, we closed a private offering of $700,000 in aggregate principal amount of secured notes due 2026 bearing interest at 4.50% per annum. The secured notes due 2026 were issued by Camelot Finance S.A., an indirect wholly-owned subsidiary of Clarivate, are secured on a first-lien pari passu basis with borrowings under the credit facilities, and are guaranteed on a joint and several basis by certain of Clarivate’s subsidiaries. We used the net proceeds from the offering of secured notes due 2026, together with proceeds from the credit facilities discussed below to, among other things, redeem in full our secured notes due 2026, refinance all amounts terminating under the tax receivable agreement and under the prior credit facilities, fund in full the $200,000 payment pursuant to the agreement, and pay fees and expenses related to the foregoing.
The indenture governing the secured notes due 2026 contains covenants which, among other things, limit the occurrence of additional indebtedness (including acquired indebtedness), issuance of certain preferred stock, the payment of dividends, making restricted payments and investments, the purchase or acquisition or retirement for value of any equity interests, the provision of loans or advances to restricted subsidiaries, the sale or lease or transfer of any properties to any restricted subsidiaries, the transfer or sale of assets, and the creation of certain liens. As of the date of this annual report, we believe we were in compliance with the indenture covenants.
Credit Facilities
On October 31, 2019, we entered into a $900,000 term loan facility, which was fully drawn at closing, and a $250,000 revolving credit facility, which was undrawn at closing. The revolving credit facility matures on October 31, 2024 and the term loan facility matures on October 31, 2026. On February 28, 2020, we incurred an incremental $360,000 of term loans under our term loan facility and used the net proceeds from such borrowings to fund a portion of the cash consideration for the DRG acquisition. On October 1, 2020, in connection with the CPA Global acquisition, the Company incurred an incremental $1,600,000 of borrowings under our term loan facility and used the net proceeds from such borrowings to fund the repayment of CPA Global's parent company outstanding debt. As of December 31, 2020,2023, we had $2,847,400$4,740.0 of outstanding onborrowings under our notes and credit facilities. We incurred $293.7, $270.3 and $252.5 of interest expense associated with our debt obligations for the term loan facility.
years ended December 31, 2023, 2022, and 2021, respectively. Our contingent liabilities consist primarily of letters of credit and performance bonds and other similar obligations in the ordinary course of business. For further discussion related to our outstanding borrowings, see
Borrowings underIn January 2024, we refinanced our existing Term Loan Facility and extended the credit facilities bear interest atmaturity date of our Revolving Credit Facility. We refinanced all of our existing term loans with a floating rate which can be, at our option, either (i) a Eurocurrency rate plus an applicable margin or (ii) an alternate base rate (equal to the highestnew $2,150 tranche of (i) the rate which Bank of America, N.A. announces as its prime lending rate, (ii) the Federal Funds Effective Rate plus one-half of 1.00% and (iii) the Eurocurrency rate forterm loans maturing in 2031, with an interest periodrate margin of one month for275 basis points per annum in the case of loans denominated in dollars plus 1.00%) plus an applicable margin, in either case, subjectbearing interest by reference to a Eurocurrency rate floor of 0.00%. Commencing March 31, 2020, theterm SOFR. The new term loan facility willeffectively extended the maturity of our existing term loans by approximately 5 years. The new term loans amortize in equal quarterly installments in an amount equalequivalent to 1.00% per annum, of the original par principal amount thereof, with the remaining balance due at final maturity.
The credit facilities are secured by substantially all of Concurrently, we refinanced our assets and the assets of all of our U.S. restricted subsidiaries and certain of our non-U.S. subsidiaries, including those that are or may be borrowers or guarantors under the credit facilities, subject to customary exceptions. The credit facilities contain customary events of default and restrictive covenants that limit us from, among other things, incurring certain additional indebtedness, issuing preferred stock, making certain restricted payments and investments, certain transfers or sales of assets, entering into certain affiliate transactions or incurring certain liens. These limitations are subject to customary baskets, including certain limitations on debt incurrence and issuance of preferred stock, subject to complianceRevolving Credit Facility with a consolidated coverage ratio of Consolidated EBITDA (as defined inreplacement $700 million facility, which effectively extends the credit facilities), a measure substantially similar to our Standalone Adjusted EBITDA disclosed above under “— Required Reported Data — Standalone Adjusted EBITDA”, to interest and other fixed charges on certain debt (as defined in the credit facilities) greater than 2.00 to 1.00 or a total net leverage ratio (as defined in the credit facilities) not to exceed 6.50 to 1.00. In addition, the credit facilities require us to comply with a springing financial covenant pursuant to which, as of the first quarter of 2020, we must not exceed a first lien net leverage ratio (as defined under the credit facilities) of 7.25 to 1.00, to be tested on the last day of any quarter only when more than 35%maturity of the revolving credit facility (excluding (i) non-cash collateralized, issuedfrom 2027 to 2029. The strategic refinancing provides improved financial flexibility, including extending our debt maturities and undrawn letters of credit in an amount up to $20,000 and (ii) anylowering our annual cash collateralized letters of credit) is utilized at such date. As of December 31, 2020, our consolidated coverage ratio was 7.82 to 1.00 and our consolidated leverage ratio was 4.32 to 1.00. As of the date of this form 10-K, we are in compliance with the covenants in the credit facilities.interest costs.
The credit facilities provide that, upon the occurrence of certain events of default, our obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness (including the secured notes due 2026), voluntary and involuntary bankruptcy proceedings, material money judgments, loss of perfection over a material portion of collateral, material ERISA/pension plan events, certain change of control events and other customary events of default, in each case subject to threshold, notice and grace period provisions.
Commitments and Contingencies
In addition to the scheduled future debt repayments that we will need to make, we also have commitments and plans related to our mandatory convertible preferred shares (“MCPS”), share repurchase program, and capital expenditures.
Our contingent liabilities consist primarilyMCPS will convert to ordinary shares on June 1, 2024 and we will accrue approximately $35 of lettersdividends in 2024 prior to conversion. For additional information related to our MCPS, see Note 10 - Shareholders' Equity included in Part II, Item 8 of creditthis annual report.
CLARIVATE PLC
Management’s Discussion and performance bondsAnalysis of Financial Condition and other similar obligations in the ordinary courseResults of business.Operations
(In millions, except option prices, ratios or as noted)
As of December 31, 2020, the Company maintains a contingent stock liability based on observable market data relating to the CPA Global acquisition that occurred on October 1, 2020.2023, we had approximately $400.0 of availability remaining under our share repurchase program. The amountshare repurchase authorization is payable 110 days after the acquisition date and is contingent upon any indemnity losses or claims for indemnity losses as defined in the purchase agreement. As ofvalid through December 31, 2020, the contingent stock liability was $44,565 recorded in Accrued expenses and other current liabilities on the Consolidated Balance Sheet and recognized a gain of $1,9202024. For additional information related to the changesour share repurchase program, see Note 10 - Shareholders' Equity included in the contingent stock liability for the year ended December 31, 2020 recorded within Selling, general and administrative costs on the Consolidated Statement of Operations.
As of December 31, 2020, the Company maintains a contingent stock liability based on observable market data relating to the DRG acquisition that occurred on February 28, 2020. The amount is payable on the one year anniversary of the acquisition date and is contingent upon any indemnity losses or claims for indemnity losses as defined in the purchase agreement. As of December 31, 2020, the contingent stock liability was $86,029 recorded in Accrued expenses and other current liabilities on the Consolidated Balance Sheet. and recognized an expense of $27,132 related to the changes in the contingent stock liability for the year ended December 31, 2020 recorded within Selling, general and administrative costs on the Consolidated Statement of Operations.
Additionally, the Company has agreed to pay the former shareholders of acquired companies certain amounts in conjunction with the Publons, TradeMarkVision and Kopernio acquisitions. Regarding the Publons acquisition, the Company agreed to pay the former shareholders up to an additional $9,500 through 2020, of which $3,701 and $2,371 was paid in the year ended December 31, 2020 and 2019, respectively. The Company had an outstanding liability for Publons of $0 and $3,100 as of December 31, 2020 and 2019, respectively, related to the estimated fair valuePart II, Item 8 of this contingent consideration included in Accrued expenses and Other current liabilities in the Consolidated Balance Sheets.
Regarding the TradeMarkVision acquisition, the Company agreed to pay former shareholders earn-out payments through 2020. The Company paid $8,000 of the contingent purchase price in the year ended December 31, 2020, as a result of TradeMarkVision achieving milestones and performance metrics. The Company had an outstanding liability for TradeMarkVision of $0 and $8,000 as of December 31, 2020 and 2019, respectively, related to the estimated fair value of this contingent consideration included in Other non-current liabilities in the Consolidated Balance Sheets.
Regarding the Kopernio acquisition, the Company agreed to pay contingent consideration of up to $3,500 through 2021. During the year ended December 31, 2020, the Company paid $2,184 of the contingent consideration as a result of Kopernio achieving milestones and performance metrics. The Company had an outstanding liability for Kopernio of $0 and $992 as of December 31, 2020 and 2019, respectively, related to the estimated fair value of this contingent compensation earn-out included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.
In 2018, we wrote down our $33,819 tax indemnity asset, based on a dispute with the indemnity which was later resolved by a confidential legal settlement.
Off Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements.
Contractual Obligations
We have various contractual obligations and commercial commitments that are recorded as liabilities in our financial statements. Other items, such as purchase obligations and other executory contracts, are not recognized as liabilities in our consolidated financial statements, but are requiredestimate capital expenditures to be disclosed.
In the table below, we set forth our significant enforceable and legally binding obligations and future commitmentsasapproximately $265 during 2024. We also expect to incur approximately $190 of December 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments Due by Period | | |
| Less than 1 Year | | 1 to 3 Years | | 3 to 5 Years | | More than 5 Years | | Total |
| (in thousands) | | | | | | | | | |
Long-term debt, including interest (1) | 181,017 | | | 326,926 | | | 324,254 | | | 3,526,841 | | | 4,359,038 | |
Operating leases (2) | 35,963 | | | 57,768 | | 37,024 | | 29,142 | | | 159,897 | |
Purchase obligations (3) | 58,061 | | | 62,162 | | | 38,460 | | | — | | | 158,683 | |
Total (4) | $ | 275,041 | | | $ | 446,856 | | | $ | 399,738 | | | $ | 3,555,983 | | | $ | 4,677,618 | |
| | | | | | | | | |
| | | | | | | | | |
(1)This amount also includes interest, which, for the floating rate portion of our debt has been calculated based on the applicable base rates (i.e., LIBOR) in effect as of December 31, 2020.
(2)Our operating lease obligations include future minimum lease payments under all our non-cancellable operating leases with an initial term in excess of one year.
(3)Includes purchase obligations, primarily for cloud computing services and software licenses, pursuant to agreements to purchase goods and services that are enforceable, legally binding, and specify significant terms, including fixed or minimum quantities to be purchased, fixed minimum or variable pricing provisions, and the approximate timing of the transactions. Purchase orders madelicense costs in the ordinary course of business are excluded from the above table.2024. Any amounts for which we are currently liable are reflected in our Consolidated Balance Sheets as Accounts payable or Accrued expenses and other current liabilities.
(4)Certain other liabilities related to unfunded pension obligationsThe Company is engaged in various legal proceedings and the CPA Global Equity Plan liabilities are excluded from the above table as we are unable to estimate the timing of payments for these items.
Critical Accounting Policies, Estimates and Assumptions
The preparation of the consolidated financial statements in accordance with GAAP requires management to make judgments, estimates and assumptionsclaims that affect the amounts reportedhave arisen in the consolidated financial statements. On an ongoing basis, we evaluate estimates, which are based on historical experience and on various other assumptions thatordinary course of business. We have taken what we believe to be reasonable underadequate reserves related to the circumstances.litigation and threatened claims. We consider the following accountingmaintain appropriate insurance policies in place, which are likely to be criticalprovide some coverage for these liabilities or other losses that may arise from litigation matters. For additional information about our legal proceedings and claims, see Note 17 - Commitments and Contingencies included in Part II, Item 8 of this annual report.
We require and will continue to understandingneed significant cash resources to, among other things, meet our financial statements because the application of these policies requires significant judgment on the part of management, which could have a material impactdebt service requirements, fund our working capital requirements, make capital expenditures (including product development), and expand our business through acquisitions. Based on our financial statements if actual performance should differforecasts, we believe that cash flow from historical experience or if our assumptions wereoperations, available cash on hand and borrowing capacity, and access to change. The following accounting policies include estimates that require management’s subjective or complex judgments aboutcapital markets will be adequate to service debt, meet liquidity needs, and fund capital expenditures and other business plans for both the effects of matters that are inherently uncertain. For informationnext 12 months and the foreseeable future. Our future capital requirements will depend on our significant accounting policies,many factors, including the policies discussed below, see Item 8. Financial Statementsnumber of future acquisitions and Supplementary Data - Notesthe timing and extent of spending to the Consolidated Financial Statements - Note 3 - Summary of Significant Accounting Policies.
Revenue Recognition
support product development efforts. We derive revenues from contracts with customers by selling information on a subscription and single transaction basis as well as performing professional services. Our subscription contract agreements contain standard terms and conditions, and most contracts include a one-year subscription, although we may provide a multi-year subscription in certain instances. In some cases, contracts provide for variable consideration that is contingent upon the occurrence of uncertain future events, such as retroactive discounts providedcould be required, or could elect, to the customers, indexedseek additional funding through public or volume based discounts, and revenues between contract expiration and renewal. We estimate the amount of the variable consideration at the expected valueprivate equity or at the most likely amount depending on the type of consideration. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenues recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimate of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.
Most of our revenues are derived from subscription contract arrangements, which may contain multiple performance obligations. For these arrangements, the transaction price is allocated to the identified performance obligations based on their relative standalone selling prices. We utilize standard price lists, together with consideration of market conditions, customer demographics, and geographic location, to determine the standalone selling price for most of our products and services,debt financings; however, certain products may not have a standalone selling price that is directly observable, which requires judgment.
See Item 8. Financial Statements and Supplementary Data - Notes to the Consolidated Financial Statements - Note 3 - Summary of Significant Accounting Policies for further discussion.
Business Combinations
In a business combination, substantially all identifiable assets, liabilities and contingent liabilities acquired are accounted for using the acquisition method at the acquisition date and are recorded at their respective fair values. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities. The determination of the fair values is based on estimates and judgments made by management. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. The fair value of the customer relationships acquired was estimated by management through a discounted cash flow model using the multi-period excess earnings method, which involved the use of significant estimates and assumptions related to revenue growth rates, operating margins, discount rates, and customer attrition rates, among other items. The fair value of the technology and trade names acquired was estimated by management through a discounted cash flow model using the relief from royalty method, which involved the use of significant estimates and assumptions related to revenue growth rates, and discount rates. Measurement period adjustments are reflected at the time identified, up through the conclusion of the measurement period, which is the time at which all information for determination of the values of assets acquired and liabilities assumed is received, and is not to exceed one year from the acquisition date.
Goodwill is measured at the acquisition date as the fair value of the consideration transferred (including, if applicable, the fair value of any previously held equity interest and any non-controlling interests) less the net recognized amount (which is generally the fair value) of the identifiable assets acquired and liabilities assumed.
When a business combination involves contingent consideration, we record a liability for the estimated cost of such contingencies when expenditures are probable and reasonably estimable. A significant amount of judgment is required to estimate and quantify the potential liability in these matters. We engage outside experts as deemed necessary or appropriate to assist in the calculation of the liability; however, management is responsible for evaluating the estimate. We reassess the estimated fair value of the contingent consideration each financial reporting period over the term of the arrangement. Any resulting changes identified subsequent to the measurement period are recognized in earnings and could have a material effect on our results of operations.
Other Identifiable Intangible Assets, net
Other identifiable intangible assets are recorded at fair value upon acquisition and are subsequently carried at cost less accumulated amortization or accumulated impairment for indefinite-lived intangible assets. Where applicable, other identifiable intangible assets are amortized over their estimated useful lives as follows: the carrying values of other identifiable intangible assets are reviewed for impairment whenever circumstances indicate that their carrying amountsadditional funds may not be recoverable. The carrying values of indefinite-lived intangible assets are reviewed for impairment annually, or more frequently when circumstances indicate that impairment may have occurred. The test for impairment compares the carrying amountsavailable on terms acceptable to the fair value based on current revenues projections of the related operations, under the relief from royalty method. Any excess of the carrying value over the amount of fair value is recognized as an impairment. Any such impairment would be recognized in full in the reporting period in which it has been identified and could have a material adverse effect on our financial condition or results of operations.
Goodwill
We test goodwill annually for impairment in the fourth quarter, or more frequently when circumstances indicate that impairment may have occurred. Goodwill represents the purchase price in excess of the fair value of the net assets acquired in a business combination. If the carrying value of a reporting unit exceeds the implied fair value of that reporting unit, an impairment charge to goodwill is recognized for the excess. Our reporting units are one level below the operating segment, as determined in accordance with ASC 350, Intangibles — Goodwill and Other. We identified six and five reporting units for the years ended December 31, 2020 and 2019, respectively.
We completed our most recent annual goodwill impairment testing during the fourth quarter of 2020. As a part of our assessment of each reporting unit’s estimated fair value and likelihood of impairment, we include both a quantitative and qualitative evaluation. In the testing, we assess various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made that, based on the qualitative factors, an impairment does not exist, then we are not required to perform further testing. If the aforementioned qualitative assessment results in concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be determined and compared to its carrying value including goodwill. We estimate the fair value of our reporting units using the income approach. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated cash flows. Cash flow projections are based on our estimates of revenues growth rates and operating margins. The discount rate is based on the weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and projected cash flows.
Based on the results of the annual impairment test as of October 1, 2020, the fair values of our reporting units exceeded the individual reporting unit’s carrying value, and goodwill was not impaired.
Share-Based Compensation
Share-based compensation expense includes cost associated with stock options, restricted stock units (“RSUs”) and Performance stock units ("PSUs") granted to certain members of key management. In addition, share-based compensation expense includes the CPA Global Equity Plan.
The stock option fair value is estimated at the date of grant using the Black-Scholes option pricing model, which requires management to make certain assumptions of future expectations based on historical and current data. The assumptionsus.
include the expected term of the stock option, expected volatility, dividend yield, and risk-free interest rate. The expected term represents the amount of time that options granted are expected to be outstanding, based on forecasted exercise behavior. The risk-free rate is based on the rate at grant date of zero-coupon U.S. Treasury Notes with a term comparable to the expected term of the option. Expected volatility is estimated based on the historical volatility of comparable public entities’ stock price from the same industry. Our dividend yield is based on forecasted expected payments, which are expected to be zero for the immediate future. We recognize compensation expense over the vesting period of the award on a graded-scale basis, and we recognize forfeitures as they occur.
The stock-based compensation cost of time-based RSU and PSU grants is calculated by multiplying the grant date fair market value by the number of shares granted. We recognize compensation expense over the vesting period of the award on a graded-scale basis, and we recognize forfeitures as they occur.
Given the settlement in cash, the equity plan of the acquired CPA Global business is accounted for as a liability with the related changes in fair value recorded through mark-to-market adjustments.
Warrant Liabilities
The Company accounts for Private Placement Warrants for shares of the Company's ordinary stock that are not indexed to its own stock as liabilities at fair value on the balance sheet. The Private Placement Warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of Mark to market adjustment on financial instruments on the Consolidated Statements of Operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the ordinary stock warrants. At that time, the portion of the warrant liabilities related to the ordinary stock warrants will be reclassified to additional paid-in capital.
Recently Issued and Adopted Accounting Pronouncements
For recently issued and adopted accounting pronouncements, see Item 8. Financial Statements and Supplementary Data - Notes to the Consolidated Financial Statements - Note 3 - Summary of Significant Accounting Policies.
Item 7A. Quantitative and Qualitative Disclosures About Market RiskRisk.
Market risk is the risk that changes in market prices, such as foreign currency exchange rates and interest rates, will affect our cash flows or the fair value of our holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency exchange risk related to our transactions and our subsidiaries’ balances that are denominated in currencies other than the U.S. dollar, our functional currency. See Item 7. Management’s DiscussionThese currencies may continue to fluctuate, in either direction, especially as a result of central bank responses to inflation, concerns regarding future economic growth and Analysis of Financial Conditionother macroeconomic factors, and Results of Operations - Factors Affecting the Comparability of Our Results of Operations-Effect of Currency Fluctuations for more information about our foreign currency exchange rate exposure. In accordance with our treasury policy, we seek to naturally hedge our foreign exchange transaction exposure by matching the transaction currencies for our cash inflows and outflows. For example, where commercially feasible, we seek to borrow in the same currencies in which cash flows from operations are generated.such fluctuations will affect financial statement line item comparability.
The CompanyWe periodically entersenter into foreign currency contracts. The purpose of these derivative instruments is to help manage the Company’sour exposure to foreign exchange rate risks within the acquired CPA Global business. These contracts generally do not exceed 180 days in duration. The Company accountsWe account for these foreign currency contracts at fair value and recognizesrecognize the associated realized and unrealized gains and losses in Other operating income,expense (income), net in the Consolidated Statements of Operations, as the contracts are not designated as accounting hedges under the applicable sections of ASC Topic 815.
Revenues denominated in currencies other than U.S. dollars amounted to $325,700,$767.7, or approximately 26.0%29.2%, of our total revenues for the year ended December 31, 2020.2023. A significant majority of this amount was denominated in euros,Euros and British pounds and Japanese yen.pounds. A 5% increase or decrease in the value of the euro,Euro and British pound and Japanese yen relative to the U.S. dollar would have caused our revenues for the year ended December 31, 20202023, to increase or decrease by $14,825.
Interest Rate Risk
Our interest rate risk arises primarily from our borrowings at floating interest rates. Borrowings under our credit facilities are subject to floating base interest rates, plus a SOFR adjustment and a margin. As of December 31, 2020,2023, we had $2,847,400 $2,197.4 of floating rate debt outstanding under our credit facilities, consistingTerm Loan Facility. For our Term Loan Facility, the interest rate is one-month Term SOFR plus a SOFR adjustment of borrowings under the revolving and term loan facilities for which the base rate was one-month LIBOR0.11% (subject with respect to the term loan facility only, to a floor of 0.00% for $1,247,400$962.6 and 1.00% for $1,600,000)$1,234.8), which stoodor Prime plus a margin of 2.25% per annum, as applicable depending on the borrowing. For borrowings under the revolving credit facility, the base interest rate is at 0.14% at December 31, 2020.Term SOFR, plus a 0.1% SOFR adjustment, plus 3.25% per annum (or 2.75% per annum, based on first lien leverage ratios) or Prime plus a margin of 2.25% per annum, as applicable depending on the borrowing. The interest rate margins under our credit facilities will decrease upon the achievement of certain first lien net leverage ratios (as the term is used in the Credit Agreement). Of this amount,the total debt outstanding under our credit facilities, we hedged $337,066$1,112.4 of our principal amount of our floating rate debt under hedges using interest rate derivatives.swaps. As a result, $2,510,334$1,085.0 of our outstanding borrowings effectively bore interest at floating rates. A 1000.125 basis point increase or decrease in the applicable base interest rate under our credit facilities would have an annual impact of $1,264$1.8 on our cash interest expense forduring the year ended December 31, 2020. For additional information on our outstanding debt and related hedging, see Item 8. Financial Statements and Supplementary Data - Notes to the Consolidated Financial Statements - Note 10 - Derivative Instruments and Note 14 - Debt.
In April 2017, the Company entered into interest rate derivative arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $300,000 of its term loan, effective April 30, 2021. Additionally, in May 2019, the Company entered into additional interest rate derivative arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $50,000 of its term loan, effective March 2021 and maturing in September 2023. The Company applies hedge accounting by designating the interest rate swaps as a hedge in applicable future quarterly interest payments.
It is not clear what impact, if any, the United Kingdom’s withdrawal from the European Union will have on the interest rate on our indebtedness and related derivative instruments. The United Kingdom withdrew from the European Union on January 31, 2020. Under the terms of the withdrawal agreement between the United Kingdom and the European Union, a transition period was in effect until December 31, 2020. During the transition period, the United Kingdom was treated in all material respects as though it was a member of the European Union, with most EU laws applying to and in the United Kingdom. In addition, the United Kingdom remained in the European Union single market and customs union and free movement of people continued until the end of the transition period. On December 24, 2020, the United Kingdom and the European Union reached an agreement on the terms of their future cooperation. There remains significant uncertainty on the implementation of this agreement.
In addition, in July 2017 the UK Financial Conduct Authority announced its intention to phase out LIBOR rates by the end of 2021. It is not possible to predict the effect of any changes in the methods by which LIBOR is determined, or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere. Such developments may cause LIBOR to perform differently than in the past, including sudden or prolonged increases or decreases in LIBOR, or cease to exist, resulting in the application of a successor base rate under our credit facilities, which in turn could have unpredictable effects on our interest payment obligations under our credit facilities.
Credit Risk
We are not currently exposed to market instruments, except for the effective interest rate hedges discussed above. We are, however, exposed to credit risk on our accounts receivable, and we maintain an allowance for potential credit losses. As of December 31, 2020, no single customer accounted for more than 1% of our consolidated revenues. Further, given our subscription-based revenues model, where a significant portion of customer obligations are payable to us upfront, and our credit control procedures, we believe that our exposure to customer credit risk is currently limited.
Item 8. Financial Statements and Supplementary DataData.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Clarivate Plc
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Clarivate Plc and its subsidiaries (the “Company”) as of December 31, 20202023 and 2019,2022, and the related consolidated statements of operations, of comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2020,2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20202023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weaknessesweakness in internal control over financial reporting existed as of that date as the Company did not design and maintain effective controls related to the lack of effectively designed controls (i) over the evaluation of settlement features used to determine the classification of warrant instruments, (ii) over the communication of modifications to pre-existing compensation agreements in an acquisition transaction between the legal functionpreparation and the accounting function to ensure the accounting impact of the modifications could be evaluated, and (iii) with a sufficient level of precision to allow for an appropriate review of the tax balances associated withfootnote disclosures included in the opening balance sheetCompany’s consolidated financial statements, including controls related to the completeness and accuracy of acquired entities.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknessesweakness referred to above areis described in Management’sManagement's Report on Internal Control Overover Financial Reporting appearing under Item 9A. We considered thesethis material weaknessesweakness in determining the nature, timing, and extent of audit tests applied in our audit of the 20202023 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
Restatement of Previously Issued Financial Statements and Management’s Conclusion Regarding Internal Control over Financial Reporting
As discussed in Note 28 to the consolidated financial statements, the Company has restated its 2020 and 2019 financial statements to correct errors.
Management and we previously concluded that the Company maintained effective internal control over financial reporting as of December 31, 2020. However, (i) management subsequently determined that a material weakness in internal control over financial reporting related to the lack of an effectively designed control over the evaluation of settlement features used to determine the classification of warrant instruments existed as of that date, and management and we concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2020 because
of the material weakness, and (ii) management thereafter determined material weaknesses in internal control over financial reporting related to a lack of effectively designed controls (a) over the communication of modifications to pre-existing compensation agreements acquired in an acquisition transaction between the legal function and the accounting function to ensure the accounting impact of the modifications could be evaluated, and (b) with a sufficient level of precision to allow for an appropriate review of the tax balances associated with the opening balance sheet of acquired entities also existed as of that date; accordingly, management’s report and our opinion on the effectiveness of internal control over financial reporting have been restated to include the additional material weaknesses.
See also the “Accounting for and Valuation of Private Placement Warrants” critical audit matter.
Changes in Accounting Principles
As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses in 2020 and the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management’smanagement's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded four entities (Decision Resources Group (“DRG”), CPA Global, Beijing IncoPat Technology Co., Ltd. (“IncoPat”), and Hanlim IPS. Co., Ltd. (“Hanlim”)) from its assessment of internal control over financial reporting as of December 31, 2020 because they were acquired by the Company in purchase business combinations during 2020. We have also excluded these four entities from our audit of internal control over financial reporting. DRG, CPA Global, IncoPat, and Hanlim are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 1%, 5%, 0%, and 0% of total assets, respectively and approximately 15%, 13%, 0%, and 0% of total revenues, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2020.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that (i) relaterelates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Acquired Customer Relationship Intangible Assets – Decision Resources GroupGoodwill Impairment Assessments for the Intellectual Property and CPA Global
As described in Note 4Notes 1 and 6 to the consolidated financial statements, the Company acquired 100%Company’s consolidated goodwill balance was $2,023.7 million as of December 31, 2023 and the goodwill associated with the Intellectual Property and the Life Sciences and Healthcare reporting units was $0 and $913.9 million, respectively. Goodwill is not amortized, but instead is tested for impairment annually as of the assets, liabilities and equity interests of Decision Resources Group (DRG) and CPA Global in 2020. The aggregate consideration paid in connection with the closingfirst day of the DRG acquisition was $965.0 million, which resultedfourth quarter, or more frequently if events or changes in $381.0 million of customer relationship intangible assets being recorded. The aggregate consideration in connection withcircumstances indicate that the closing ofasset might be impaired. Goodwill impairment testing is performed at the CPA Global acquisition was $8,643.6 million which resulted in $4,643.3 million of customer relationship intangible assets being recorded. As disclosed by management,reporting unit level. Management estimates the fair value of the customer relationship intangible assets acquired was estimated by management througha reporting unit using a discounted cash flow model usingbased on the multi-period excess earnings method, which involved the usepresent value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. As disclosed by management, significant judgments and estimates and assumptions related tomade in this analysis include projected revenue growth rates operatingand EBITDA margins, tax rates, terminal values and discount rates,rates. Based on the annual quantitative analysis, management determined the carrying value of the Intellectual Property and customer attrition rates, among other items.
The principal considerations for our determination that performing procedures relating to the customer relationship intangible assets acquired ingoodwill impairment assessments for the DRGIntellectual Property and CPA Global acquisitionsLife Sciences and Healthcare reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the reporting units; (ii) a high degree of auditor judgment, subjectivity, and subjectivityeffort in performing procedures relating to the estimated fair value of the customer relationships due to the significant judgment by management in determining these estimates; (ii) the significant audit effort inand evaluating themanagement’s significant assumptions related to projected revenue growth rates, operatingEBITDA margins, discount rates,terminal growth rate and customer attritiondiscount rates; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of the customer relationship intangible assets, including controls over the determination of significant assumptions related to revenue growth rates, operating margins, discount rates, and customer attrition rates. These procedures also included, among others (i) reading the purchase agreement; (ii) testing management’s process for estimating the fair value of the customer relationship intangible assets for DRG and CPA Global; (iii) evaluating the appropriateness of the discounted cash flow model; (iv) testing the completeness and accuracy of the underlying data used in the model; and (v) evaluating the reasonableness of management’s significant assumptions related to revenue growth rates, operating margins, discount rates, and customer attrition rates. Evaluating management’s significant assumptions involved evaluating whether the assumptions used were reasonable considering the consistency of the assumptions with external market and industry data and whether these assumptions were consistent with evidence obtained in other areas of the audit. Evaluating management’s assumptions related to revenue growth rates, operating margins, and customer attrition rates also involved evaluating whether the assumptions used were reasonable considering the current and past performance of the acquired entity. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the discounted cash flow model and evaluating the reasonableness of the significant assumptions related to the customer attrition rates and discount rates.
Goodwill Impairment Assessment for Certain Reporting Units
As described in Notes 3 and 9 to the consolidated financial statements, the Company’s consolidated goodwill balance was $6,043 million as of December 31, 2020. Management evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment or one level below an operating segment, annually as of October 1 or more frequently if impairment indicators arise. In determining the fair value of a reporting unit, management estimates the fair value of a reporting unit using a discounted cash flow model using the income approach. The discounted cash flow model determines the fair value of a reporting unit based on the projected future discounted cash flows, which include significant assumptions related to revenue growth rates, operating margins, anticipated future economic conditions, and the appropriate discount rates relative to risk and estimates of residual values.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for certain reporting units is a critical audit matter are (i) the high degree of auditor judgment and subjectivity in performing procedures relating to the estimated fair value of certain reporting units due to the significant judgment by management in determining these estimates; (ii) the significant audit effort in evaluating the significant assumptions related to revenue growth rates, operating margins, anticipated future economic conditions, discount rates, and estimates of residual values; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment,assessments, including controls over the determinationvaluation of the Intellectual Property and Life Sciences and Healthcare reporting units, determination of the estimated fair value of certain reporting units, and the development of the significant assumptions used to estimate fair value.units. These procedures also included, among others (i) evaluating whether there were any impairment indicators; (ii) testing management’s process for determiningdeveloping the fair value estimates of certainthe reporting units; (iii)(ii) evaluating the appropriateness of the discounted cash flow model; (iv)model used by management; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow model; and (v)(iv) evaluating the reasonableness of the significant assumptions used by management related to projected revenue growth rates, EBITDA margins, terminal growth rate and discount rates. Evaluating management’s significant assumptions related to projected revenue growth rates operatingand EBITDA margins anticipated future economic conditions, discount rates, and estimates of residual values. Evaluating management’s significant assumptions involved evaluating whether the assumptions used by management were reasonable considering (i) the consistencycurrent and past performance of the assumptionsIntellectual Property and Life Sciences and Healthcare reporting units; (ii) the consistency with external market and industry datadata; and (iii) whether the assumptions
were consistent with evidence obtained in other areas of the audit. Evaluating management’s assumptions related to revenue growth rates and operating margins also involved evaluating whether the assumptions used were reasonable considering the past performance of the Company. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow model and evaluating(ii) the reasonableness of the significant assumptions related to theterminal growth rate and discount rates and estimates of residual values.
Accounting for and Valuation of Private Placement Warrants
As described in Notes 3 and 11 to the consolidated financial statements, the Company accounts for Private Placement Warrants for shares of the Company’s ordinary stock that are not indexed to its own stock as liabilities at fair value on the consolidated balance sheet. The Private Placement Warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized on the consolidated statement of operations. Management determined the fair value of each Private Placement Warrant issued using a Black Scholes option valuation model. The assumptions in the Black Scholes option valuation model include, but are not limited to (i) risk-free interest rate; (ii) expected volatility of the Company’s and the peer group’s stock prices; (iii) dividend yield; and (iv) discount for lack of marketability for post vesting lock up restrictions. As of December 31, 2020, the fair value of the warrant liability was $312.8 million and the mark to market adjustment on financial instruments was $205.1 million for the year ended December 31, 2020. See also the “Restatement of Previously Issued Financial Statements and Management’s Conclusion Regarding Internal Control over Financial Reporting” section of our report.
The principal considerations for our determination that performing procedures relating to the accounting for and valuation of Private Placement Warrants is a critical audit matter are (i) the significant judgment by management in determining the accounting for and fair value of the Private Placement Warrants; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the accounting for the Private Placement Warrants and the significant assumptions related to the expected volatility of the Company’s and the peer group’s stock prices and discount for lack of marketability for post vesting lock up restrictions used in the valuation of the Private Placement Warrants; (iii) the audit effort involved the use of professionals with specialized skill and knowledge; and (iv) as described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, a material weakness was identified related to this matter.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the development of significant assumptions used to estimate the fair value. These procedures also included, among others, reading the agreements, evaluating the accounting for the Private Placement Warrants, and testing management’s process for determining the fair value as of December 31, 2020. Testing management’s process included (i) evaluating the appropriateness of the Black Scholes option valuation model used by management to determine the fair value of the Private Placement Warrants; (ii) testing the mathematical accuracy of management’s Black Scholes option valuation model; (iii) evaluating the reasonableness of management’s significant assumptions related to the expected volatility of the Company’s and the peer group’s stock prices and discount for lack of marketability for post vesting lock up restrictions; and (iv) testing the completeness and accuracy of data provided by management. Professionals with specialized skill and knowledge were used to assist in evaluating management’s accounting for the Private Placement Warrants, evaluating the appropriateness of the Black Scholes option valuation model used by management to determine the fair value of the Private Placement Warrants, testing the mathematical accuracy of the Black Scholes option valuation model, and evaluating whether the significant assumptions related to the expected volatility of the Company’s and the peer group’s stock prices and discount for lack of marketability for post vesting lock up restrictions used by management were reasonable considering consistency with external market data.assumptions.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 26, 2021, (i) except for the effects of the restatement related to Amendment No. 1 discussed in Note 28 to the consolidated financial statements, the matter discussed in the third to last paragraph of Management’s Report on Internal Control Over Financial Reporting related to warrant instruments, and the critical audit matter related to the accounting for and valuation of private placement warrants, as to which the date is May 10, 2021, and (ii) except for the effects of the restatement related to Amendment No. 2 discussed in Note 28 to the consolidated financial statements and the matters discussed in the third to last paragraph of Management’s Report on Internal Control Over Financial Reporting related to communication of modifications to pre-existing compensation agreements in an acquisition transaction and appropriate review of the tax balances associated with the opening balance sheet of acquired entities, as to which the date is February 3, 2022.27, 2024
We have served as the Company’s auditor since 2016.
CLARIVATE PLC
Consolidated Balance SheetsBusiness Combinations
(In thousands, except share data)
We apply the acquisition method of accounting to our business combinations. Substantially all of the assets acquired, liabilities assumed, and contingent consideration are allocated based on their estimated fair values, which requires significant management judgment. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. We estimate the fair value of customer relationships intangible assets through a discounted cash flow (“DCF”) model using the multi-period excess earnings method, which involves the use of significant estimates and assumptions related to projected revenue growth rates, EBITDA margins, projected cash flows, royalty rates, tax rates, discount rates, tax amortization benefits, and customer attrition rates, among other items. We estimate the fair value of technology, databases, and trade name intangible assets through a DCF model using the relief-from-royalty method, which involves the use of significant estimates and assumptions related to projected revenue growth rates, royalty rates, tax rates, discount rates, tax amortization benefits, and obsolescence rates. Significant estimates and assumptions used in determining the fair value of intangible assets may change during the finalization of the purchase price allocation as additional information about assets at the date of acquisition becomes available; as a result, we may make adjustments to the initial provisional amounts recorded for intangible assets acquired in the year following acquisition. | | | | | | | | | | | |
| As of December 31, |
| As Restated |
| 2020 |
| 2019 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 257,730 | | | $ | 76,130 | |
| Restricted cash | 14,678 | | | 9 | |
| Accounts receivable, net of allowance of $8,745 and $16,511 at December 31, 2020 and December 31, 2019, respectively | 737,733 | | | 333,858 | |
| Prepaid expenses | 58,273 | | | 40,710 | |
| Other current assets | 79,150 | | | 11,750 | |
| Assets held for sale | — | | | 30,619 | |
| Total current assets | 1,147,564 | | | 493,076 | |
| Property and equipment, net | 36,267 | | | 18,042 | |
| Other intangible assets, net | 7,370,350 | | | 1,828,640 | |
| Goodwill | 6,042,964 | | | 1,328,045 | |
| Other non-current assets | 31,334 | | | 18,632 | |
| Deferred income taxes | 29,863 | | | 19,488 | |
| Operating lease right-of-use assets | 132,356 | | | 85,448 | |
| Total Assets | $ | 14,790,698 | | | $ | 3,791,371 | |
| | | |
| Liabilities and Shareholders’ Equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 82,038 | | | $ | 26,458 | |
| Accrued expenses and other current liabilities | 569,682 | | | 159,217 | |
| Current portion of deferred revenues | 707,318 | | | 407,325 | |
| Current portion of operating lease liability | 35,455 | | | 22,130 | |
| Current portion of long-term debt | 28,600 | | | 9,000 | |
| Liabilities held for sale | — | |
| 26,868 | |
| Total current liabilities | 1,423,093 | | | 650,998 | |
| Long-term debt | 3,457,900 | | | 1,628,611 | |
| Warrant liabilities | 312,751 | | | 111,813 | |
| Non-current portion of deferred revenues | 41,399 | | | 19,723 | |
| Other non-current liabilities | 49,445 | | | 18,891 | |
| Deferred income taxes | 366,996 | | | 48,547 | |
| Operating lease liabilities | 104,324 | | | 64,189 | |
| Total liabilities | 5,755,908 | | | 2,542,772 | |
| Commitments and contingencies | 0 | | 0 |
| Shareholders’ equity: | | | |
| Ordinary Shares, no par value; unlimited shares authorized at December 31, 2020 and December 31, 2019; 606,329,598 and 306,874,115 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively | 9,989,284 | | | 2,144,372 | |
| Treasury Shares, at cost; 6,325,860 and 0 shares at December 31, 2020 and December 31, 2019, respectively | (196,038) | | | — | |
| Accumulated other comprehensive income (loss) | 492,382 | | | (4,879) | |
| Accumulated deficit | (1,250,838) | | | (890,894) | |
| Total shareholders’ equity | 9,034,790 | | | 1,248,599 | |
| Total Liabilities and Shareholders’ Equity | $ | 14,790,698 | | | $ | 3,791,371 | |
The accompanying NotesWhen a business combination involves contingent consideration, we record a liability for the estimated cost of such contingencies when expenditures are an integral partprobable and reasonably estimable. A significant amount of judgment is required to estimate and quantify the potential liability in these Consolidated Financial Statements.matters. We engage outside experts as deemed necessary or appropriate to assist in the calculation of the liability; however, management is responsible for evaluating the estimate. We reassess the estimated fair value of the contingent consideration at the end of each quarter and record any changes in value as necessary.
CLARIVATE PLC
Consolidated StatementsManagement’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands,millions, except share and per share data)
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| As Restated | | |
| 2020 | | 2019 | | 2018 |
| Revenues, net | $ | 1,254,047 | | | $ | 974,345 | | | $ | 968,468 | |
| Operating expenses: | | | | | |
| Cost of revenues | (438,787) | | | (352,000) | | | (430,326) | |
| Selling, general and administrative costs | (544,700) | | | (475,014) | | | (413,004) | |
| Depreciation | (12,709) | | | (9,181) | | | (9,422) | |
| Amortization | (290,441) | | | (191,361) | | | (227,803) | |
| Impairment on assets held for sale | — | | | (18,431) | | | — | |
| Restructuring and impairment | (56,138) | | | (15,670) | | | — | |
| Other operating income, net | 52,381 | | | 4,826 | | | 6,379 | |
| Total operating expenses | (1,290,394) | | | (1,056,831) | | | (1,074,176) | |
| Income (loss) from operations | (36,347) | | | (82,486) | | | (105,708) | |
| Mark to market adjustment on financial instruments | (205,062) | | | (47,656) | | | — | |
| Legal settlement | — | | | 39,399 | | | — | |
| Loss before interest expense and income tax | (241,409) | | | (90,743) | | | (105,708) | |
| Interest expense and amortization of debt discount, net | (111,914) | | | (157,689) | | | (130,805) | |
| Loss before income tax | (353,323) | | | (248,432) | | | (236,513) | |
| Benefit (provision) for income taxes | 2,698 | | | (10,201) | | | (5,649) | |
| Net loss | $ | (350,625) | | | $ | (258,633) | | | $ | (242,162) | |
| | | | | |
| Per share: | | | | | |
| Basic and diluted | $ | (0.82) | | | $ | (0.94) | | | $ | (1.11) | |
| | | | | |
| | | | | |
| Weighted average shares used to compute earnings per share: | | | | | |
| Basic and diluted | 427,023,558 | | | 273,883,342 | | | 217,472,870 | |
| | | | | |
The accompanying Notes are an integral part of these Consolidated Financial Statements.
CLARIVATE PLC
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
| | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | |
| As Restated | | | | |
| 2020 | | 2019 | | 2018 | | |
| Net loss | $ | (350,625) | | | $ | (258,633) | | | $ | (242,162) | | | |
| Other comprehensive income, net of tax: | | | | | | | |
| Interest rate swaps, net of $0 tax in all periods | (978) | | | (6,422) | | | 2,537 | | | |
| Defined benefit pension plans, net of tax (benefit) provision of $(65), $683 and $(91), respectively | (659) | | | (1,041) | | | (17) | | | |
| Foreign currency translation adjustment | 498,898 | | | (2,774) | | | (11,146) | | | |
| Total other comprehensive income (loss), net of tax | 497,261 | | | (10,237) | | | (8,626) | | | |
| Comprehensive income (loss) | $ | 146,636 | | | $ | (268,870) | | | $ | (250,788) | | | |
The accompanying Notes are an integral part of these Consolidated Financial Statements.
CLARIVATE PLC
Consolidated Statements of Changes in Equity
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Restated |
| Ordinary Shares | | Treasury Shares | | Accumulated
Other
Comprehensive
Income (Loss) | | Accumulated
Deficit | | Total
Shareholders’
Equity |
| Shares | | Amount | | Shares | | Amount | |
| Balance at December 31, 2017 as originally reported | 1,644,720 | | | $ | 1,662,221 | | | — | | | $ | — | | | $ | 13,984 | | | $ | (390,099) | | | $ | 1,286,106 | |
| Conversion of units of share capital | 215,683,103 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Balance at December 31, 2017, as recasted | 217,327,823 | | | 1,662,221 | | | — | | | — | | | 13,984 | | | (390,099) | | | 1,286,106 | |
| Issuance of ordinary shares, net | 198,602 | | | 1,574 | | | — | | | — | | | — | | | — | | | 1,574 | |
| Share-based award activity | — | | | 13,715 | | | — | | | — | | | — | | | — | | | 13,715 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | (242,162) | | | (242,162) | |
| Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (8,626) | | | — | | | (8,626) | |
| Balance at December 31, 2018 | 217,526,425 | | | $ | 1,677,510 | | | — | | | $ | — | | | $ | 5,358 | | | $ | (632,261) | | | $ | 1,050,607 | |
| | | | | | | | | | | | | |
| Balance at December 31, 2018, as originally reported | 1,646,223 | | | $ | 1,677,510 | | | — | | | $ | — | | | $ | 5,358 | | | $ | (632,261) | | | $ | 1,050,607 | |
| Conversion of units of share capital | 215,880,202 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Balance at December 31, 2018, as recasted | 217,526,425 | | | 1,677,510 | | | — | | | — | | | 5,358 | | | (632,261) | | | 1,050,607 | |
| Shares subject to redemption (As Restated) | — | | | (64,157) | | | — | | | — | | | — | | | — | | | (64,157) | |
| Tax Receivable Agreement | — | | | (264,000) | | | — | | | — | | | — | | | — | | | (264,000) | |
| Settlement of Tax Receivable Agreement | — | | | 64,000 | | | — | | | — | | | — | | | — | | | 64,000 | |
| Issuance of ordinary shares, net | 1,597,691 | | | 1,582 | | | — | | | — | | | — | | | — | | | 1,582 | |
| Merger recapitalization | 87,749,999 | | | 678,054 | | | — | | | — | | | — | | | — | | | 678,054 | |
| Share-based award activity | — | | | 51,383 | | | — | | | — | | | — | | | — | | | 51,383 | |
| Net loss (As Restated) | — | | | — | | | — | | | — | | | — | | | (258,633) | | | (258,633) | |
| Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (10,237) | | | — | | | (10,237) | |
| Balance at December 31, 2019 (As Restated) | 306,874,115 | | | $ | 2,144,372 | | | — | | | $ | — | | | $ | (4,879) | | | $ | (890,894) | | | $ | 1,248,599 | |
| | | | | | | | | | | | | |
| Balance at December 31, 2019 (As Restated) | 306,874,115 | | | $ | 2,144,372 | | | — | | | $ | — | | | $ | (4,879) | | | $ | (890,894) | | | $ | 1,248,599 | |
| Adjustment to opening Accumulated deficit related to adoption of ASC Topic 326 | — | | | — | | | — | | | — | | | — | | | (9,319) | | | (9,319) | |
| Exercise of public warrants | 28,880,098 | | | 277,526 | | | — | | | — | | | — | | | — | | | 277,526 | |
| Exercise of Private Placement Warrants (As Restated) | 274,000 | | | 4,124 | | | — | | | — | | | — | | | — | | | 4,124 | |
| Exercise of stock options | 12,042,862 | | | 2,122 | | | — | | | — | | | — | | | — | | | 2,122 | |
| Vesting of restricted stock units | 289,641 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Shares returned to the Company for net share settlements | (7,297,396) | | | (33,056) | | | — | | | — | | | — | | | — | | | (33,056) | |
| Issuance of ordinary shares, net | 265,266,278 | | | 7,558,774 | | | — | | | — | | | — | | | — | | | 7,558,774 | |
| Treasury shares (as restated) | — | | | — | | | 6,325,860 | | | (196,038) | | | — | | | — | | | (196,038) | |
| Share-based award activity | — | | | 35,422 | | | — | | | — | | | — | | | — | | | 35,422 | |
| | | | | | | | | | | | | |
| Net loss (As Restated) | — | | | — | | | — | | | — | | | — | | | (350,625) | | | (350,625) | |
| Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 497,261 | | | — | | | 497,261 | |
| Balance at December 31, 2020 (As Restated) | 606,329,598 | | $ | 9,989,284 | | | 6,325,860 | | | $ | (196,038) | | | $ | 492,382 | | | $ | (1,250,838) | | | $ | 9,034,790 | |
The accompanying Notes are an integral part of these Consolidated Financial Statements.
CLARIVATE PLC
Consolidated Statements of Cash Flows
(In thousands)
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| As Restated | | | | |
| 2020 | | 2019 | | 2018 | | |
| Cash Flows From Operating Activities | | | | | | | |
| Net loss | $ | (350,625) | | | $ | (258,633) | | | $ | (242,162) | | | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | |
| Depreciation and amortization | 303,150 | | | 200,542 | | | 237,225 | | | |
| Bad debt expense | 3,332 | | | 1,331 | | | 6,507 | | | |
| Deferred income tax benefit | (45,509) | | | 357 | | | (14,103) | | | |
| Share-based compensation | 34,158 | | | 51,383 | | | 13,715 | | | |
| Restructuring and impairment | 5,212 | | | — | | | — | | | |
| Gain on foreign currency forward contracts | (2,903) | | | — | | | — | | | |
| Mark to market adjustment on contingent and phantom shares | 25,212 | | | — | | | — | | | |
| Mark to market adjustment on financial instruments | 205,062 | | | 47,656 | | | — | | | |
| Loss on extinguishment of debt | — | | | 50,676 | | | — | | | |
| Gain on disposal of business | (29,192) | | | — | | | (39,104) | | | |
| Impairment on assets held for sale | — | | | 18,431 | | | — | | | |
| Deferred finance charges | 5,752 | | | 2,496 | | | 9,182 | | | |
| Tax indemnity write-off | — | | | — | | | 33,819 | | | |
| Other operating activities | 2,611 | | | (374) | | | (3,979) | | | |
| Changes in operating assets and liabilities: | | | | | | | |
| Accounts receivable | 29,947 | | | (593) | | | (50,906) | | | |
| Prepaid expenses | 5,742 | | | (10,224) | | | (2,936) | | | |
| Other assets | 45,678 | | | (975) | | | 578 | | | |
| Accounts payable | (2,851) | | | (13,838) | | | (18,091) | | | |
| Accrued expenses and other current liabilities | (54,794) | | | 1,095 | | | 9,842 | | | |
| Deferred revenues | 80,683 | | | 33,480 | | | 33,539 | | | |
| Operating lease right of use assets | 5,329 | | | 11,365 | | | — | | | |
| Operating lease liabilities | (6,064) | | | (11,251) | | | — | | | |
| Other liabilities | 3,570 | | | (5,344) | | | 774 | | | |
| Net cash provided by operating activities | 263,500 | | | 117,580 | | | (26,100) | | | |
| | | | | | | |
| Cash Flows From Investing Activities | | | | | | | |
| Capital expenditures | (107,713) | | | (69,836) | | | (45,410) | | | |
| Acquisitions, net of cash acquired | (2,916,471) | | | (68,424) | | | (23,539) | | | |
| Acquisition of intangible assets | (5,982) | | | (2,625) | | | — | | | |
| Proceeds from sale of product line, net of restricted cash | 41,398 | | | — | | | 80,883 | | | |
| | | | | | | |
| Net cash used in investing activities | (2,988,768) | | | (140,885) | | | 11,934 | | | |
| | | | | | | |
| Cash Flows From Financing Activities | | | | | | | |
| Proceeds from revolving credit facility | 60,000 | | | 70,000 | | | 45,000 | | | |
| Principal payments on term loan | (12,600) | | | (641,509) | | | (46,709) | | | |
| Repayments of revolving credit facility | (125,000) | | | (50,000) | | | (30,000) | | | |
| Payment of debt issuance costs | (38,340) | | | (41,923) | | | — | | | |
| Contingent purchase price payment | (7,816) | | | (2,371) | | | (2,470) | | | |
| Proceeds from reverse recapitalization | — | | | 682,087 | | | — | | | |
| | | | | | | |
| | | | | | | |
| Proceeds from issuance of debt | 1,960,000 | | | 1,600,000 | | | — | | | |
| Extinguishment of debt | — | | | (1,342,651) | | | — | | | |
| Tax receivable agreement payout | — | | | (200,000) | | | — | | | |
| Proceeds from issuance of ordinary shares | 843,744 | | | — | | | — | | | |
| Proceeds from warrant exercises | 277,526 | | | — | | | — | | | |
| Proceeds from stock options exercised | 2,122 | | | 1,582 | | | 1,574 | | | |
CLARIVATE PLC
Consolidated Statements of Cash Flows
(In thousands)
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| As Restated | | | | |
| 2020 | | 2019 | | 2018 | | |
| Payments related to tax withholding for stock-based compensation | (33,056) | | | — | | | — | | | |
| Net cash provided by (used in) financing activities | 2,926,580 | | | 75,215 | | | (32,605) | | | |
| Effects of exchange rates | (5,043) | | | (971) | | | (5,193) | | | |
| Net increase in cash and cash equivalents, and restricted cash | 196,269 | | | 50,939 | | | (51,964) | | | |
| | | | | | | |
| Beginning of period: | | | | | | | |
| Cash and cash equivalents | 76,130 | | | 25,575 | | | 53,186 | | | |
| Restricted cash | 9 | | | 9 | | | 24,362 | | | |
| Total cash and cash equivalents, and restricted cash, beginning of period | 76,139 | | | 25,584 | | | 77,548 | | | |
| Less: Cash included in assets held for sale, end of period | — | | | (384) | | | — | | | |
| Cash and cash equivalents, and restricted cash, end of period | 272,408 | | | 76,139 | | | 25,584 | | | |
| | | | | | | |
| End of period: | | | | | | | |
| Cash and cash equivalents | 257,730 | | | 76,130 | | | 25,575 | | | |
| Restricted cash | 14,678 | | | 9 | | | 9 | | | |
| Total cash and cash equivalents, and restricted cash, end of period | $ | 272,408 | | | $ | 76,139 | | | $ | 25,584 | | | |
| | | | | | | |
| Supplemental Cash Flow Information | | | | | | | |
| Cash paid for interest | $ | 97,510 | | | $ | 101,164 | | | $ | 121,916 | | | |
| Cash paid for income tax | $ | 27,621 | | | $ | 29,204 | | | $ | 13,210 | | | |
| | | | | | | |
| | | | | | | |
| Capital expenditures included in accounts payable | $ | 7,783 | | | $ | 8,762 | | | $ | 5,166 | | | |
| | | | | | | |
| Assets received as reverse recapitalization capital | $ | — | | | $ | 1,877 | | | $ | — | | | |
| Liabilities assumed as reduction of reverse recapitalization capital | $ | — | | | $ | 5,910 | | | $ | — | | | |
| | | | | | | |
| Non-cash Financing and Investing Activities: | | | | | | | |
| Shares issued and returned for funding of CPA Global Equity Plan | $ | (196,038) | | | $ | — | | | $ | — | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The accompanying Notes are an integral part of these Consolidated Financial Statements.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Goodwill and Indefinite-Lived Intangible Assets
Goodwill
We perform goodwill impairment testing during the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that carrying value may not be recoverable. In assessing whether a potential impairment event has occurred, we evaluate various factors, many of which are subjective and require significant judgment. Examples of such factors include significant negative industry or economic trends, persistent declines in our market value, significant changes in regulatory requirements or the legal environment, and segment changes.
We estimate the fair value of a reporting unit using a DCF model. Our DCF model relies significantly on our internal forecasts of future cash flows and long-term growth rates. Significant judgments and estimates made in this analysis include projected revenue growth rates and EBITDA margins, tax rates, terminal values, and discount rates. Changes in these estimates and assumptions could materially affect the determination of estimated fair value and we could be required to record additional impairment charges.
In 2023, we performed our annual goodwill impairment assessment in the fourth quarter using a quantitative approach. The annual assessment coincided with a change in our reporting units wherein the legacy ProQuest and Web of Science Group reporting units were combined into a single reporting unit, A&G. The goodwill impairment assessment included an analysis of the impacted reporting units immediately before and immediately after the change and concluded there was no impairment in either scenario. Based on the quantitative analysis, we determined that the carrying value of the IP and LS&H segment reporting units exceeded their respective fair values, resulting in a goodwill impairment charge of $844.7. The impairment charge recorded for the IP reporting unit represented a total write-off of the associated goodwill. The impairments were primarily due to worsening macroeconomic and market conditions.
In completing the annual quantitative goodwill impairment assessment, we used weighted average cost of capital (“WACC”) discount rate assumptions of 9.5%, 10%, and 11% for the A&G, LS&H, and IP reporting units, respectively. The discount rates were derived using a capital asset pricing model and analyzing published rates for industries relevant to each reporting unit to estimate the cost of equity financing. We used discount rates we believe to be commensurate with the risks and uncertainty inherent in the respective reporting units and in our internally developed forecasts. The use of a different set of assumptions and estimates could have resulted in materially different results. For our LS&H reporting unit, a 50 basis point increase in the discount rate would result in an incremental impairment charge of less than $90.0.
In September 2022, we performed a quantitative goodwill impairment test that resulted in a goodwill impairment charge of $4,407.9 across three of our four reporting units at the time; the impairment charge resulted in a full goodwill write-off for two of the four reporting units. Similar to our 2023 analysis, our 2022 analysis utilized discount rates derived from a capital asset pricing model and an analysis of published rates for industries relevant to each reporting unit. For those reporting units whose estimated fair values exceeded their carrying values, we applied a hypothetical sensitivity analysis by increasing the discount rate by 100 basis points and, in a separate test, by reducing the fair value of those reporting units by 10%. As a result of either scenario, the IP reporting unit’s fair value was approximately equal to its carrying value. All other reporting units evaluated under either scenario reflected fair values well in excess of carrying values by at least 40%. We subsequently performed our annual goodwill impairment test by applying a qualitative assessment, in which we considered factors such as those described above, as well as the historical significant level of headroom. We did not identify any additional impairment charge requirements as a result of the annual test performed in the fourth quarter of 2022.
If any of our DCF assumptions or estimates fall short of our projections, we could experience additional impairment events in the future.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets consist of purchased brand trade names. In 2023 and 2022, we used a qualitative assessment to evaluate events and circumstances that might impact the value of each trade name. In 2021, we performed a quantitative assessment using the relief-from-royalty method that indicated that the fair value of our trade names was significantly in excess of carrying value. We did not identify any impairments of our indefinite-lived intangible assets in 2023, 2022, or 2021.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Long-Lived Assets (including Other Intangible Assets)
We evaluate long-lived assets, including property and equipment, definite-lived intangible assets, and right-of-use lease assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, we assess recoverability by comparing the carrying amount of the asset to our estimate of the future undiscounted cash flows expected to be generated by the asset over its remaining life. We exercise judgment in selecting the appropriate assumptions to use in the estimated future undiscounted cash flows analysis. If the carrying amount of the asset exceeds its estimated future cash flows, we recognize an impairment charge equal to the amount by which the carrying amount of the asset exceeds its fair value.
Share-Based Compensation
Share-based compensation expense includes cost associated with stock options, restricted share units (“RSUs”) and performance share units (“PSUs”) granted to certain key members of management.
The share-based compensation cost of time-based RSU and PSU grants is calculated by multiplying the grant date fair value by the number of shares granted. We engage a third-party valuation expert to perform a Monte Carlo simulation that estimates the grant date fair value for PSUs that have a market-based modifier component. We recognize compensation expense over the vesting period of the award on a graded-scale basis, and we recognize forfeitures as they occur. Each quarter, we estimate the number of shares that are expected to vest and adjust our expense accordingly.
Income Taxes
We recognize income taxes under the asset and liability method. Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated current and future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income tax expense for financial statement purposes. In assessing the realizability of deferred tax assets, we consider all available positive and negative evidence factors. Evidence considered includes historical and projected future taxable income by tax jurisdiction, character and timing of income or loss, and prudent and feasible tax planning strategies. We record a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized. Unforeseen future events, such as changes in market conditions and changes in tax laws, could have a material impact on the realizability of deferred tax assets.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. We record tax benefits when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. Because of the complexity of some of these uncertainties, the ultimate resolution of our uncertain tax positions may result in a payment that is materially different from our current estimates. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
Recently Issued Accounting Pronouncements
We do not believe that any recently issued accounting pronouncements will have a material impact on our financial condition or results of operations. For additional information related to recently issued and adopted accounting pronouncements, see Note 1: Background and1 - Nature of Operations and Summary of Significant Accounting Policies included in Part II, Item 8 of this annual report.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | % Change |
| (in millions) | 2023 | | 2022 | | 2021 | | 23 vs ’22 | | 22 vs ’21 |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | 1,876.9 | | | (1)% | | 42% |
| Operating expenses: | | | | | | | | | |
| Cost of revenues | 906.4 | | | 954.0 | | | 626.1 | | | (5)% | | 52% |
| Selling, general and administrative costs | 739.7 | | | 729.9 | | | 643.0 | | | 1% | | 14% |
| Depreciation and amortization | 708.3 | | | 710.5 | | | 537.8 | | | —% | | 32% |
| Goodwill and intangible asset impairments | 979.9 | | | 4,449.1 | | | — | | | (78)% | | N/M |
| Restructuring and other impairments | 40.0 | | | 66.7 | | | 129.5 | | | (40)% | | (48)% |
| Other operating expense (income), net | (10.8) | | | (324.8) | | | 27.5 | | | (97)% | | N/M |
| Total operating expenses | 3,363.5 | | | 6,585.4 | | | 1,963.9 | | | | | |
| Income (loss) from operations | (734.7) | | | (3,925.6) | | | (87.0) | | | | | |
| Fair value adjustment of warrants | (15.9) | | | (206.8) | | | (81.3) | | | (92)% | | N/M |
| Interest expense, net | 293.7 | | | 270.3 | | | 252.5 | | | 9% | | 7% |
| Income (loss) before income tax | (1,012.5) | | | (3,989.1) | | | (258.2) | | | | | |
| Provision (benefit) for income taxes | (101.3) | | | (28.9) | | | 12.3 | | | N/M | | N/M |
| Net income (loss) | (911.2) | | | (3,960.2) | | | (270.5) | | | | | |
| Dividends on preferred shares | 75.4 | | | 75.4 | | | 41.5 | | | —% | | 82% |
| Net income (loss) attributable to ordinary shares | $ | (986.6) | | | $ | (4,035.6) | | | $ | (312.0) | | | | | |
| N/M - Represents a change approximately equal or in excess of 100% or not meaningful. |
As discussed below and in the notes to the financial statements, the following factors had a significant impact on the comparability of our results of operations between the periods presented and may affect the comparability of our results of operations in future periods:
•In 2022 and 2023, we recognized substantial goodwill impairments.
•On October 31, 2022, we completed the sale of the MarkMonitor Domain Management business within our IP segment.
•On December 1, 2021, we completed the acquisition of ProQuest, reported primarily within our A&G segment.
•In 2021, we completed public equity and debt offerings.
•In 2021 and 2022, we implemented a number of restructuring programs to integrate acquisitions and to simplify and optimize operations.
Revenues, net
The tables below present the changes in revenues by transaction type, segment, and by geographic region, as well as the components driving the changes between periods.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Revenues by transaction type
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Change | % of Change |
| 2023 | | 2022 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Subscription revenues | $ | 1,618.1 | | | $ | 1,618.8 | | | $ | (0.7) | | — | % | — | % | (3.7) | % | 1.3 | % | 2.4 | % |
| Re-occurring revenues | 444.6 | | | 441.9 | | | 2.7 | | 0.6 | % | — | % | — | % | 0.4 | % | 0.2 | % |
| Transactional and other revenues | 566.1 | | | 599.1 | | | (33.0) | | (5.5) | % | — | % | (0.7) | % | 0.6 | % | (5.4) | % |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | (31.0) | | (1.2) | % | — | % | (2.4) | % | 0.9 | % | 0.3 | % |
| | | | | | | | | | |
| | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | |
| 2022 | | 2021 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Subscription revenues | $ | 1,618.8 | | | $ | 1,030.4 | | | $ | 588.4 | | 57.1 | % | 59.7 | % | (1.1) | % | (4.9) | % | 3.4 | % |
| Re-occurring revenues | 441.9 | | | 453.2 | | | (11.3) | | (2.5) | % | — | % | — | % | (7.7) | % | 5.2 | % |
| Transactional and other revenues | 599.1 | | | 393.3 | | | 205.8 | | 52.3 | % | 58.3 | % | (0.2) | % | (3.1) | % | (2.7) | % |
| Revenues, net | $ | 2,659.8 | | | $ | 1,876.9 | | | $ | 782.9 | | 41.7 | % | 45.0 | % | (0.7) | % | (5.2) | % | 2.6 | % |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2023 vs. 2022
Subscription revenues decreased primarily due to the divestiture of the MarkMonitor business partially offset by organic growth driven by price increases, reflecting a trend consistent with the increase in our ACV between periods, and an FX benefit. Transactional and other revenues decreased primarily due to lower LS&H real world data sales and IP trademarks transactional volumes and patent search & analytics revenue.
2022 vs. 2021
Subscription revenues increased primarily due to the acquisition of ProQuest, further supplemented by organic growth driven by price increases and the benefit of net installations, reflecting a trend consistent with the increase in our ACV between periods. Re-occurring revenues decreased due to FX headwinds, partially offset by strong organic growth driven by increases in patent renewal volumes and improvements in yield per case. Transactional and other revenues increased due to the acquisition of ProQuest, partially offset by FX headwinds and lower trademark transactional volumes and patent filing revenue.
Revenues by segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Change | % of Change |
| 2023 | | 2022 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Academia & Government | $ | 1,323.3 | | | $ | 1,280.1 | | | $ | 43.2 | | 3.4 | % | — | % | — | % | 1.2 | % | 2.2 | % |
| Intellectual Property | 862.7 | | | 927.1 | | | (64.4) | | (6.9) | % | — | % | (6.9) | % | 0.7 | % | (0.7) | % |
| Life Sciences & Healthcare | 442.8 | | | 452.6 | | | (9.8) | | (2.2) | % | — | % | — | % | 1.0 | % | (3.2) | % |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | (31.0) | | (1.2) | % | — | % | (2.4) | % | 0.9 | % | 0.3 | % |
| | | | | | | | | | |
| | | | |
| 2022 | | 2021 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Academia & Government | $ | 1,280.1 | | | $ | 489.4 | | | $ | 790.7 | | 161.6 | % | 164.7 | % | — | % | (4.9) | % | 1.8 | % |
| Intellectual Property | 927.1 | | | 974.3 | | | (47.2) | | (4.8) | % | 0.3 | % | (1.3) | % | (6.1) | % | 2.3 | % |
| Life Sciences & Healthcare | 452.6 | | | 413.2 | | | 39.4 | | 9.5 | % | 8.6 | % | — | % | (3.2) | % | 4.1 | % |
| Revenues, net | $ | 2,659.8 | | | $ | 1,876.9 | | | $ | 782.9 | | 41.7 | % | 45.0 | % | (0.7) | % | (5.2) | % | 2.6 | % |
2023 vs. 2022
A&G segment revenues increased from organic growth, primarily related to subscription revenues driven by price increases, reflecting a trend consistent with the increase in our ACV between periods. IP segment revenues decreased primarily due to the divestiture of the MarkMonitor business with organic decline due to lower trademarks transactional volumes and patent search & analytics revenue. LS&H segment revenues decreased primarily due to lower LS&H real world data sales.
2022 vs. 2021
A&G revenues increased primarily due to the acquisition of ProQuest, further supplemented by organic growth driven by increased subscription revenues from price increases and the benefit of net installations. IP segment revenues decreased primarily due to FX headwinds that weren’t fully offset by organic growth driven by increases in patent renewal volumes and improvements in yield per case. LS&H segment revenues increased primarily due to the acquisition of ProQuest, further
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
supplemented by organic growth driven by increased subscription revenues from price increases, the benefit of net installations, and increases in custom data sales.
Revenues by geography
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Change | % of Change |
| 2023 | | 2022 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Americas | $ | 1,405.5 | | | $ | 1,462.3 | | | $ | (56.8) | | (3.9) | % | — | % | (3.6) | % | 0.4 | % | (0.7) | % |
| Europe/Middle East/Africa | 707.5 | | | 698.3 | | | 9.2 | | 1.3 | % | — | % | (1.3) | % | 1.9 | % | 0.7 | % |
| Asia Pacific | 515.8 | | | 499.2 | | | 16.6 | | 3.3 | % | — | % | (0.5) | % | 1.5 | % | 2.3 | % |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | (31.0) | | (1.2) | % | — | % | (2.4) | % | 0.9 | % | 0.3 | % |
| | | | | | | | | | |
| | | | |
| 2022 | | 2021 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Americas | $ | 1,462.3 | | | $ | 924.7 | | | $ | 537.6 | | 58.1 | % | 57.8 | % | (1.1) | % | (2.1) | % | 3.5 | % |
| Europe/Middle East/Africa | 698.3 | | | 555.8 | | | 142.5 | | 25.6 | % | 35.5 | % | (0.3) | % | (8.3) | % | (1.3) | % |
| Asia Pacific | 499.2 | | | 396.4 | | | 102.8 | | 25.9 | % | 28.3 | % | (0.2) | % | (7.9) | % | 5.7 | % |
| Revenues, net | $ | 2,659.8 | | | $ | 1,876.9 | | | $ | 782.9 | | 41.7 | % | 45.0 | % | (0.7) | % | (5.2) | % | 2.6 | % |
2023 vs. 2022
Americas revenues decreased primarily due to the divestiture of the MarkMonitor business and from organic decline, due to lower LS&H real world data and IP re-occurring and transactional revenue. EMEA revenues organic growth was driven by A&G subscription and IP re-occurring revenue. APAC revenues organic growth was driven primarily by A&G subscription revenue.
2022 vs. 2021
In all regions, revenues increased primarily due to the acquisition of ProQuest, partially offset by FX headwinds and reductions from the divestiture of the MarkMonitor business. Americas organic growth of 3.5% was driven by improved subscription and re-occurring revenues and APAC’s organic growth of 5.7% was led by A&G and LS&H subscription revenues increases.
Cost of revenues
Cost of revenues consists of costs related to the production, servicing, and maintenance of our products and are composed primarily of related personnel costs, data center services and licensing costs, and costs to acquire or produce content including royalty fees.
The decrease of 5.0% compared to 2022 was primarily driven by effective contractor spend management and the divestiture of the MarkMonitor business, partially offset by product-related agent costs. As a percentage of revenues, Cost of revenues decreased by 1.4% from the prior year.
The increase of 52.4% compared to 2021 was primarily driven by the acquisition of ProQuest, partially offset by a reduction in product and people-related costs driven by our cost-savings and margin improvement restructuring programs. As a percentage of revenues, Cost of revenues increased by 2.5% from the prior year.
Selling, general and administrative costs
Selling, general and administrative costs (“Clarivate,” “us,” “we,” “our,”SG&A”) include nearly all business costs not directly attributable to the production, servicing, and maintenance of our products and are composed primarily of related personnel costs, third-party professional services fees, facility costs like rent and utilities, technology costs associated with our corporate infrastructure, and transaction expenses associated with acquisitions, divestitures, and capital market activities including advisory, legal, and other professional and consulting costs.
The increase of 1.3% compared to 2022 was primarily attributed to increased technology costs associated with increased technology costs to support the business.
The increase of 13.5% compared to 2021 was primarily driven by our acquisition of ProQuest, partially offset by reductions in outside services, share-based compensation, legal, rent, and other miscellaneous business operating expenses.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Depreciation and amortization
Depreciation expense relates to our fixed assets, including mainly computer hardware and leasehold improvements, furniture and fixtures. Amortization expense relates to our definite-lived intangible assets, including mainly technology and content, customer relationships, internally generated computer software, and trade names.
2023 was consistent with 2022. As a percentage of revenues, Depreciation and amortization increased by 0.2% from the “Company”), isprior year.
The increase of 32.1% compared to 2021 was primarily driven by the additional amortization from the intangible assets acquired from the ProQuest acquisition. As a public limited company organizedpercentage of revenues, Depreciation and amortization decreased by 2.0% from the prior year.
Goodwill and intangible asset impairments
In both 2023 and 2022, we completed quantitative goodwill impairment assessments using a DCF analysis to estimate the fair value of each of our reporting units. Based on these quantitative analyses performed, we recorded a total goodwill impairment charge of $844.7 and $4,449 in 2023 and 2022, respectively. Additionally, during the year ended December 31, 2023, in connection with intangible assets classified as assets held-for-sale as of December 31, 2023, we recorded an impairment charge of $132.2 and a $3.0 goodwill impairment charge associated with the disposal group’s allocated portion of the IP segment reporting unit’s goodwill balance.
For additional information regarding our recent goodwill and intangible asset impairments, see Note 6 - Other Intangible Assets, net and Goodwill included in Part II, Item 8 of this annual report.
Restructuring and other impairments
Restructuring and impairment expense includes costs associated with involuntary termination benefits provided to employees under the lawsterms of Jersey, Channel Islands. We were initially registered on January 7,a one-time benefit arrangement, ongoing benefit arrangements, certain contract termination costs, other costs associated with an exit or disposal activity and impairment charges associated with right-of-use assets in which we’ve ceased the use of during the period. We’ve incurred total lifetime costs of approximately $302 related to approved restructuring plans to streamline operations within targeted areas of our business dating back to 2019, primarily related to acquisition integration programs. As of December 31, 2023, we expect to incur approximately $20 of additional restructuring costs associated with the Segment Optimization Program, which we expect to incur primarily within 2024. Restructuring and atother impairments also includes write-downs associated with equity investments of $6.1 in 2023. For further information regarding each of our 2020restructuring initiatives and impairment impacts, see Note 13 - Restructuring and Other Impairments included in Part II, Item 8 of this annual general meeting, our shareholders approved areport.
The decrease of 40.0% compared to 2022 was driven by the wind-down of expenses associated with the ProQuest Acquisition Integration and OneClarivate Program, partially offset by an increase to expenses incurred related to the Segment Optimization Program and the impact of the equity investment write-downs.
The decrease of 48.5% compared to 2021 was driven by the wind-down of expenses associated with the CPA Global Acquisition Integration and Optimization Program, DRG Acquisition Integration Program, and Operation Simplification and Optimization Program, partially offset by increased expenses incurred related to the One Clarivate and ProQuest Acquisition Integration Program.
Other operating expense (income), net
The change of our corporate name$314.0 in 2023 compared to 2022 was driven by a $278.5 gain on sale from “Clarivate Analytics Plc”the divestiture of the MarkMonitor business in the prior year, and, to “Clarivate Plc”. Pursuanta lesser extent, a net loss on foreign exchange remeasurement in 2023 compared to a net gain in the prior year with the largest impact derived from transactions denominated in GBP. These factors were partially offset by a gain on legal settlement of $49.4 in 2023.
The change of $352.3 in 2022 compared to the definitive agreement entered into$27.5 net expense in 2021 was driven by a $278.5 gain on sale from the divestiture of the MarkMonitor business, and, to effect a merger between Camelot Holdings (Jersey) Limited ("Jersey"lesser extent, a net gain on foreign exchange remeasurement compared to a net loss in the prior year with the largest impacts derived from transactions denominated in GBP.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Fair value adjustment of warrants
We account for our outstanding private placement warrants as liabilities at fair value on the balance sheet, which are subject to remeasurement at each balance sheet date and any change in fair value is recognized as of the end of each period for which earnings are reported. The adjustments in fair value, resulting in a gain in the current and comparative years, was driven primarily by changes in the risk-free rate, our share price, and the impact of those changes as key inputs to the Black-Scholes option valuation model.
Interest expense, net
The increase of 8.7% compared to 2022 was primarily driven by higher floating interest rates on borrowings under the Term Loan Facility, partially offset by gains under our interest rate swap program and debt prepayments.
The increase of 7.0% compared to 2021 was primarily driven by higher floating interest rates on borrowings under the Term Loan Facility and from our private placement offerings and subsequent exchange offers of the Senior Secured Notes due 2028 and Senior Notes due 2029, which took place in the second and third quarter of 2021, respectively.
Provision (benefit) for income taxes
The increased benefit in 2023 compared to 2022 was primarily due to one-time tax benefits recorded in the year ended December 31, 2023, offset by one-time tax benefits recorded in 2022. In 2023, we recorded a tax benefit from settlement of an open tax dispute, a tax benefit associated with the impairment of intangible assets, a tax benefit relating to the partial release of valuation allowance recorded against certain U.S. tax attributes, and a tax benefit resulting from goodwill impairment. In 2022, we recorded tax benefits from the release of a valuation allowance upon the execution of an internal legal entity restructuring, and from the release of an uncertain tax position that was favorably resolved.
In December 2021, the Organization for Economic Co-operation and Development (“OECD”) issued model rules for a new global minimum tax framework under its “Pillar Two” initiative, and Churchill Capital Corp,various governments around the world have issued, or have announced that they plan to issue, legislation consistent with the OECD model rules. We are within the scope of the OECD Pillar Two model rules.
During Q3 2023, the United Kingdom enacted legislation consistent with the OECD model rules, which will be effective beginning January 1, 2024. We are in the process of assessing the impact of legislation enacting global minimum tax rules in various jurisdictions. Based on our most recent tax filings, country-by-country reporting, and financial information available, we believe that most of the jurisdictions in which we operate will meet the requirements for transitional safe harbor relief. Therefore, we do not expect the global minimum tax to have a Delaware corporation, ("Churchill") (the “2019 Transaction”),material impact in 2024. However, future legislation or changes in our financial results could materially increase our global minimum tax expense in future years.
The benefit in 2022 compared to the Companyprovision in 2021 was formeddriven by one-time tax benefits from the release of a valuation allowance upon the execution of an internal legal entity restructuring effective December 31, 2022, and from the release of an uncertain tax position that was favorably resolved. These benefits were partially offset by tax expense accruals on a significant fair value adjustment gain on our outstanding private placement warrants and on an increase in taxable income in tax-paying jurisdictions.
Dividends on preferred shares
Dividends on our mandatory convertible preferred shares are calculated at an annual rate of 5.25% of the liquidation preference of $100.00 per share. We may pay declared dividends on March 1, 2024 and June 1, 2024 prior to the automatic conversion of these shares.
Adjusted EBITDA and Adjusted EBITDA margin (non-GAAP measure)
The following table presents our calculation of Adjusted EBITDA and Adjusted EBITDA margin for the purposesyears ended December 31, 2023, 2022, and 2021, and reconciles these measures to our Net income (loss) for the same periods:
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net income (loss) attributable to ordinary shares | $ | (986.6) | | $ | (4,035.6) | | $ | (312.0) |
| Dividends on preferred shares | 75.4 | | 75.4 | | 41.5 |
| Net income (loss) | (911.2) | | (3,960.2) | | (270.5) |
| Provision (benefit) for income taxes | (101.3) | | (28.9) | | 12.3 |
| Depreciation and amortization | 708.3 | | 710.5 | | 537.8 |
| Interest expense, net | 293.7 | | 270.3 | | 252.5 |
| | | | | |
Transaction related costs(1) | 8.2 | | 14.2 | | 46.2 |
| Share-based compensation expense | 108.9 | | 102.2 | | 139.6 |
| Gain on sale from divestitures | — | | (278.5) | | — |
| Goodwill and intangible asset impairments | 979.9 | | 4,449.1 | | — |
| Restructuring and other impairments | 40.0 | | 66.7 | | 129.5 |
| Fair value adjustment of warrants | (15.9) | | (206.8) | | (81.3) |
Other(2) | 6.6 | | (25.9) | | 34.3 |
| Adjusted EBITDA | $ | 1,117.2 | | $ | 1,112.7 | | $ | 800.4 |
| Adjusted EBITDA margin | 42.5% | | 41.8% | | 42.6% |
(1) Includes costs incurred to complete business combination transactions, including acquisitions, dispositions, and capital market activities, and includes advisory, legal, and other professional and consulting costs. 2021 also includes the mark-to-market adjustment (gains) on the contingent stock consideration associated with the CPA Global and DRG acquisitions. |
(2) Primarily reflects the net impact of foreign exchange gains and losses related to the remeasurement of balances and other items that do not reflect our ongoing operating performance. 2023 also includes a $49.4 gain on legal settlement (for further information, see Note 17 - Commitments and Contingencies included in Part II, Item 8 of this annual report). |
Liquidity and Capital Resources
We finance our operations primarily through cash generated by operating activities and through borrowing activities. As of December 31, 2023, we had $370.7 of cash and cash equivalents and $740.8 of available borrowing capacity under our revolving credit facility.
Cash Flows
We have historically generated significant cash flows from our operating activities. Our subscription-based revenue model provides a steady and predictable source of revenue and cash flow for us, as we typically receive payments from our customers at the 2019 Transactionstart of the subscription period (usually 12 months) and recognize revenue ratably throughout that period. Our high customer renewal rate, stable margins, and efforts to improve operating efficiencies and working capital management also contribute to our ability to generate solid operating cash flows, The following table discloses our consolidated cash flows by activity for the periods presented: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net cash provided by (used for) operating activities | $ | 744.2 | | | $ | 509.3 | | | $ | 323.8 | |
| Net cash provided by (used for) investing activities | (237.4) | | | 57.3 | | | (4,044.5) | |
| Net cash provided by (used for) financing activities | (496.5) | | | (759.2) | | | 4,032.2 | |
Cash Flows Provided by (Used for) Operating Activities
The increase of $234.9 in 2023 was primarily due to materially lower one-time costs as acquisition integration is complete, as well as improvements in working capital.
The increase of $185.5 in 2022 was primarily due to higher earnings excluding the non-cash goodwill impairment charge, as well as working capital timing.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Cash Flows Provided by (Used for) Investing Activities
The $(294.7) change in 2023 was primarily due to the proceeds received in the prior year from the sale of the MarkMonitor business and increased capital spending to fuel product innovation.
The $4,101.8 change in 2022 was driven by the significant level of cash paid for business acquisitions in 2021, and from the proceeds of $285.0 from the sale of the MarkMonitor business.
Cash Flows Provided by (Used for) Financing Activities
The $262.7 change in 2023 was primarily driven by uses of cash in the prior year that were not repeated. We had no outstanding balance on our Revolving Credit Facility after using $175.0 in the prior year to repay the outstanding balance and we used $100.0 to repurchase our ordinary shares, which was $75.0 less than the amount used in the prior year.
The $(4,791.4) change in 2022 was driven by the equity and debt offerings completed during 2021 to raise cash to finance the purchase price of the ProQuest acquisition in December 2021. In addition, during 2022, we made a prepayment of $300.0 on our Term Loan Facility, we repaid the $175.0 balance on our Revolving Credit Facility that was borrowed in 2021, and we repurchased $175.0 of our ordinary shares.
Free Cash Flow (non-GAAP measure)
The following table reconciles our non-GAAP Free Cash Flow measure to Net cash provided by (used for) operating activities: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net cash provided by (used for) operating activities | $ | 744.2 | | | $ | 509.3 | | | $ | 323.8 | |
| Capital expenditures | (242.5) | | | (202.9) | | | (118.5) | |
| Free Cash Flow | $ | 501.7 | | | $ | 306.4 | | | $ | 205.2 | |
The increase in Free Cash Flow in 2023 and 2022, as compared to the respective prior year, was driven by significant increases in cash generated from operating activities, partially offset by increased capital expenditures. Our capital expenditures in 2023, 2022, and 2021 consisted primarily of capitalized labor, contract services, and other costs associated with product and content development.
Borrowings
As of December 31, 2023, we had $4,740.0 of outstanding borrowings under our notes and credit facilities. We incurred $293.7, $270.3 and $252.5 of interest expense associated with our debt obligations for the years ended December 31, 2023, 2022, and 2021, respectively. Our contingent liabilities consist primarily of letters of credit and performance bonds and other similar obligations in the ordinary course of business. For further discussion related transitionsto our outstanding borrowings, see Note 9 - Debt included in Part II, Item 8 of this annual report.
In January 2024, we refinanced our existing Term Loan Facility and carryingextended the maturity date of our Revolving Credit Facility. We refinanced all of our existing term loans with a new $2,150 tranche of term loans maturing in 2031, with an interest rate margin of 275 basis points per annum in the case of loans bearing interest by reference to term SOFR. The new term loan facility effectively extended the maturity of our existing term loans by approximately 5 years. The new term loans amortize in equal quarterly installments equivalent to 1.00% per annum, with the balance due at maturity. Concurrently, we refinanced our Revolving Credit Facility with a replacement $700 million facility, which effectively extends the maturity of the revolving credit facility from 2027 to 2029. The strategic refinancing provides improved financial flexibility, including extending our debt maturities and lowering our annual cash interest costs.
Commitments and Contingencies
In addition to the scheduled future debt repayments that we will need to make, we also have commitments and plans related to our mandatory convertible preferred shares (“MCPS”), share repurchase program, and capital expenditures.
Our MCPS will convert to ordinary shares on the businessJune 1, 2024 and we will accrue approximately $35 of Jerseydividends in 2024 prior to conversion. For additional information related to our MCPS, see Note 10 - Shareholders' Equity included in Part II, Item 8 of this annual report.
CLARIVATE PLC
Management’s Discussion and its subsidiaries.Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
As of December 31, 2023, we had approximately $400.0 of availability remaining under our share repurchase program. The share repurchase authorization is valid through December 31, 2024. For additional information related to our share repurchase program, see Note 10 - Shareholders' Equity included in Part II, Item 8 of this annual report.
We estimate capital expenditures to be approximately $265 during 2024. We also expect to incur approximately $190 of primarily cloud computing services and software license costs in 2024. Any amounts for which we are currently liable are reflected in our Consolidated Balance Sheets as Accounts payable or Accrued expenses and other current liabilities.
The Company is a providerengaged in various legal proceedings and claims that have arisen in the ordinary course of proprietarybusiness. We have taken what we believe to be adequate reserves related to the litigation and comprehensive content, analytics, professional services and workflow solutionsthreatened claims. We maintain appropriate insurance policies in place, which are likely to provide some coverage for these liabilities or other losses that enables users across government and academic institutions, life science companies and research and development (“R&D”) intensive corporations to discover, protect and commercialize their innovations. Clarivate has two reportable segments: Science and Intellectual Property ("IP"). Our segment structure is organized to address customer needs by product group. Our Science segment consists of our Web of Science and Life Science Product Lines. This segment provides curated, high-value, structured information that is delivered and embedded into the workflows of our customers, which include research intensive corporations, life science organizations and universities world-wide. Our IP segment consists of our Derwent, CompuMark, MarkMonitor and CPA Global Product Lines. This segment helps manage customers' end-to-end portfolios of intellectual propertymay arise from patents to trademarks to corporate website domains. See Note 22 - Segment Information, forlitigation matters. For additional information on the Company's reportable segments.about our legal proceedings and claims, see Note 17 - Commitments and Contingencies included in Part II, Item 8 of this annual report.
In January 2019, we entered into an AgreementWe require and Plan of Merger (as amended by Amendment No. 1will continue to the Agreement and Plan of Merger, dated February 26, 2019, and Amendment No. 2need significant cash resources to, the Agreement and Plan of Merger, dated March 29, 2019, collectively, the “Merger Agreement”) by and among Churchill, Jersey, CCC Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Clarivate (“Delaware Merger Sub”), Camelot Merger Sub (Jersey) Limited, a private limited company organized under the laws of Jersey, Channel Islands and wholly owned subsidiary of Clarivate (“Jersey Merger Sub”), and the Company, which, among other things, providedmeet our debt service requirements, fund our working capital requirements, make capital expenditures (including product development), and expand our business through acquisitions. Based on our forecasts, we believe that cash flow from operations, available cash on hand and borrowing capacity, and access to capital markets will be adequate to service debt, meet liquidity needs, and fund capital expenditures and other business plans for (i) Jersey Merger Subboth the next 12 months and the foreseeable future. Our future capital requirements will depend on many factors, including the number of future acquisitions and the timing and extent of spending to support product development efforts. We could be merged withrequired, or could elect, to seek additional funding through public or private equity or debt financings; however, additional funds may not be available on terms acceptable to us.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk that changes in market prices, such as foreign currency exchange rates and interest rates, will affect our cash flows or the fair value of our holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency exchange risk related to our transactions and our subsidiaries’ balances that are denominated in currencies other than the U.S. dollar, our functional currency. These currencies may continue to fluctuate, in either direction, especially as a result of central bank responses to inflation, concerns regarding future economic growth and other macroeconomic factors, and such fluctuations will affect financial statement line item comparability.
We periodically enter into Jersey with Jersey beingforeign currency contracts. The purpose of these derivative instruments is to help manage our exposure to foreign exchange rate risks within the surviving companyacquired CPA Global business. These contracts generally do not exceed 180 days in duration. We account for these foreign currency contracts at fair value and recognize the associated realized and unrealized gains and losses in Other operating expense (income), net in the merger (the “Jersey Merger”)Consolidated Statements of Operations, as the contracts are not designated as accounting hedges under the applicable sections of ASC Topic 815.
Revenues denominated in currencies other than U.S. dollars amounted to $767.7, or approximately 29.2%, of our total revenues for the year ended December 31, 2023. A significant majority of this amount was denominated in Euros and (ii) Delaware Merger Sub to be merged with and into Churchill with Churchill being the surviving corporationBritish pounds. A 5% increase or decrease in the merger (the “Delaware Merger”), and together with the Jersey Merger, the “Mergers”.
On May 13, 2019, the 2019 Transaction was consummated, and Clarivate became the sole managing member of Jersey, operating and controlling allvalue of the businessEuro and affairsBritish pound relative to the U.S. dollar would have caused our revenues for the year ended December 31, 2023, to increase or decrease by $31.0.
Interest Rate Risk
Our interest rate risk arises primarily from our borrowings at floating interest rates. Borrowings under our credit facilities are subject to floating interest rates, plus a SOFR adjustment and a margin. As of Jersey, through JerseyDecember 31, 2023, we had $2,197.4 of floating rate debt outstanding under our Term Loan Facility. For our Term Loan Facility, the interest rate is one-month Term SOFR plus a SOFR adjustment of 0.11% (subject to a floor of 0.00% for $962.6 and 1.00% for $1,234.8), or Prime plus a margin of 2.25% per annum, as applicable depending on the borrowing. For borrowings under the revolving credit facility, the base interest rate is at Term SOFR, plus a 0.1% SOFR adjustment, plus 3.25% per annum (or 2.75% per annum, based on first lien leverage ratios) or Prime plus a margin of 2.25% per annum, as applicable depending on the borrowing. The interest rate margins under our credit facilities will decrease upon the achievement of certain first lien net leverage ratios (as the term is used in the Credit Agreement). Of the total debt outstanding under our credit facilities, we hedged $1,112.4 of our principal amount of our floating rate debt using interest rate swaps. As a result, $1,085.0 of our outstanding borrowings effectively bore interest at floating rates. A 0.125 basis point increase or decrease in the applicable base interest rate under our credit facilities would have an impact of $1.8 on our cash interest expense during the year ended December 31, 2023.
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Clarivate Plc
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Clarivate Plc and its subsidiaries. Followingsubsidiaries (the “Company”) as of December 31, 2023 and 2022, and the consummationrelated consolidated statements of operations, of comprehensive income (loss), of changes in equity and of cash flows for each of the 2019 Transactionthree years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on May 13, 2019,criteria established in Internal Control - Integrated Framework (2013) issued by the Company’s ordinary shares and warrants began trading on the New York Stock Exchange. AllCommittee of Sponsoring Organizations of the Company’s public warrants have subsequently been redeemed. See Note 16 - Shareholders’ Equity for further information regardingTreadway Commission (COSO).
In our opinion, the redemptionconsolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company’s public warrants.
The 2019 Transaction was accountedCompany as of December 31, 2023 and 2022, and the results of its operations and its cash flows for as a reverse recapitalizationeach of the three years in accordancethe period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Under this methodAmerica. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of accounting, Churchill was treatedDecember 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date as the "acquired" company forCompany did not design and maintain effective controls related to the preparation and review of the footnote disclosures included in the Company’s consolidated financial statements, including controls related to the completeness and accuracy of the underlying information used in the preparation of the footnote disclosures.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, purposes. This determination was primarily based on post 2019 Transaction relative voting rights, compositionsuch that there is a reasonable possibility that a material misstatement of the governing board, sizeannual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the two entities pre-merger,2023 consolidated financial statements, and intent ofour opinion regarding the 2019 Transaction. Accordingly, for accounting purposes, the 2019 Transaction was treated as the equivalent of the Company issuing stock for the net assets of Churchill. The net assets of Churchill were stated at historical cost, with no goodwill or other intangible assets resulting from the 2019 Transaction. Reported amounts from operations included herein prior to the 2019 Transaction are those of Jersey.
In February 2020, the Company consummated a public offering of 27,600,000 ordinary shares at $20.25 per share. After this offering, Onex Corporation and Baring Private Equity Asia Limited ("BPEA") continued to beneficially own approximately 38.3%effectiveness of the Company’s ordinary shares, down from approximately 70.8%internal control over financial reporting does not affect our opinion on those consolidated financial statements.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the ordinary shares beneficially owned by Onex Corporation and BPEA immediately after the closingeffectiveness of our merger with Churchill Capital Corpinternal control over financial reporting, included in 2019.
In June 2020, the Company consummated a public offering of 50,400,000 of our ordinary shares at a share price of $22.50 per share. Of the 50,400,000 ordinary shares, 14,000,000 were ordinary shares offered by Clarivate and 36,400,000 were ordinary shares offered by selling shareholders. The Company received approximately $304,030 in net proceeds from the sale of its ordinary shares, after deducting underwriting discounts and estimated offering expenses payable. We used the net proceeds, in conjunction with the new $1,600,000 incremental term loan facility availablemanagement's report referred to Clarivate on October 1, 2020, and cashabove. Our responsibility is to express opinions on the balance sheet to fund the repayment of CPA Global's parent company outstanding debt $2,055,822 of
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except shareCompany’s consolidated financial statements and per share data, option prices, ratios or as noted)
outstanding debt. The Company did not receive any proceeds from the sale of ordinary shares by the selling shareholders. Immediately after the offering, Onex Corporation and Baring owned approximately 18.4% and 7.2%, respectively, of the Company's ordinary shares, down from an aggregate of 38.3% owned subsequent to the February 2020 offering. Additionally in connection with the acquisition of CPA Global, on October 1, 2020, the Company issued 210,357,918 shares to Redtop Holdings Limited, a portfolio company of Leonard Green & Partners, L.P. representing approximately 35% ownership of Clarivate. In addition, 6,325,860 shares that were transferred from Leonard Green & Partners, L.P. to an Employee Benefit Trust established for the CPA Global Equity Plan that should have been excluded from the purchase price consideration in the amount of $196,038.
Risks and Uncertainties
In March 2020, the World Health Organization characterized COVID-19 as a pandemic. The rapid spread of COVID-19 and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy. In view of the rapidly changing business environment, market volatility and heightened degree of uncertainty resulting from COVID-19, we are currently unable to fully determine its future impact on our business. However, we continue to assess the potential effect on our financial position, results of operations, and cash flows. If the global pandemic continues to evolve into a prolonged crisis, the effects could have an adverse impact on the Company's results of operations,internal control over financial conditionreporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and cash flows.
Note 2: Basis of Presentation
The accompanying Consolidated Financial Statements for the years ended December 31, 2020, 2019 and 2018 were prepared in conformityare required to be independent with U.S. GAAP. The Consolidated Financial Statements of the Company include the accounts of all of its subsidiaries. Subsidiaries are entities over which the Company has control, where control is defined as the power to govern financial and operating policies. Generally, the Company has a shareholding of more than 50% of the voting rights in its subsidiaries. The effect of potential voting rights that are currently exercisable are considered when assessing whether control exists. Subsidiaries are fully consolidated from the date control is transferredrespect to the Company in accordance with the U.S. federal securities laws and are de-consolidated from the date control ceases. The U.S. dollar is the Company's reporting currency. As such, the financial statements are reported on a U.S. dollar basis. Certain reclassificationsapplicable rules and regulations of prior year's data have been made to conform to the current year's presentation.
The Company had filed Amendment No. 1 of the Form 10-K/A on May 10, 2021 to amend our Annual Report on Form 10-K for the year ended December 31, 2020, originally filed with the Securities and Exchange Commission (“SEC”)and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on February 26, 2021 (the “Original Filing Date"a test basis, evidence regarding the amounts and "Original Form 10-K”),disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to restateprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our Consolidated Financial Statementsespecially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and related footnotewe are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessments for the Intellectual Property and Life Sciences and Healthcare Reporting Units
As described in Notes 1 and 6 to the consolidated financial statements, the Company’s consolidated goodwill balance was $2,023.7 million as of December 31, 2023 and the goodwill associated with the Intellectual Property and the Life Sciences and Healthcare reporting units was $0 and $913.9 million, respectively. Goodwill is not amortized, but instead is tested for impairment annually as of the first day of the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill impairment testing is performed at the reporting unit level. Management estimates the fair value of a reporting unit using a discounted cash flow model based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. As disclosed by management, significant judgments and estimates made in this analysis include projected revenue growth rates and EBITDA margins, tax rates, terminal values and discount rates. Based on the annual quantitative analysis, management determined the carrying value of the Intellectual Property and Life Sciences and Healthcare reporting units exceeded their respective fair values, resulting in a goodwill impairment charge of $579.2 million related to the Intellectual Property reporting unit and $265.5 million related to the Life Sciences and Healthcare reporting unit.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments for the years ended December 31, 2020Intellectual Property and 2019, our Condensed Consolidated Financial Statements forLife Sciences and Healthcare reporting units is a critical audit matter are (i) the quarters ended September 30, 2020, June 30, 2020, March 31, 2020, September 30, 2019 and June 30, 2019, and our quarterly results of operations forsignificant judgment by management when developing the quarters ended December 31, 2020 and 2019. The Company, is filing this Amendment No. 2fair value estimates of the Form 10-K/Areporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to amendprojected revenue growth rates, EBITDA margins, terminal growth rate and discount rates; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our Annual Reportoverall opinion on Form 10-Kthe consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Intellectual Property and Life Sciences and Healthcare reporting units. These procedures also included, among others (i) testing management’s process for developing the year ended December 31, 2020, refiledfair value estimates of the reporting units; (ii) evaluating the appropriateness of the discounted cash flow model used by management; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to projected revenue growth rates, EBITDA margins, terminal growth rate and discount rates. Evaluating management’s assumptions related to projected revenue growth rates and EBITDA margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Intellectual Property and Life Sciences and Healthcare reporting units; (ii) the consistency with external market and industry data; and (iii) whether the SEC on May 10, 2021 (the “Amendment No. 1 Filing Date"assumptions
were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and "Form 10-K/A Amendment No. 1”),knowledge were used to restate our Consolidated Financial Statementsassist in evaluating (i) the appropriateness of the discounted cash flow model and related footnote disclosures as(ii) the reasonableness of the terminal growth rate and for the years ended December 31, 2020 and our quarterly results of operations for the quarter ended December 31, 2020. See Note 28 - Restatement of Previously Issued Financial Statements.
Amendment No. 1discount rates assumptions.
On April 26, 2021, the Company concluded, with concurrence from the Audit Committee of our Board of Directors (the “Audit Committee”), that the consolidated financial statements previously issued as of and for the years ended December 31, 2020 and 2019, the quarterly periods ended September 30, 2020, June 30, 2020, March 31, 2020, September 30, 2019 and June 30, 2019, and our quarterly results of operations for the quarters ended December 31, 2020 and 2019, should no longer be relied upon because of errors in such financial statements addressed in the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") Topic 250, Accounting Changes and Error Corrections.
The errors relate to the treatment under U.S. GAAP of certain Private Placement Warrants for the purchase of the Company’s ordinary shares, issued to the founders of Churchill Capital Corp, a special purpose acquisition company or “SPAC” with which the Company consummated a business combination transaction in May 2019, which Private Placement/s/ PricewaterhouseCoopers LLP
CLARIVATE PLCPhiladelphia, Pennsylvania
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Warrants were initially issued by the SPAC. In the affected financial statements, the Private Placement Warrants are incorrectly classified as equity of the Company.February 27, 2024
As previously disclosed inWe have served as the Current Report on Form 8-K filed with the SEC on April 29, 2021, on April 12, 2021, the staff of the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “SEC Staff Statement”). The SEC Staff Statement addresses certain accounting and reporting considerations that are broadly applicable to warrants issued by SPACs, which are similar in nature to certain Private Placement Warrants originally issued by the SPAC the Company merged with in 2019. In light of consideration of the impacts of the accounting interpretation to previously issued financial statements, on April 26, 2021, the Company, with concurrence from the Audit Committee, after discussion with management, determined that the following financial statements previously filed with the SEC should no longer be relied upon (the "Restatement"): (1) the Consolidated Financial Statements included in the Original Form 10-K, (2) the Condensed Consolidated Financial Statements included in our Quarterly Reports on Form 10-Q ("Form 10-Q") for the three and six month periods ended June 30, 2020 and 2019, (3) the Condensed Consolidated Financial Statements included in our Form 10-Q for the three and nine month periods ended September 30, 2020 and 2019, and (4) the Condensed Consolidated Financial Statements in our Form 10-Q for the three month period ended March 31, 2020, (the “Affected Periods”).
In addition, and separate from the SEC guidance issued on April 12, 2021, the Company has corrected the classification of $30,175 from the Selling, general and administrative cost line as a decrease on the Consolidated Statement of Operations to the Cost of revenues line as an increase for the three and twelve months ended December 31, 2020. The Company has also corrected the classification of certain current assets on the Consolidated Balance Sheet as of December 31, 2020 by decreasing accounts receivable of $13,713 and increasing other current assets by $13,713.
Amendment No. 2
The Company is filing this Amendment No. 2 to our Annual Report on Form 10-K for the year ended December 31, 2020, to restate our Consolidated Financial Statements and related footnote disclosures as of and for the year ended December 31, 2020 and our quarterly results of operations for the quarter ended December 31, 2020.
On December 22, 2021, the Company concluded that the financial statements previously issued as of and for the year ended December 31, 2020, and the quarterly periods ended March 31, 2021, June 30, 2021, and September 30, 2021, should no longer be relied upon because of an error in such financial statements, as addressed in FASB ASC Topic 250.
The error corrected in Amendment No. 2 and such amended Form 10-Q filings relate to the treatment under U.S. GAAP of an equity plan included in the CPA Global business combination which was consummated on October 1, 2020 (the “CPA Global Transaction”). In the affected financial statements, certain awards made by CPA Global under such equity plan ("CPA Global Equity Plan") and related trust were incorrectly included as part of the acquisition accounting for the CPA Global Transaction.
The Company concluded that the expenses associated with such equity plan should have been recognized as share-based compensation charges over the vesting period from October 1, 2020 to October 1, 2021, with only a portion of the liability recorded as part of acquisitionaccounting. Additionally, ordinary shares that were transferred from Leonard Green & Partners, L. P. to an Employee Benefit Trust established for the CPA Global Equity Plan should have been excluded from the purchase price consideration in the amount of $196,038 or 6,325,860 ordinary shares.
See Note 28 - Restatement of Previously Issued Financial Statements, for additional information related to the restatements, including descriptions of the misstatements and the impacts on our consolidated financial statements.
In addition, and separate from the CPA Global Equity Plan restatement in Amendment No 2, the Company has corrected for the understatement of deferred tax liabilities of $3,328 with an offset to goodwill relating to the CPA Global acquisition opening balance sheet on October 1, 2020. The Company has also corrected for the understatement of deferred tax liabilities of $1,936 with an offset to goodwill relating to the DRG acquisition opening balance sheet on February 28, 2020.
During the fourth quarter of 2020, the Company realigned its reporting structure and changed the manner in which performance is assessed. The two operating segments created include the Science Group and the Intellectual Property Group. The segment reporting changes were retrospectively applied to all periods presented. Certain reclassifications ofCompany’s auditor since 2016.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
prior year's data have been made to conform to the current year's presentation of reportable segment information as disclosed in Note 22 - Segment Information and financial statement line items within the Consolidated Statements of Operations.
Note 3: Summary of Significant Accounting Policies
Business Combinations
The Company determines whether substantiallyWe apply the acquisition method of accounting to our business combinations. Substantially all of the assets acquired, liabilities assumed, and contingent consideration are allocated based on their estimated fair values, which requires significant management judgment. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. We estimate the fair value of the grosscustomer relationships intangible assets acquired is concentrated inthrough a single identifiable asset or group of similar identifiable assets. If this threshold is met, the set is not a business. If it is not met, the Company then evaluates whether the set meets the requirement that a business include, at a minimum, an input and as substantive process that together significantly contribute to the ability to create outputs.
Business combinations are accounted fordiscounted cash flow (“DCF”) model using the acquisitionmulti-period excess earnings method, atwhich involves the acquisition date, which is when control is obtained. The consideration transferred is generally measured at fair value, as are the identifiable assets acquireduse of significant estimates and liabilities assumed. During the one-year period following the acquisition date, if an adjustment is identified based on new information about facts and circumstances that existed as of the acquisition date, the Company will record measurement-period adjustmentsassumptions related to the acquisitions in the period in which the adjustment is identified.
Goodwill is measured at the acquisition date asprojected revenue growth rates, EBITDA margins, projected cash flows, royalty rates, tax rates, discount rates, tax amortization benefits, and customer attrition rates, among other items. We estimate the fair value of technology, databases, and trade name intangible assets through a DCF model using the consideration transferred (including, if applicable,relief-from-royalty method, which involves the use of significant estimates and assumptions related to projected revenue growth rates, royalty rates, tax rates, discount rates, tax amortization benefits, and obsolescence rates. Significant estimates and assumptions used in determining the fair value of any previously held equity interest and any non-controlling interests) lessintangible assets may change during the net recognized amount (which is generally the fair value)finalization of the identifiablepurchase price allocation as additional information about assets acquired and liabilities assumed.
Transaction costs, other than those associated with the issuance of debt or equity securities incurred in connection with a business combination, are expensed as incurred and included in either Cost of revenues or Selling, general and administrative costs in the Consolidated Statements of Operations.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts and operations of the Company, and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and accompanying notes. Actual results could differ from those estimates. The most important of these relate to share-based compensation expenses, revenue recognition, the allowance for doubtful accounts, internally developed computer software, valuation of goodwill and other identifiable intangible assets, determination of the projected benefit obligations of the defined benefit plans, income taxes, fair value of stock options, derivatives and financial instruments, contingent earn-out, and the tax related valuation allowances. On an ongoing basis, management evaluates these estimates, assumptions and judgments, in reference to historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Cash and Cash Equivalents
Cash and cash equivalents is comprised of cash on hand and short-term deposits with an original maturity at the date of purchaseacquisition becomes available; as a result, we may make adjustments to the initial provisional amounts recorded for intangible assets acquired in the year following acquisition.
When a business combination involves contingent consideration, we record a liability for the estimated cost of three monthssuch contingencies when expenditures are probable and reasonably estimable. A significant amount of judgment is required to estimate and quantify the potential liability in these matters. We engage outside experts as deemed necessary or less.appropriate to assist in the calculation of the liability; however, management is responsible for evaluating the estimate. We reassess the estimated fair value of the contingent consideration at the end of each quarter and record any changes in value as necessary.
CLARIVATE PLC
Notes to the ConsolidatedManagement’s Discussion and Analysis of Financial StatementsCondition and Results of Operations
(In thousands,millions, except share and per share data, option prices, ratios or as noted)
Restricted Cash
The Company held $14,678 and $9 of restricted cash as of December 31, 2020 and 2019, respectively. Restricted cash of $6,498 was primarily related to funds from the Company’s IncoPat transaction as of December 31, 2020. Restricted cash of $4,779 was primarily related to deposits held with patent offices and on behalf of certain customers to make payment to their vendors as of December 31, 2020. Restricted cash also includes the in-substance consolidation of a trust held to fund the CPA Global Equity Plans and represents cash earmarked to fund fixed cash awards and certain taxes in the amount of $3,400. As of December 31, 2019, the Company held $9 of restricted cash primarily related to funds from the Company’s Publons transaction.
Accounts Receivable
Through the adoption of ASU 2016-13 and the related standards, the Company revised its policy regarding the recognition of expected credit losses and for its accounts receivable portfolio.
Accounts receivable are recorded at the amount invoiced to customers and do not bear interest. The Company estimates credit losses for trade receivables by aggregating similar customer types, because they tend to share similar credit risk characteristics, taking into consideration the number of days the receivable is past due. Provision rates for the allowance for doubtful accounts are based upon the historical loss method by evaluating factors such as the length of time receivables are past due and historical collection experience. Additionally, provision rates are based upon current and future economic and competitive environment factors that could impact the collectability of the receivable. Trade and other receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include past due status greater than 360 days or bankruptcy of the debtor.
Concentration of Credit Risk
Accounts receivable are the primary financial instrument that potentially subjects the Company to significant concentrations of credit risk. Accounts receivable represents arrangements in which services were transferred to a customer before the customer pays consideration or before payment is due. Contracts with payment in arrears are recognized as receivables after the Company considers whether a significant financing component exists. The Company does not require collateral or other securities to support customer receivables. Management performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed appropriate. Credit losses have been immaterial and reasonable within management’s expectations. No single customer accounted for more than 1% of revenues and our 10 largest customers represented only 6% of revenues for the year ended December 31, 2020.
The Company maintains its cash and cash equivalent balances with high-quality financial institutions and consequently, the Company believes that such funds are subject to minimal credit risk.
Prepaid Expenses
Prepaid expenses represent amounts that the Company has paid in advance of receiving benefits or services. Prepaid expenses include amounts for system and service contracts, sales commissions, deposits, prepaid royalties and insurance and are recognized as an expense over the general contractual period that the Company expects to benefit from the underlying asset or service.
Property and Equipment, net
Generally, property and equipment are recorded at cost and are depreciated over the respective estimated useful lives. Depreciation is computed using the straight‑line method. Repair and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of sold or retired assets are removed from the accounts and any gain or loss is included within Loss from operations in the Consolidated Statements of Operations.
The estimated useful lives are as follows:
| | | | | | | | |
| | |
Computer hardware | | 3 years |
Furniture, fixtures and equipment | | 5-7 years |
Leasehold improvements | | Lesser of lease term or estimated useful life |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Computer Software
Development costs related to internally generated software are capitalized once a project has progressed beyond a conceptual, preliminary stage to that of the application development stage. Costs of significant improvements on existing software for internal use, both internally developed and purchased, are also capitalized. Costs related to the preliminary project stage, data conversion and post-implementation/operation stage of an internal use software development project are expensed as incurred.
Capitalized costs are amortized over five years, which is the estimated useful life of the related software. Purchased software is amortized over three years, which is the estimated useful life of the related software. The capitalized amounts, net of accumulated amortization, are included in Other intangible assets, net in the Consolidated Balance Sheets. The cost and related accumulated amortization of sold or retired assets are removed from the accounts and any gain or loss is included within Loss from operations in the Consolidated Statements of Operations.
Computer software is evaluated for impairment whenever circumstances indicate the carrying amount may not be recoverable. The test for impairment compares the carrying amounts with the sum of undiscounted cash flows related to the asset. If the carrying value is greater than the undiscounted cash flows of the asset, the asset is written down to its estimated fair value.
Identifiable Intangible Assets, net
Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization or accumulated impairment for indefinite-lived intangible assets. Useful lives are reviewed at the end of each reporting period and adjusted if appropriate. Fully amortized assets are retained at cost and accumulated amortization accounts until such assets are derecognized.
Customer Relationships — Customer relationships primarily consist of customer contracts and customer relationships arising from such contracts.
Databases and Content — Databases and content primarily consists of repositories of the Company’s specific financial and customer information and intellectual content.
Developed Technology — Developed technology primarily consists of proprietary technology used for healthcare data, analytics, and insights products and services.
Backlog — Backlog primarily consists of orders and contracts received for which performance has not occurred prior to being acquired by the Company.
Non-compete agreements — Non-compete agreements primarily consist of agreements with employees of acquired entities to ensure that if they cease employment with the Company, they will not involve themselves with competition of the business for a given duration.
Trade Names — Trade names consist of purchased brand names that the Company continues to use.
Where applicable, intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:
| | | | | |
Customer relationships | 2 – 23 years |
Databases and content | 2 – 20 years |
Developed technology | 3 – 14 years |
Computer software | 5 years |
Finite-lived trade names | 2 - 18 years |
Non-compete agreements | 5 years |
Backlog | 4 years |
Indefinite-lived trade names | Indefinite |
Impairment of Long-Lived Assets
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Residual values and useful lives are reviewed at the end of each reporting period and adjusted if appropriate. The Company evaluates its long-lived assets, including computer hardware and other property, computer software, and finite-lived intangible assets for impairment whenever circumstances indicate that their carrying amounts may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. An asset is assessed for impairment at the lowest level that the asset generates cash inflows that are largely independent of cash inflows from other assets. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.
Management identified an impairment loss in connection with the divestiture of certain assets and liabilities of its MarkMonitor Product Line within its IP segment in the year ended December 31, 2019. As a result of restructuring initiatives, the Company recorded non-cash impairment for leases in the year ended December 31, 2020. See Note 25 - Restructuring and Impairment for further information.
Goodwill and Indefinite-Lived Intangible Assets
The Company evaluates itsGoodwill
We perform goodwill for impairment attesting during the reporting unit level, defined as an operating segment or one level below an operating segment, annually asfourth quarter of October 1each year, or more frequently if events or changes in circumstances indicate that carrying value may not be recoverable. In assessing whether a potential impairment indicators ariseevent has occurred, we evaluate various factors, many of which are subjective and require significant judgment. Examples of such factors include significant negative industry or economic trends, persistent declines in accordance with Accounting Standards Codification ("ASC") Topic 350. The Company identified 6 reporting units due to a changeour market value, significant changes in regulatory requirements or the Company’s reporting structure for the year ended December 31, 2020legal environment, and 5 reporting unit for the years ended December 31, 2019 and 2018.segment changes.
The Company evaluates the recoverability of goodwill at the reporting unit level. The Company assesses various qualitative factors to determine whetherWe estimate the fair value of a reporting unit mayusing a DCF model. Our DCF model relies significantly on our internal forecasts of future cash flows and long-term growth rates. Significant judgments and estimates made in this analysis include projected revenue growth rates and EBITDA margins, tax rates, terminal values, and discount rates. Changes in these estimates and assumptions could materially affect the determination of estimated fair value and we could be required to record additional impairment charges.
In 2023, we performed our annual goodwill impairment assessment in the fourth quarter using a quantitative approach. The annual assessment coincided with a change in our reporting units wherein the legacy ProQuest and Web of Science Group reporting units were combined into a single reporting unit, A&G. The goodwill impairment assessment included an analysis of the impacted reporting units immediately before and immediately after the change and concluded there was no impairment in either scenario. Based on the quantitative analysis, we determined that the carrying value of the IP and LS&H segment reporting units exceeded their respective fair values, resulting in a goodwill impairment charge of $844.7. The impairment charge recorded for the IP reporting unit represented a total write-off of the associated goodwill. The impairments were primarily due to worsening macroeconomic and market conditions.
In completing the annual quantitative goodwill impairment assessment, we used weighted average cost of capital (“WACC”) discount rate assumptions of 9.5%, 10%, and 11% for the A&G, LS&H, and IP reporting units, respectively. The discount rates were derived using a capital asset pricing model and analyzing published rates for industries relevant to each reporting unit to estimate the cost of equity financing. We used discount rates we believe to be commensurate with the risks and uncertainty inherent in the respective reporting units and in our internally developed forecasts. The use of a different set of assumptions and estimates could have resulted in materially different results. For our LS&H reporting unit, a 50 basis point increase in the discount rate would result in an incremental impairment charge of less than $90.0.
In September 2022, we performed a quantitative goodwill impairment test that resulted in a goodwill impairment charge of $4,407.9 across three of our four reporting units at the time; the impairment charge resulted in a full goodwill write-off for two of the four reporting units. Similar to our 2023 analysis, our 2022 analysis utilized discount rates derived from a capital asset pricing model and an analysis of published rates for industries relevant to each reporting unit. For those reporting units whose estimated fair values exceeded their carrying values, we applied a hypothetical sensitivity analysis by increasing the discount rate by 100 basis points and, in a separate test, by reducing the fair value of those reporting units by 10%. As a result of either scenario, the IP reporting unit’s fair value was approximately equal to its carrying amount. value. All other reporting units evaluated under either scenario reflected fair values well in excess of carrying values by at least 40%. We subsequently performed our annual goodwill impairment test by applying a qualitative assessment, in which we considered factors such as those described above, as well as the historical significant level of headroom. We did not identify any additional impairment charge requirements as a result of the annual test performed in the fourth quarter of 2022.
If any of our DCF assumptions or estimates fall short of our projections, we could experience additional impairment events in the future.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets consist of purchased brand trade names. In 2023 and 2022, we used a determinationqualitative assessment to evaluate events and circumstances that might impact the value of each trade name. In 2021, we performed a quantitative assessment using the relief-from-royalty method that indicated that the fair value of our trade names was significantly in excess of carrying value. We did not identify any impairments of our indefinite-lived intangible assets in 2023, 2022, or 2021.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Long-Lived Assets (including Other Intangible Assets)
We evaluate long-lived assets, including property and equipment, definite-lived intangible assets, and right-of-use lease assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, we assess recoverability by comparing the carrying amount of the asset to our estimate of the future undiscounted cash flows expected to be generated by the asset over its remaining life. We exercise judgment in selecting the appropriate assumptions to use in the estimated future undiscounted cash flows analysis. If the carrying amount of the asset exceeds its estimated future cash flows, we recognize an impairment charge equal to the amount by which the carrying amount of the asset exceeds its fair value.
Share-Based Compensation
Share-based compensation expense includes cost associated with stock options, restricted share units (“RSUs”) and performance share units (“PSUs”) granted to certain key members of management.
The share-based compensation cost of time-based RSU and PSU grants is madecalculated by multiplying the grant date fair value by the number of shares granted. We engage a third-party valuation expert to perform a Monte Carlo simulation that basedestimates the grant date fair value for PSUs that have a market-based modifier component. We recognize compensation expense over the vesting period of the award on a graded-scale basis, and we recognize forfeitures as they occur. Each quarter, we estimate the number of shares that are expected to vest and adjust our expense accordingly.
Income Taxes
We recognize income taxes under the asset and liability method. Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated current and future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income tax expense for financial statement purposes. In assessing the realizability of deferred tax assets, we consider all available positive and negative evidence factors. Evidence considered includes historical and projected future taxable income by tax jurisdiction, character and timing of income or loss, and prudent and feasible tax planning strategies. We record a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized. Unforeseen future events, such as changes in market conditions and changes in tax laws, could have a material impact on the qualitative factors, an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment resultsrealizability of deferred tax assets.
The calculation of our tax liabilities involves dealing with uncertainties in the Company concluding thatapplication of complex tax laws and regulations in a multitude of jurisdictions across our global operations. We record tax benefits when it is more likely than not that the fair valueposition will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. Because of the complexity of some of these uncertainties, the ultimate resolution of our uncertain tax positions may result in a reporting unitpayment that is materially different from our current estimates. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
Recently Issued Accounting Pronouncements
We do not believe that any recently issued accounting pronouncements will have a material impact on our financial condition or results of operations. For additional information related to recently issued and adopted accounting pronouncements, see Note 1 - Nature of Operations and Summary of Significant Accounting Policies included in Part II, Item 8 of this annual report.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | % Change |
| (in millions) | 2023 | | 2022 | | 2021 | | 23 vs ’22 | | 22 vs ’21 |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | 1,876.9 | | | (1)% | | 42% |
| Operating expenses: | | | | | | | | | |
| Cost of revenues | 906.4 | | | 954.0 | | | 626.1 | | | (5)% | | 52% |
| Selling, general and administrative costs | 739.7 | | | 729.9 | | | 643.0 | | | 1% | | 14% |
| Depreciation and amortization | 708.3 | | | 710.5 | | | 537.8 | | | —% | | 32% |
| Goodwill and intangible asset impairments | 979.9 | | | 4,449.1 | | | — | | | (78)% | | N/M |
| Restructuring and other impairments | 40.0 | | | 66.7 | | | 129.5 | | | (40)% | | (48)% |
| Other operating expense (income), net | (10.8) | | | (324.8) | | | 27.5 | | | (97)% | | N/M |
| Total operating expenses | 3,363.5 | | | 6,585.4 | | | 1,963.9 | | | | | |
| Income (loss) from operations | (734.7) | | | (3,925.6) | | | (87.0) | | | | | |
| Fair value adjustment of warrants | (15.9) | | | (206.8) | | | (81.3) | | | (92)% | | N/M |
| Interest expense, net | 293.7 | | | 270.3 | | | 252.5 | | | 9% | | 7% |
| Income (loss) before income tax | (1,012.5) | | | (3,989.1) | | | (258.2) | | | | | |
| Provision (benefit) for income taxes | (101.3) | | | (28.9) | | | 12.3 | | | N/M | | N/M |
| Net income (loss) | (911.2) | | | (3,960.2) | | | (270.5) | | | | | |
| Dividends on preferred shares | 75.4 | | | 75.4 | | | 41.5 | | | —% | | 82% |
| Net income (loss) attributable to ordinary shares | $ | (986.6) | | | $ | (4,035.6) | | | $ | (312.0) | | | | | |
| N/M - Represents a change approximately equal or in excess of 100% or not meaningful. |
As discussed below and in the notes to the financial statements, the following factors had a significant impact on the comparability of our results of operations between the periods presented and may be less than its carrying amount,affect the comparability of our results of operations in future periods:
•In 2022 and 2023, we recognized substantial goodwill impairments.
•On October 31, 2022, we completed the sale of the MarkMonitor Domain Management business within our IP segment.
•On December 1, 2021, we completed the acquisition of ProQuest, reported primarily within our A&G segment.
•In 2021, we completed public equity and debt offerings.
•In 2021 and 2022, we implemented a number of restructuring programs to integrate acquisitions and to simplify and optimize operations.
Revenues, net
The tables below present the changes in revenues by transaction type, segment, and by geographic region, as well as the components driving the changes between periods.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Revenues by transaction type
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Change | % of Change |
| 2023 | | 2022 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Subscription revenues | $ | 1,618.1 | | | $ | 1,618.8 | | | $ | (0.7) | | — | % | — | % | (3.7) | % | 1.3 | % | 2.4 | % |
| Re-occurring revenues | 444.6 | | | 441.9 | | | 2.7 | | 0.6 | % | — | % | — | % | 0.4 | % | 0.2 | % |
| Transactional and other revenues | 566.1 | | | 599.1 | | | (33.0) | | (5.5) | % | — | % | (0.7) | % | 0.6 | % | (5.4) | % |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | (31.0) | | (1.2) | % | — | % | (2.4) | % | 0.9 | % | 0.3 | % |
| | | | | | | | | | |
| | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | |
| 2022 | | 2021 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Subscription revenues | $ | 1,618.8 | | | $ | 1,030.4 | | | $ | 588.4 | | 57.1 | % | 59.7 | % | (1.1) | % | (4.9) | % | 3.4 | % |
| Re-occurring revenues | 441.9 | | | 453.2 | | | (11.3) | | (2.5) | % | — | % | — | % | (7.7) | % | 5.2 | % |
| Transactional and other revenues | 599.1 | | | 393.3 | | | 205.8 | | 52.3 | % | 58.3 | % | (0.2) | % | (3.1) | % | (2.7) | % |
| Revenues, net | $ | 2,659.8 | | | $ | 1,876.9 | | | $ | 782.9 | | 41.7 | % | 45.0 | % | (0.7) | % | (5.2) | % | 2.6 | % |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2023 vs. 2022
Subscription revenues decreased primarily due to the divestiture of the MarkMonitor business partially offset by organic growth driven by price increases, reflecting a trend consistent with the increase in our ACV between periods, and an FX benefit. Transactional and other revenues decreased primarily due to lower LS&H real world data sales and IP trademarks transactional volumes and patent search & analytics revenue.
2022 vs. 2021
Subscription revenues increased primarily due to the acquisition of ProQuest, further supplemented by organic growth driven by price increases and the benefit of net installations, reflecting a trend consistent with the increase in our ACV between periods. Re-occurring revenues decreased due to FX headwinds, partially offset by strong organic growth driven by increases in patent renewal volumes and improvements in yield per case. Transactional and other revenues increased due to the acquisition of ProQuest, partially offset by FX headwinds and lower trademark transactional volumes and patent filing revenue.
Revenues by segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Change | % of Change |
| 2023 | | 2022 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Academia & Government | $ | 1,323.3 | | | $ | 1,280.1 | | | $ | 43.2 | | 3.4 | % | — | % | — | % | 1.2 | % | 2.2 | % |
| Intellectual Property | 862.7 | | | 927.1 | | | (64.4) | | (6.9) | % | — | % | (6.9) | % | 0.7 | % | (0.7) | % |
| Life Sciences & Healthcare | 442.8 | | | 452.6 | | | (9.8) | | (2.2) | % | — | % | — | % | 1.0 | % | (3.2) | % |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | (31.0) | | (1.2) | % | — | % | (2.4) | % | 0.9 | % | 0.3 | % |
| | | | | | | | | | |
| | | | |
| 2022 | | 2021 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Academia & Government | $ | 1,280.1 | | | $ | 489.4 | | | $ | 790.7 | | 161.6 | % | 164.7 | % | — | % | (4.9) | % | 1.8 | % |
| Intellectual Property | 927.1 | | | 974.3 | | | (47.2) | | (4.8) | % | 0.3 | % | (1.3) | % | (6.1) | % | 2.3 | % |
| Life Sciences & Healthcare | 452.6 | | | 413.2 | | | 39.4 | | 9.5 | % | 8.6 | % | — | % | (3.2) | % | 4.1 | % |
| Revenues, net | $ | 2,659.8 | | | $ | 1,876.9 | | | $ | 782.9 | | 41.7 | % | 45.0 | % | (0.7) | % | (5.2) | % | 2.6 | % |
2023 vs. 2022
A&G segment revenues increased from organic growth, primarily related to subscription revenues driven by price increases, reflecting a trend consistent with the increase in our ACV between periods. IP segment revenues decreased primarily due to the divestiture of the MarkMonitor business with organic decline due to lower trademarks transactional volumes and patent search & analytics revenue. LS&H segment revenues decreased primarily due to lower LS&H real world data sales.
2022 vs. 2021
A&G revenues increased primarily due to the acquisition of ProQuest, further supplemented by organic growth driven by increased subscription revenues from price increases and the benefit of net installations. IP segment revenues decreased primarily due to FX headwinds that weren’t fully offset by organic growth driven by increases in patent renewal volumes and improvements in yield per case. LS&H segment revenues increased primarily due to the acquisition of ProQuest, further
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
supplemented by organic growth driven by increased subscription revenues from price increases, the benefit of net installations, and increases in custom data sales.
Revenues by geography
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended
December 31, | | Change | % of Change |
| 2023 | | 2022 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Americas | $ | 1,405.5 | | | $ | 1,462.3 | | | $ | (56.8) | | (3.9) | % | — | % | (3.6) | % | 0.4 | % | (0.7) | % |
| Europe/Middle East/Africa | 707.5 | | | 698.3 | | | 9.2 | | 1.3 | % | — | % | (1.3) | % | 1.9 | % | 0.7 | % |
| Asia Pacific | 515.8 | | | 499.2 | | | 16.6 | | 3.3 | % | — | % | (0.5) | % | 1.5 | % | 2.3 | % |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | (31.0) | | (1.2) | % | — | % | (2.4) | % | 0.9 | % | 0.3 | % |
| | | | | | | | | | |
| | | | |
| 2022 | | 2021 | | $ | % | Acquisitions | Disposals | FX | Organic |
| Americas | $ | 1,462.3 | | | $ | 924.7 | | | $ | 537.6 | | 58.1 | % | 57.8 | % | (1.1) | % | (2.1) | % | 3.5 | % |
| Europe/Middle East/Africa | 698.3 | | | 555.8 | | | 142.5 | | 25.6 | % | 35.5 | % | (0.3) | % | (8.3) | % | (1.3) | % |
| Asia Pacific | 499.2 | | | 396.4 | | | 102.8 | | 25.9 | % | 28.3 | % | (0.2) | % | (7.9) | % | 5.7 | % |
| Revenues, net | $ | 2,659.8 | | | $ | 1,876.9 | | | $ | 782.9 | | 41.7 | % | 45.0 | % | (0.7) | % | (5.2) | % | 2.6 | % |
2023 vs. 2022
Americas revenues decreased primarily due to the divestiture of the MarkMonitor business and from organic decline, due to lower LS&H real world data and IP re-occurring and transactional revenue. EMEA revenues organic growth was driven by A&G subscription and IP re-occurring revenue. APAC revenues organic growth was driven primarily by A&G subscription revenue.
2022 vs. 2021
In all regions, revenues increased primarily due to the acquisition of ProQuest, partially offset by FX headwinds and reductions from the divestiture of the MarkMonitor business. Americas organic growth of 3.5% was driven by improved subscription and re-occurring revenues and APAC’s organic growth of 5.7% was led by A&G and LS&H subscription revenues increases.
Cost of revenues
Cost of revenues consists of costs related to the production, servicing, and maintenance of our products and are composed primarily of related personnel costs, data center services and licensing costs, and costs to acquire or produce content including royalty fees.
The decrease of 5.0% compared to 2022 was primarily driven by effective contractor spend management and the divestiture of the MarkMonitor business, partially offset by product-related agent costs. As a percentage of revenues, Cost of revenues decreased by 1.4% from the prior year.
The increase of 52.4% compared to 2021 was primarily driven by the acquisition of ProQuest, partially offset by a reduction in product and people-related costs driven by our cost-savings and margin improvement restructuring programs. As a percentage of revenues, Cost of revenues increased by 2.5% from the prior year.
Selling, general and administrative costs
Selling, general and administrative costs (“SG&A”) include nearly all business costs not directly attributable to the production, servicing, and maintenance of our products and are composed primarily of related personnel costs, third-party professional services fees, facility costs like rent and utilities, technology costs associated with our corporate infrastructure, and transaction expenses associated with acquisitions, divestitures, and capital market activities including advisory, legal, and other professional and consulting costs.
The increase of 1.3% compared to 2022 was primarily attributed to increased technology costs associated with increased technology costs to support the business.
The increase of 13.5% compared to 2021 was primarily driven by our acquisition of ProQuest, partially offset by reductions in outside services, share-based compensation, legal, rent, and other miscellaneous business operating expenses.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Depreciation and amortization
Depreciation expense relates to our fixed assets, including mainly computer hardware and leasehold improvements, furniture and fixtures. Amortization expense relates to our definite-lived intangible assets, including mainly technology and content, customer relationships, internally generated computer software, and trade names.
2023 was consistent with 2022. As a percentage of revenues, Depreciation and amortization increased by 0.2% from the prior year.
The increase of 32.1% compared to 2021 was primarily driven by the additional amortization from the intangible assets acquired from the ProQuest acquisition. As a percentage of revenues, Depreciation and amortization decreased by 2.0% from the prior year.
Goodwill and intangible asset impairments
In both 2023 and 2022, we completed quantitative goodwill impairment assessments using a DCF analysis to estimate the fair value of each of our reporting units. Based on these quantitative analyses performed, we recorded a total goodwill impairment charge of $844.7 and $4,449 in 2023 and 2022, respectively. Additionally, during the year ended December 31, 2023, in connection with intangible assets classified as assets held-for-sale as of December 31, 2023, we recorded an impairment charge of $132.2 and a $3.0 goodwill impairment charge associated with the disposal group’s allocated portion of the IP segment reporting unitunit’s goodwill balance.
For additional information regarding our recent goodwill and intangible asset impairments, see Note 6 - Other Intangible Assets, net and Goodwill included in Part II, Item 8 of this annual report.
Restructuring and other impairments
Restructuring and impairment expense includes costs associated with involuntary termination benefits provided to employees under the terms of a one-time benefit arrangement, ongoing benefit arrangements, certain contract termination costs, other costs associated with an exit or disposal activity and impairment charges associated with right-of-use assets in which we’ve ceased the use of during the period. We’ve incurred total lifetime costs of approximately $302 related to approved restructuring plans to streamline operations within targeted areas of our business dating back to 2019, primarily related to acquisition integration programs. As of December 31, 2023, we expect to incur approximately $20 of additional restructuring costs associated with the Segment Optimization Program, which we expect to incur primarily within 2024. Restructuring and other impairments also includes write-downs associated with equity investments of $6.1 in 2023. For further information regarding each of our restructuring initiatives and impairment impacts, see Note 13 - Restructuring and Other Impairments included in Part II, Item 8 of this annual report.
The decrease of 40.0% compared to 2022 was driven by the wind-down of expenses associated with the ProQuest Acquisition Integration and OneClarivate Program, partially offset by an increase to expenses incurred related to the Segment Optimization Program and the impact of the equity investment write-downs.
The decrease of 48.5% compared to 2021 was driven by the wind-down of expenses associated with the CPA Global Acquisition Integration and Optimization Program, DRG Acquisition Integration Program, and Operation Simplification and Optimization Program, partially offset by increased expenses incurred related to the One Clarivate and ProQuest Acquisition Integration Program.
Other operating expense (income), net
The change of $314.0 in 2023 compared to 2022 was driven by a $278.5 gain on sale from the divestiture of the MarkMonitor business in the prior year, and, to a lesser extent, a net loss on foreign exchange remeasurement in 2023 compared to a net gain in the prior year with the largest impact derived from transactions denominated in GBP. These factors were partially offset by a gain on legal settlement of $49.4 in 2023.
The change of $352.3 in 2022 compared to the $27.5 net expense in 2021 was driven by a $278.5 gain on sale from the divestiture of the MarkMonitor business, and, to a lesser extent, a net gain on foreign exchange remeasurement compared to a net loss in the prior year with the largest impacts derived from transactions denominated in GBP.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Fair value adjustment of warrants
We account for our outstanding private placement warrants as liabilities at fair value on the balance sheet, which are subject to remeasurement at each balance sheet date and any change in fair value is recognized as of the end of each period for which earnings are reported. The adjustments in fair value, resulting in a gain in the current and comparative years, was driven primarily by changes in the risk-free rate, our share price, and the impact of those changes as key inputs to the Black-Scholes option valuation model.
Interest expense, net
The increase of 8.7% compared to 2022 was primarily driven by higher floating interest rates on borrowings under the Term Loan Facility, partially offset by gains under our interest rate swap program and debt prepayments.
The increase of 7.0% compared to 2021 was primarily driven by higher floating interest rates on borrowings under the Term Loan Facility and from our private placement offerings and subsequent exchange offers of the Senior Secured Notes due 2028 and Senior Notes due 2029, which took place in the second and third quarter of 2021, respectively.
Provision (benefit) for income taxes
The increased benefit in 2023 compared to 2022 was primarily due to one-time tax benefits recorded in the year ended December 31, 2023, offset by one-time tax benefits recorded in 2022. In 2023, we recorded a tax benefit from settlement of an open tax dispute, a tax benefit associated with the impairment of intangible assets, a tax benefit relating to the partial release of valuation allowance recorded against certain U.S. tax attributes, and a tax benefit resulting from goodwill impairment. In 2022, we recorded tax benefits from the release of a valuation allowance upon the execution of an internal legal entity restructuring, and from the release of an uncertain tax position that was favorably resolved.
In December 2021, the Organization for Economic Co-operation and Development (“OECD”) issued model rules for a new global minimum tax framework under its “Pillar Two” initiative, and various governments around the world have issued, or have announced that they plan to issue, legislation consistent with the OECD model rules. We are within the scope of the OECD Pillar Two model rules.
During Q3 2023, the United Kingdom enacted legislation consistent with the OECD model rules, which will be determinedeffective beginning January 1, 2024. We are in the process of assessing the impact of legislation enacting global minimum tax rules in various jurisdictions. Based on our most recent tax filings, country-by-country reporting, and financial information available, we believe that most of the jurisdictions in which we operate will meet the requirements for transitional safe harbor relief. Therefore, we do not expect the global minimum tax to have a material impact in 2024. However, future legislation or changes in our financial results could materially increase our global minimum tax expense in future years.
The benefit in 2022 compared to its carryingthe provision in 2021 was driven by one-time tax benefits from the release of a valuation allowance upon the execution of an internal legal entity restructuring effective December 31, 2022, and from the release of an uncertain tax position that was favorably resolved. These benefits were partially offset by tax expense accruals on a significant fair value including goodwill.adjustment gain on our outstanding private placement warrants and on an increase in taxable income in tax-paying jurisdictions.
Dividends on preferred shares
Dividends on our mandatory convertible preferred shares are calculated at an annual rate of 5.25% of the liquidation preference of $100.00 per share. We may pay declared dividends on March 1, 2024 and June 1, 2024 prior to the automatic conversion of these shares.
Adjusted EBITDA and Adjusted EBITDA margin (non-GAAP measure)
The following table presents our calculation of Adjusted EBITDA and Adjusted EBITDA margin for the years ended December 31, 2023, 2022, and 2021, and reconciles these measures to our Net income (loss) for the same periods:
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net income (loss) attributable to ordinary shares | $ | (986.6) | | $ | (4,035.6) | | $ | (312.0) |
| Dividends on preferred shares | 75.4 | | 75.4 | | 41.5 |
| Net income (loss) | (911.2) | | (3,960.2) | | (270.5) |
| Provision (benefit) for income taxes | (101.3) | | (28.9) | | 12.3 |
| Depreciation and amortization | 708.3 | | 710.5 | | 537.8 |
| Interest expense, net | 293.7 | | 270.3 | | 252.5 |
| | | | | |
Transaction related costs(1) | 8.2 | | 14.2 | | 46.2 |
| Share-based compensation expense | 108.9 | | 102.2 | | 139.6 |
| Gain on sale from divestitures | — | | (278.5) | | — |
| Goodwill and intangible asset impairments | 979.9 | | 4,449.1 | | — |
| Restructuring and other impairments | 40.0 | | 66.7 | | 129.5 |
| Fair value adjustment of warrants | (15.9) | | (206.8) | | (81.3) |
Other(2) | 6.6 | | (25.9) | | 34.3 |
| Adjusted EBITDA | $ | 1,117.2 | | $ | 1,112.7 | | $ | 800.4 |
| Adjusted EBITDA margin | 42.5% | | 41.8% | | 42.6% |
(1) Includes costs incurred to complete business combination transactions, including acquisitions, dispositions, and capital market activities, and includes advisory, legal, and other professional and consulting costs. 2021 also includes the mark-to-market adjustment (gains) on the contingent stock consideration associated with the CPA Global and DRG acquisitions. |
(2) Primarily reflects the net impact of foreign exchange gains and losses related to the remeasurement of balances and other items that do not reflect our ongoing operating performance. 2023 also includes a $49.4 gain on legal settlement (for further information, see Note 17 - Commitments and Contingencies included in Part II, Item 8 of this annual report). |
Liquidity and Capital Resources
We finance our operations primarily through cash generated by operating activities and through borrowing activities. As of December 31, 2023, we had $370.7 of cash and cash equivalents and $740.8 of available borrowing capacity under our revolving credit facility.
Cash Flows
We have historically generated significant cash flows from our operating activities. Our subscription-based revenue model provides a steady and predictable source of revenue and cash flow for us, as we typically receive payments from our customers at the start of the subscription period (usually 12 months) and recognize revenue ratably throughout that period. Our high customer renewal rate, stable margins, and efforts to improve operating efficiencies and working capital management also contribute to our ability to generate solid operating cash flows, The following table discloses our consolidated cash flows by activity for the periods presented: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net cash provided by (used for) operating activities | $ | 744.2 | | | $ | 509.3 | | | $ | 323.8 | |
| Net cash provided by (used for) investing activities | (237.4) | | | 57.3 | | | (4,044.5) | |
| Net cash provided by (used for) financing activities | (496.5) | | | (759.2) | | | 4,032.2 | |
Cash Flows Provided by (Used for) Operating Activities
The increase of $234.9 in 2023 was primarily due to materially lower one-time costs as acquisition integration is complete, as well as improvements in working capital.
The increase of $185.5 in 2022 was primarily due to higher earnings excluding the non-cash goodwill impairment charge, as well as working capital timing.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
Cash Flows Provided by (Used for) Investing Activities
The $(294.7) change in 2023 was primarily due to the proceeds received in the prior year from the sale of the MarkMonitor business and increased capital spending to fuel product innovation.
The $4,101.8 change in 2022 was driven by the significant level of cash paid for business acquisitions in 2021, and from the proceeds of $285.0 from the sale of the MarkMonitor business.
Cash Flows Provided by (Used for) Financing Activities
The $262.7 change in 2023 was primarily driven by uses of cash in the prior year that were not repeated. We had no outstanding balance on our Revolving Credit Facility after using $175.0 in the prior year to repay the outstanding balance and we used $100.0 to repurchase our ordinary shares, which was $75.0 less than the amount used in the prior year.
The $(4,791.4) change in 2022 was driven by the equity and debt offerings completed during 2021 to raise cash to finance the purchase price of the ProQuest acquisition in December 2021. In addition, during 2022, we made a prepayment of $300.0 on our Term Loan Facility, we repaid the $175.0 balance on our Revolving Credit Facility that was borrowed in 2021, and we repurchased $175.0 of our ordinary shares.
Free Cash Flow (non-GAAP measure)
The following table reconciles our non-GAAP Free Cash Flow measure to Net cash provided by (used for) operating activities: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net cash provided by (used for) operating activities | $ | 744.2 | | | $ | 509.3 | | | $ | 323.8 | |
| Capital expenditures | (242.5) | | | (202.9) | | | (118.5) | |
| Free Cash Flow | $ | 501.7 | | | $ | 306.4 | | | $ | 205.2 | |
The increase in Free Cash Flow in 2023 and 2022, as compared to the respective prior year, was driven by significant increases in cash generated from operating activities, partially offset by increased capital expenditures. Our capital expenditures in 2023, 2022, and 2021 consisted primarily of capitalized labor, contract services, and other costs associated with product and content development.
Borrowings
As of December 31, 2023, we had $4,740.0 of outstanding borrowings under our notes and credit facilities. We incurred $293.7, $270.3 and $252.5 of interest expense associated with our debt obligations for the years ended December 31, 2023, 2022, and 2021, respectively. Our contingent liabilities consist primarily of letters of credit and performance bonds and other similar obligations in the ordinary course of business. For further discussion related to our outstanding borrowings, see Note 9 - Debt included in Part II, Item 8 of this annual report.
In determiningJanuary 2024, we refinanced our existing Term Loan Facility and extended the maturity date of our Revolving Credit Facility. We refinanced all of our existing term loans with a new $2,150 tranche of term loans maturing in 2031, with an interest rate margin of 275 basis points per annum in the case of loans bearing interest by reference to term SOFR. The new term loan facility effectively extended the maturity of our existing term loans by approximately 5 years. The new term loans amortize in equal quarterly installments equivalent to 1.00% per annum, with the balance due at maturity. Concurrently, we refinanced our Revolving Credit Facility with a replacement $700 million facility, which effectively extends the maturity of the revolving credit facility from 2027 to 2029. The strategic refinancing provides improved financial flexibility, including extending our debt maturities and lowering our annual cash interest costs.
Commitments and Contingencies
In addition to the scheduled future debt repayments that we will need to make, we also have commitments and plans related to our mandatory convertible preferred shares (“MCPS”), share repurchase program, and capital expenditures.
Our MCPS will convert to ordinary shares on June 1, 2024 and we will accrue approximately $35 of dividends in 2024 prior to conversion. For additional information related to our MCPS, see Note 10 - Shareholders' Equity included in Part II, Item 8 of this annual report.
CLARIVATE PLC
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except option prices, ratios or as noted)
As of December 31, 2023, we had approximately $400.0 of availability remaining under our share repurchase program. The share repurchase authorization is valid through December 31, 2024. For additional information related to our share repurchase program, see Note 10 - Shareholders' Equity included in Part II, Item 8 of this annual report.
We estimate capital expenditures to be approximately $265 during 2024. We also expect to incur approximately $190 of primarily cloud computing services and software license costs in 2024. Any amounts for which we are currently liable are reflected in our Consolidated Balance Sheets as Accounts payable or Accrued expenses and other current liabilities.
The Company is engaged in various legal proceedings and claims that have arisen in the ordinary course of business. We have taken what we believe to be adequate reserves related to the litigation and threatened claims. We maintain appropriate insurance policies in place, which are likely to provide some coverage for these liabilities or other losses that may arise from litigation matters. For additional information about our legal proceedings and claims, see Note 17 - Commitments and Contingencies included in Part II, Item 8 of this annual report.
We require and will continue to need significant cash resources to, among other things, meet our debt service requirements, fund our working capital requirements, make capital expenditures (including product development), and expand our business through acquisitions. Based on our forecasts, we believe that cash flow from operations, available cash on hand and borrowing capacity, and access to capital markets will be adequate to service debt, meet liquidity needs, and fund capital expenditures and other business plans for both the next 12 months and the foreseeable future. Our future capital requirements will depend on many factors, including the number of future acquisitions and the timing and extent of spending to support product development efforts. We could be required, or could elect, to seek additional funding through public or private equity or debt financings; however, additional funds may not be available on terms acceptable to us.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk that changes in market prices, such as foreign currency exchange rates and interest rates, will affect our cash flows or the fair value of our holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency exchange risk related to our transactions and our subsidiaries’ balances that are denominated in currencies other than the U.S. dollar, our functional currency. These currencies may continue to fluctuate, in either direction, especially as a result of central bank responses to inflation, concerns regarding future economic growth and other macroeconomic factors, and such fluctuations will affect financial statement line item comparability.
We periodically enter into foreign currency contracts. The purpose of these derivative instruments is to help manage our exposure to foreign exchange rate risks within the acquired CPA Global business. These contracts generally do not exceed 180 days in duration. We account for these foreign currency contracts at fair value and recognize the associated realized and unrealized gains and losses in Other operating expense (income), net in the Consolidated Statements of Operations, as the contracts are not designated as accounting hedges under the applicable sections of ASC Topic 815.
Revenues denominated in currencies other than U.S. dollars amounted to $767.7, or approximately 29.2%, of our total revenues for the year ended December 31, 2023. A significant majority of this amount was denominated in Euros and British pounds. A 5% increase or decrease in the value of the Euro and British pound relative to the U.S. dollar would have caused our revenues for the year ended December 31, 2023, to increase or decrease by $31.0.
Interest Rate Risk
Our interest rate risk arises primarily from our borrowings at floating interest rates. Borrowings under our credit facilities are subject to floating interest rates, plus a SOFR adjustment and a margin. As of December 31, 2023, we had $2,197.4 of floating rate debt outstanding under our Term Loan Facility. For our Term Loan Facility, the interest rate is one-month Term SOFR plus a SOFR adjustment of 0.11% (subject to a floor of 0.00% for $962.6 and 1.00% for $1,234.8), or Prime plus a margin of 2.25% per annum, as applicable depending on the borrowing. For borrowings under the revolving credit facility, the base interest rate is at Term SOFR, plus a 0.1% SOFR adjustment, plus 3.25% per annum (or 2.75% per annum, based on first lien leverage ratios) or Prime plus a margin of 2.25% per annum, as applicable depending on the borrowing. The interest rate margins under our credit facilities will decrease upon the achievement of certain first lien net leverage ratios (as the term is used in the Credit Agreement). Of the total debt outstanding under our credit facilities, we hedged $1,112.4 of our principal amount of our floating rate debt using interest rate swaps. As a result, $1,085.0 of our outstanding borrowings effectively bore interest at floating rates. A 0.125 basis point increase or decrease in the applicable base interest rate under our credit facilities would have an impact of $1.8 on our cash interest expense during the year ended December 31, 2023.
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Clarivate Plc
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Clarivate Plc and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date as the Company did not design and maintain effective controls related to the preparation and review of the footnote disclosures included in the Company’s consolidated financial statements, including controls related to the completeness and accuracy of the underlying information used in the preparation of the footnote disclosures.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessments for the Intellectual Property and Life Sciences and Healthcare Reporting Units
As described in Notes 1 and 6 to the consolidated financial statements, the Company’s consolidated goodwill balance was $2,023.7 million as of December 31, 2023 and the goodwill associated with the Intellectual Property and the Life Sciences and Healthcare reporting units was $0 and $913.9 million, respectively. Goodwill is not amortized, but instead is tested for impairment annually as of the first day of the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill impairment testing is performed at the reporting unit the Companylevel. Management estimates the fair value of a reporting unit using the fair value derived from the income approach. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit; whereas, the income approach uses a discounted cash flow (“DCF”) model. The DCF model determinesbased on the fairpresent value of our reporting units based on projectedestimated future discounted cash flows, whichdiscounted at an appropriate risk-adjusted rate. As disclosed by management, significant judgments and estimates made in this analysis include significant assumptions related toprojected revenue growth rates operatingand EBITDA margins, anticipated future economic conditions,tax rates, terminal values and discount rates. Based on the appropriate discount rates relative to risk and estimates of residual values.
If the fair value of the reporting unit exceedsannual quantitative analysis, management determined the carrying value of the net assets assignedIntellectual Property and Life Sciences and Healthcare reporting units exceeded their respective fair values, resulting in a goodwill impairment charge of $579.2 million related to the Intellectual Property reporting unit and $265.5 million related to the Life Sciences and Healthcare reporting unit.
The principal considerations for our determination that unit,performing procedures relating to the goodwill impairment assessments for the Intellectual Property and Life Sciences and Healthcare reporting units is not impaired, anda critical audit matter are (i) the Company is not required to perform further testing. Ifsignificant judgment by management when developing the fair value estimates of the reporting unit is less thanunits; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to projected revenue growth rates, EBITDA margins, terminal growth rate and discount rates; and (iii) the carrying value,audit effort involved the Company will recognizeuse of professionals with specialized skill and knowledge.
Addressing the difference as an impairment charge. Management concluded that nomatter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment existed for anyassessments, including controls over the valuation of the periods presented.
The CompanyIntellectual Property and Life Sciences and Healthcare reporting units. These procedures also has indefinite-lived intangible assets related to trade names. Indefinite-lived intangible assets are subject to impairmentincluded, among others (i) testing annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. For purposes of impairment testing,management’s process for developing the fair value of trade names is determined using an income approach, specifically the relief from royalties method. Management concluded that no indefinite-lived intangible impairment existed for anyestimates of the periods presented.
Other Currentreporting units; (ii) evaluating the appropriateness of the discounted cash flow model used by management; (iii) testing the completeness and Non-Current Assetsaccuracy of underlying data used in the discounted cash flow model; and Liabilities
The Company defines current assets(iv) evaluating the reasonableness of the significant assumptions used by management related to projected revenue growth rates, EBITDA margins, terminal growth rate and liabilities as those from which it will benefit from or which it has an obligation for within one year that do not otherwise classify as assets or liabilities separately reported ondiscount rates. Evaluating management’s assumptions related to projected revenue growth rates and EBITDA margins involved evaluating whether the Consolidated Balance Sheets. Other non-current assets and liabilities are expected to benefit the Company or cause its obligation beyond one year. The Company classifiesassumptions used by management were reasonable considering (i) the current portionand past performance of long-term assetsthe Intellectual Property and liabilities as current assets or liabilities.
LeasesLife Sciences and Healthcare reporting units; (ii) the consistency with external market and industry data; and (iii) whether the assumptions
were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow model and (ii) the reasonableness of the terminal growth rate and discount rates assumptions.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 27, 2024
We have served as the Company’s auditor since 2016.
CLARIVATE PLC
Consolidated Balance Sheets
| | | | | | | | | | | |
| As of December 31, |
| (in millions) | 2023 | | 2022 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents, including restricted cash | $ | 370.7 | | | $ | 356.8 | |
| | | |
| Accounts receivable, net | 908.3 | | | 872.1 | |
| Prepaid expenses | 88.5 | | | 89.4 | |
| Other current assets | 68.0 | | | 76.9 | |
| Assets held for sale | 26.7 | | | — | |
| Total current assets | 1,462.2 | | | 1,395.2 | |
| Property and equipment, net | 51.6 | | | 54.5 | |
| Other intangible assets, net | 9,006.6 | | | 9,437.7 | |
| Goodwill | 2,023.7 | | | 2,876.5 | |
| Other non-current assets | 60.8 | | | 97.9 | |
| Deferred income taxes | 46.7 | | | 24.2 | |
| Operating lease right-of-use assets | 55.2 | | | 58.9 | |
| Total assets | $ | 12,706.8 | | | $ | 13,944.9 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 144.1 | | | $ | 101.4 | |
| Accrued compensation | 126.5 | | | 132.1 | |
| Accrued expenses and other current liabilities | 315.2 | | | 353.1 | |
| Current portion of deferred revenues | 983.1 | | | 947.5 | |
| Current portion of operating lease liability | 24.4 | | | 25.7 | |
| Liabilities held for sale | 6.7 | |
| — | |
| Total current liabilities | 1,600.0 | | | 1,559.8 | |
| Long-term debt | 4,721.1 | | | 5,005.0 | |
| | | |
| Non-current portion of deferred revenues | 38.7 | | | 38.5 | |
| Other non-current liabilities | 41.9 | | | 140.1 | |
| Deferred income taxes | 249.6 | | | 316.1 | |
| Operating lease liabilities | 63.2 | | | 72.9 | |
| Total liabilities | 6,714.5 | | | 7,132.4 | |
| Commitments and contingencies (Note 17) | | | |
| Shareholders' equity: | | | |
| Preferred Shares, no par value; 14.4 shares authorized; 5.25% Mandatory Convertible Preferred Shares, Series A, 14.4 shares issued and outstanding as of both December 31, 2023 and December 31, 2022 | 1,392.6 | | | 1,392.6 | |
| Ordinary Shares, no par value; unlimited shares authorized; 666.1 and 674.4 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively | 11,740.5 | | | 11,744.7 | |
| | | |
| Accumulated other comprehensive loss | (495.3) | | | (665.9) | |
| Accumulated deficit | (6,645.5) | | | (5,658.9) | |
| Total shareholders' equity | 5,992.3 | | | 6,812.5 | |
| Total liabilities and shareholders' equity | $ | 12,706.8 | | | $ | 13,944.9 | |
The accompanying Notes are an integral part of these Consolidated Financial Statements.
CLARIVATE PLC
Consolidated Statements of Operations
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions, except per share data) | 2023 | | 2022 | | 2021 |
| Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | 1,876.9 | |
| Operating expenses: | | | | | |
| Cost of revenues | 906.4 | | | 954.0 | | | 626.1 | |
| Selling, general and administrative costs | 739.7 | | | 729.9 | | | 643.0 | |
| Depreciation and amortization | 708.3 | | | 710.5 | | | 537.8 | |
| Goodwill and intangible asset impairments | 979.9 | | | 4,449.1 | | | — | |
| Restructuring and other impairments | 40.0 | | | 66.7 | | | 129.5 | |
| Other operating expense (income), net | (10.8) | | | (324.8) | | | 27.5 | |
| Total operating expenses | 3,363.5 | | | 6,585.4 | | | 1,963.9 | |
| Income (loss) from operations | (734.7) | | | (3,925.6) | | | (87.0) | |
| Fair value adjustment of warrants | (15.9) | | | (206.8) | | | (81.3) | |
| Interest expense, net | 293.7 | | | 270.3 | | | 252.5 | |
| Income (loss) before income tax | (1,012.5) | | | (3,989.1) | | | (258.2) | |
| Provision (benefit) for income taxes | (101.3) | | | (28.9) | | | 12.3 | |
| Net income (loss) | (911.2) | | | (3,960.2) | | | (270.5) | |
| Dividends on preferred shares | 75.4 | | | 75.4 | | | 41.5 | |
| Net income (loss) attributable to ordinary shares | $ | (986.6) | | | $ | (4,035.6) | | | $ | (312.0) | |
| | | | | |
| Per share: | | | | | |
| Basic | $ | (1.47) | | | $ | (5.97) | | | $ | (0.49) | |
| Diluted | $ | (1.47) | | | $ | (6.24) | | | $ | (0.61) | |
| | | | | |
| Weighted average shares used to compute earnings per share: | | | | | |
| Basic | 671.6 | | | 676.1 | | | 631.0 | |
| Diluted | 671.6 | | | 678.6 | | | 640.8 | |
The accompanying Notes are an integral part of these Consolidated Financial Statements.
CLARIVATE PLC
Consolidated Statements of Comprehensive Income (Loss)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2023 | | 2022 | | 2021 |
| Net income (loss) | $ | (911.2) | | | $ | (3,960.2) | | | $ | (270.5) | |
| Other comprehensive income (loss), net of tax: | | | | | |
| Interest rate swaps, net of tax of $(7.2), $11.7, and $1.6 | (21.9) | | | 37.0 | | | 4.8 | |
| Defined benefit pension plans, net of tax | (1.1) | | | 2.9 | | | (0.6) | |
| Foreign currency translation adjustment | 193.6 | | | (1,032.5) | | | (169.9) | |
| Other comprehensive income (loss), net of tax | 170.6 | | | (992.6) | | | (165.7) | |
| Comprehensive income (loss) | $ | (740.6) | | | $ | (4,952.8) | | | $ | (436.2) | |
The accompanying Notes are an integral part of these Consolidated Financial Statements.
CLARIVATE PLC
Consolidated Statements of Changes in Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ordinary Shares | | Preferred Shares | | Treasury Shares | | Accumulated Other Comprehensive Income (Loss) | | Accumulated
Deficit | | Total
Shareholders’
Equity |
| (In millions) | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| Balance at December 31, 2020 | 606.3 | | $ | 9,989.2 | | | — | | $ | — | | | 6.3 | | $ | (196.0) | | | $ | 492.4 | | | $ | (1,250.8) | | | $ | 9,034.8 | |
| Exercise of Private Placement Warrants | 0.2 | | 3.6 | | | — | | — | | | — | | — | | | — | | | — | | | 3.6 | |
| Exercise of stock options | 3.1 | | 18.6 | | | — | | — | | | — | | — | | | — | | | — | | | 18.6 | |
| Vesting of restricted stock units | 1.0 | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| Issuance of ordinary shares, net | 257.3 | | 6,980.6 | | | — | | — | | | — | | — | | | — | | | — | | | 6,980.6 | |
| Share-based award activity | (1.7) | | 31.3 | | | — | | — | | | — | | — | | | — | | | — | | | 31.3 | |
| Repurchases of ordinary shares | — | | — | | | — | | — | | | (183.8) | | (5,211.5) | | | — | | | — | | | (5,211.5) | |
| Retirement of treasury shares | (183.8) | | (5,211.5) | | | — | | — | | | 183.8 | | 5,211.5 | | | — | | | — | | | — | |
| Issuance of preferred shares, net | — | | — | | | 14.4 | | 1,392.6 | | | — | | — | | | — | | | — | | | 1,392.6 | |
| Issuance of treasury shares, net | — | | — | | | — | | — | | | (5.8) | | 179.1 | | | — | | | (41.6) | | | 137.5 | |
| Dividends to preferred stockholders | 0.7 | | 16.1 | | | — | | — | | | — | | — | | | — | | | (41.5) | | | (25.4) | |
| Net loss | — | | — | | | — | | — | | | — | | — | | | — | | | (270.5) | | | (270.5) | |
| Other comprehensive loss | — | | — | | | — | | — | | | — | | — | | | (165.7) | | | — | | | (165.7) | |
| Balance at December 31, 2021 | 683.1 | | $ | 11,827.9 | | | 14.4 | | $ | 1,392.6 | | | 0.5 | | $ | (16.9) | | | $ | 326.7 | | | $ | (1,604.4) | | | $ | 11,925.9 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Reclassification of EBT Shares | (0.5) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Exercise of stock options | 0.4 | | | 0.9 | | | — | | | — | | | — | | | — | | | — | | | — | | | 0.9 | |
| Vesting of restricted stock units | 2.9 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| Share-based award activity | (1.3) | | | 83.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | 83.2 | |
| Repurchases of ordinary shares | (10.7) | | | — | | | — | | | — | | | 10.7 | | | (175.0) | | | — | | | — | | | (175.0) | |
| Retirement of treasury shares | — | | | (167.3) | | | — | | | — | | | (10.7) | | | 175.0 | | | — | | | (7.7) | | | — | |
| Sale of treasury shares | 0.5 | | | — | | | — | | | — | | | (0.5) | | | 16.9 | | | — | | | (11.2) | | | 5.7 | |
| Dividends to preferred shareholders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (75.4) | | | (75.4) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,960.2) | | | (3,960.2) | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (992.6) | | | — | | | (992.6) | |
| Balance at December 31, 2022 | 674.4 | | $ | 11,744.7 | | | 14.4 | | $ | 1,392.6 | | | — | | $ | — | | | $ | (665.9) | | | $ | (5,658.9) | | | $ | 6,812.5 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Exercise of stock options | 0.3 | | | 1.6 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1.6 | |
| Vesting of restricted stock units | 7.6 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| Share-based award activity | (2.4) | | | 94.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | 94.2 | |
| Repurchases of ordinary shares | (13.8) | | | — | | | — | | | — | | | 13.8 | | | (100.0) | | | — | | | — | | | (100.0) | |
| Retirement of treasury shares | — | | | (100.0) | | | — | | | — | | | (13.8) | | | 100.0 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| Dividends to preferred shareholders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (75.4) | | | (75.4) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (911.2) | | | (911.2) | |
| Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | 170.6 | | | — | | | 170.6 | |
| Balance at December 31, 2023 | 666.1 | | $ | 11,740.5 | | | 14.4 | | $ | 1,392.6 | | | — | | $ | — | | | $ | (495.3) | | | $ | (6,645.5) | | | $ | 5,992.3 | |
The accompanying Notes are an integral part of these Consolidated Financial Statements.
CLARIVATE PLC
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2023 | | 2022 | | 2021 |
| Cash Flows From Operating Activities | | | | | |
| Net income (loss) | $ | (911.2) | | | $ | (3,960.2) | | | $ | (270.5) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 708.3 | | | 710.5 | | | 537.8 | |
| Share-based compensation | 109.0 | | | 93.9 | | | 33.3 | |
| Restructuring and other impairments, including goodwill | 986.2 | | | 4,478.5 | | | 48.2 | |
| Fair value adjustment of warrants | (15.9) | | | (206.8) | | | (81.3) | |
| Gain on sale from divestitures | — | | | (278.5) | | | — | |
| Gain on legal settlement | (49.4) | | | — | | | — | |
| Deferred income taxes | (78.4) | | | (54.3) | | | (13.3) | |
| Amortization of debt issuance costs | 18.2 | | | 16.4 | | | 13.2 | |
| Other operating activities | 37.8 | | | (18.3) | | | (11.6) | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable | (25.5) | | | (28.3) | | | (64.1) | |
| Prepaid expenses | 1.7 | | | (17.1) | | | 2.7 | |
| Other assets | 35.1 | | | (45.4) | | | 27.7 | |
| Accounts payable | 41.2 | | | (24.0) | | | 31.2 | |
| Accrued expenses and other current liabilities | (44.4) | | | (114.4) | | | 85.9 | |
| Deferred revenues | 20.3 | | | (9.3) | | | 0.2 | |
| Operating leases, net | (8.0) | | | (9.6) | | | (22.4) | |
| Other liabilities | (80.8) | | | (23.8) | | | 6.8 | |
| Net cash provided by (used for) operating activities | 744.2 | | | 509.3 | | | 323.8 | |
| Cash Flows From Investing Activities | | | | | |
| Capital expenditures | (242.5) | | | (202.9) | | | (118.5) | |
| Payments for acquisitions and cost method investments, net of cash acquired | (5.4) | | | (24.8) | | | (3,930.3) | |
| Proceeds from divestitures, net of cash divested | 10.5 | | | 285.0 | | | 4.3 | |
| Net cash provided by (used for) investing activities | (237.4) | | | 57.3 | | | (4,044.5) | |
| Cash Flows From Financing Activities | | | | | |
| Proceeds from issuance of debt | — | | | — | | | 1,842.6 | |
| Proceeds from revolving credit facility | — | | | — | | | 175.0 | |
| Principal payments on term loan | (300.0) | | | (321.5) | | | (28.6) | |
| Repayments of revolving credit facility | — | | | (175.0) | | | — | |
| Payment of debt issuance costs and discounts | 0.1 | | | (2.1) | | | (32.5) | |
| Proceeds from issuance of preferred shares | — | | | — | | | 1,392.6 | |
| Proceeds from issuance of ordinary shares | — | | | — | | | 728.0 | |
| Proceeds from issuance of treasury shares | — | | | 5.7 | | | 139.9 | |
| Repurchases of ordinary shares | (100.0) | | | (175.0) | | | (159.4) | |
| Cash dividends on preferred shares | (75.5) | | | (75.4) | | | (18.9) | |
| Proceeds from stock options exercised | 0.5 | | | 0.9 | | | 18.6 | |
| Payments related to finance lease | (1.0) | | | (1.9) | | | (0.2) | |
| Payments related to tax withholding for stock-based compensation | (20.6) | | | (14.9) | | | (24.9) | |
| Net cash provided by (used for) financing activities | (496.5) | | | (759.2) | | | 4,032.2 | |
| Effects of exchange rates | 3.6 | | | (38.2) | | | 3.7 | |
| Net change in cash and cash equivalents, including restricted cash | 13.9 | | | (230.8) | | | 315.2 | |
| Cash and cash equivalents, including restricted cash, beginning of period | 356.8 | | | 587.6 | | | 272.4 | |
| Cash and cash equivalents, including restricted cash, end of period | $ | 370.7 | | | $ | 356.8 | | | $ | 587.6 | |
| Supplemental Cash Flow Information: | | | | | |
| Cash paid for interest | $ | 273.5 | | | $ | 251.5 | | | $ | 182.4 | |
| Cash paid for income tax | $ | 42.9 | | | $ | 63.7 | | | $ | 33.9 | |
| | | | | |
The accompanying Notes are an integral part of these Consolidated Financial Statements.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Clarivate Plc (“Clarivate,” “us,” “we,” “our,” or the “Company”), is a public limited company incorporated under the laws of Jersey, Channel Islands.
We are a provider of proprietary and comprehensive information, analytics, professional services, and workflow software that enable users across government and academic institutions, life science and healthcare companies, corporations, and law firms to power the entire innovation lifecycle, from cultivating curiosity to protecting the world’s critical intellectual property assets. We have three reportable segments: Academia & Government (“A&G”), Intellectual Property (“IP”), and Life Sciences & Healthcare (“LS&H”). Our segment structure is organized based on the products we offer and the markets they serve. For additional information on our reportable segments, see Note 16 - Segment Information.
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include our accounts and the accounts of our wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications of prior period amounts have been made to conform to the current period presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and accompanying notes. Actual results could differ from those estimates. The most significant of these estimates relate to the initial valuation of acquired long-lived and intangible assets and goodwill, subsequent impairment analyses, and income taxes. Management evaluates these estimates, assumptions, and judgments on an ongoing basis by reference to historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Concentration of Credit Risk
Accounts receivable are the primary financial instrument that potentially subjects us to significant concentrations of credit risk. Accounts receivable represent arrangements in which services were transferred to a customer before the customer pays consideration or before payment is due. We do not require collateral or other securities to support customer receivables. We perform ongoing credit evaluations of our customers and limit the amount of credit extended when deemed appropriate.
We maintain our cash and cash equivalent balances with high-quality financial institutions and consequently, we believe that such funds are subject to minimal credit risk.
Fair Value Measurements
Fair value is determined based on the assumptions that market participants would use in pricing the asset or liability. We utilize the following fair value hierarchy in determining fair values:
•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3 - Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and other accruals readily convertible into cash approximate fair value because of the short-term nature of the instruments. As further discussed in Note 9 - Debt, we have classified our debt instruments within Level 2 of the fair value hierarchy. As further described in Note 8 - Derivative Instruments, we have also classified our derivative instruments within Level 2 of the fair value hierarchy. As discussed in Note 11 - Private Placement Warrants, we have classified our warrants within Level 3 of the fair value hierarchy.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In millions or as otherwise noted)
Cash and Cash Equivalents
Cash and cash equivalents is comprised of cash on hand and short-term deposits with an original maturity at the date of purchase of three months or less, and includes restricted cash of $12.9 and $8.0 as of December 31, 2023 and 2022, respectively.
Allowance for Credit Losses
We estimate credit losses for trade receivables by using a current expected credit loss model. The credit loss allowance is determined through an analysis of historical collection experience, the aging of accounts receivable, and an evaluation of the impact of current and projected economic conditions. Trade and other receivables are written off when there is no reasonable expectation of recovery, such as a past due status greater than 360 days or bankruptcy of the debtor.
Property and Equipment
Property and equipment is recorded at cost, and depreciation is recorded using the straight‑line method over the estimated useful lives of the assets, as follows:
| | | | | | | | |
| | |
| Computer hardware | | 3 years |
| Furniture, fixtures, and equipment | | 5 - 7 years |
| Leasehold improvements | | Lesser of lease term or estimated useful life |
Repair and maintenance costs are expensed as incurred.
Internally Developed Software and Content
Internally Developed Software — Development costs related to internally generated software are capitalized once a project has progressed to the application development stage. Costs of significant improvements or enhancements on existing software for internal use, both internally developed and purchased, are also capitalized. Costs related to the preliminary project stage, data conversion, and post-implementation/operation stage of an internal-use software development project are expensed as incurred. Capitalized costs are amortized over five years, which is the estimated useful life of the related software. Purchased software is amortized over three years, which is the estimated useful life of the related software.
Content — Costs related to the acquisition of source materials, content selection, document processing, editing, abstracting, and indexing are capitalized. We also capitalize internal and external costs associated with the development of product-related software that adds functionality and improves the customer’s ability to search our content. These capitalized costs are amortized over a two to five year useful life.
We do not capitalize any costs associated with research and development or marketing.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use (“ROU”) assets, Current portion of operating lease liability, and Operating lease liabilities on our Consolidated Balance Sheets. Our finance lease asset is included within Property and equipment, net on our Consolidated Balance Sheets (see Note 5 - Property and Equipment, Net) and the related finance lease liability is included as an item of indebtedness (see Note 9 - Debt) on our Consolidated Balance Sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The initial valuation of finance lease assets and liabilities is calculated in the same way. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements withaccount for lease and non-lease components which are accounted as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
Accounts Payable and Accruals
Accounts payable and accruals are obligations to pay for goods or services that have been acquired in the ordinary course of business. Accounts payable and accruals are recognized initially at their settlement value, and are classified as current liabilities if payment is due within one year or less.
Warrant Liabilities
The Company accounts for Private Placement Warrants for shares of the Company's ordinary stock that are not indexed to its own stock as liabilities at fair value on the balance sheet. The Private Placement Warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of Mark to market adjustment on financial instruments on the Consolidated Statements of Operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the ordinary stock warrants. At that time, the portion of the warrant liabilities related to the ordinary stock warrants will be reclassified to additional paid-in capital. The amount of expense recorded within the Consolidated Statement of Operations for each period as a result of the changes in fair value was $205,062 and $47,656 for the fiscal year end December 31, 2020 and 2019, respectively.
Debt
Debt is recognized initially at par value, net of any applicable discounts or financing costs. Debt is subsequently stated at amortized cost with any difference between the proceeds (net of transactions costs) and the redemption value recognized in the Consolidated Statements of Operations over the term of the debt using the effective interest method. Interest on indebtedness is expensed as incurred.
Debt is classified as a current liability when due within 12 months after the end of the reporting period.
Tax Receivable Agreement (“TRA”)
Concurrent with the completion of the 2019 Transaction, in May 2019 we became a party to a TRA with our pre-business combination equity holders. Under the TRA, we are generally required to pay to certain pre-business combination equity holders approximately 85% of the amount of calculated tax savings, if any, we are deemed to realize (using the actual applicable U.S. federal income tax rate and an assumed combined state and local income tax rate) as a result of (1) any existing tax attributes associated with Covered Tax Assets acquired in the pre-business combination organizational transactions, the benefit of which is allocable to us as a result of such transactions, (2) net operating loss (NOL) carryforwards available as a result of such transactions and (3) tax benefits related to imputed interest. Further, there may be significant changes, to the estimate of the TRA liability due to various reasons including changes in corporate tax law, changes in estimates of the amount or timing of future taxable income, and other items. Changes in those estimates are recognized as adjustments to the related TRA liability, with offsetting impacts recorded in the Consolidated Statements of Operations as Other operating income (expense), net. On August 21, 2019 the Company entered into a TRA Buyout Agreement to settle the outstanding liability. The settlement of the original TRA liability pursuant to the TRA Buyout Agreement was accounted for as an adjustment to Shareholders' equity.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
Derivative Financial InstrumentsGoodwill and Other Intangible Assets
Foreign Exchange Forward ContractsWe account for our business combinations using the acquisition method of accounting. We allocate the purchase price of an acquisition to the assets acquired and liabilities assumed based on their estimated fair values. As part of this allocation process, we identify and attribute values and estimated lives to the intangible assets acquired. The excess of the purchase price over the fair values of identifiable assets and liabilities is recorded as goodwill.
The Company periodically enters into foreign currency contracts thatDefinite-lived intangible assets are generally amortized on a straight-line basis over the following estimated useful lives:
| | | | | |
| Customer relationships | 2 - 23 years |
| Technology and content | 2 - 20 years |
| |
| Computer software | 5 years |
| Trade names and other | 2 - 18 years |
| |
| |
Goodwill and indefinite-lived intangible assets are not designatedamortized, but instead are tested for impairment annually as hedges as defined under ASC 815. The purpose of these derivative instruments isthe first day of the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
Impairment of Long-Lived Assets
We evaluate our long-lived assets, including property and equipment, internally developed software and content, definite-lived intangible assets, and operating lease ROU assets for impairment whenever circumstances indicate the carrying value may not be recoverable. We determine the recoverability of a long-lived asset, or a group of similar long-lived assets, by comparing its carrying value to help manage the Company’s exposure to foreign exchange rate risks. These contracts are initially recognized at fair value at the date the contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. These contracts generally do not exceed 180 days in duration, and these instruments are carried as assets when the fair value is positive (Other current assets on the Consolidated Balance Sheets), and as liabilities when the fair value is negative (Other current liabilities on the Consolidated Balance Sheets). The resulting gain or loss is recognized in profit or loss (other operating income (expense), net) immediately.
Interest Rate Swaps
The Company has interest rate swaps with counterparties to reduce its exposure to variability infuture undiscounted cash flows relating to interest payments on a portion of its outstanding first lien senior secured term loan facility in an aggregate principal amount of $2,847,400 (“Term Loan Facility”). The Company applies hedge accounting and has designated these instruments as cash flow hedges of the risk associated with floating interest rates on designated future quarterly interest payments. Management assumes the hedge is highly effective and therefore changes in the value of the hedging instrument are recorded in Accumulated other comprehensive income (loss) in the Consolidated Balance Sheets. Any ineffectiveness is recorded in earnings. Amounts in Accumulated other comprehensive income (loss) are reclassified into earnings in the same period during which the hedged transactions affect earnings, or upon termination of the hedging relationship.
Fair Value of Financial Instruments
In determining fair value, the use of various valuation methodologies, including market, income and cost approaches is permissible. The Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. The accounting guidance for fairis expected to generate over its remaining life. Any impairment is measured as the difference between the carrying value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s interest rate swap derivative instruments are classified as Level 2. Earn-out liabilities and defined benefit plan assets are classified as Level 3.
The Company assesses the fair value of the foreign exchange forward contracts, considering current and anticipated movements in future interest rates andasset.
Goodwill impairment testing is performed at the relevant currency spot and future rates available inreporting unit level. For goodwill impairment testing purposes, we have determined that our business segments are our reporting units. As part of our annual goodwill impairment testing, we have the market. The Company also receives and reviews third party valuation reportsoption to corroborate our determinationfirst perform qualitative testing to determine whether it is more likely than not that the fair value of faira reporting unit is less than its carrying value. Accordingly, these instruments are classified as Level 2 inputs.
Contingent Considerations
The Company records liabilitiesIf we bypass the qualitative assessment, or if the qualitative assessment indicates that quantitative analysis should be performed, we evaluate goodwill for impairment by comparing the estimated costfair value of such contingencies when expenditures are probable and reasonably estimable. A significanta reporting unit with its carrying amount, including goodwill. We estimate the fair value of judgment is required to estimate and quantify the potential liability in these matters. We engage outside experts as deemed necessary or appropriate to assist in the calculation of the liability, however management is responsible for evaluating the estimate. As information becomes available regarding changes in circumstances for ongoing contingent considerations, our potential liability is reassessed and adjusted as necessary. See Note 23 - Commitments and Contingencies for further information on contingencies.
Pension and Other Post-Retirement Benefits
The Company may be required to sponsor pension benefit plans, for certain international markets, which are unfunded and are not material for the Company. The net periodic pension expense is actuarially determined on an annual basis by independent actuariesa reporting unit using the projected unit credit method. The determination of benefit expense requires assumptions such as the discount rate, which is used to measure service cost, benefit plan obligations and the interest expense on the plan obligations. Other significant assumptions include expected mortality, the expected rate of increase with respect to future compensation and pension. Because the determination of the cost and obligations associated with employee future benefits requires the use of various assumptions, there is measurement uncertainty inherent in the actuarial valuation process. Actual results will differ from results which are estimateda discounted cash flow (“DCF”) analysis based on assumptions.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The liability recognized in the Consolidated Balance Sheets is the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates.
Our indefinite-lived intangible assets are related to trade names. Similar to goodwill, as part of our annual indefinite-lived intangible asset impairment testing, we have the defined benefit obligation atoption to first perform qualitative testing by evaluating whether any events and circumstances occurred that provide evidence that it is more likely than not that the end ofindefinite-lived assets are impaired. If we do not believe that it is more likely than not that the reporting period. The presentindefinite-lived assets are impaired, no quantitative impairment test is required. If we choose not to complete a qualitative assessment, or if the qualitative assessment indicates that a quantitative analysis should be performed, we estimate the fair value of the defined benefit obligation is determinedindefinite-lived asset by discountingusing the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. The defined benefit obligation is included in Other non-current liabilities in the Consolidated Balance Sheets. All actuarial gains and losses that arise in calculatingrelief-from-royalty method based on the present value of estimated future cash flows that the defined benefit obligation are recognized immediately in Accumulated deficit and includedindefinite-lived asset is expected to generate in the Consolidated Statementsfuture.
Assets to be disposed of Comprehensive Income (Loss). See are carried at the lower of their financial statement carrying amount or fair value, less cost to sell.
Any impairment charge is recognized in full in the reporting period in which it has been identified. For discussion of the analysis and results of our impairment tests, see Note 6 - Other Intangible Assets, net and Goodwill and Note 13 - PensionRestructuring and Other Post‑Retirement Benefits for balances and further details including an estimate of the impact on the Consolidated Financial Statements from changes in the most critical assumptions.Impairments.
Employer contributions to defined contribution plans are expensed as incurred, which is as the related employee service is rendered.Income Taxes
Taxation
The Company recognizesWe recognize income taxes under the asset and liability method. OurDeferred income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect our best assessment of estimated current and future taxes to be paid. Significant judgments and estimates are required in determining the consolidated Income tax expense for financial statement purposes. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. Deferred income tax assets and liabilities are recorded at the enacted tax rate expected to apply to the temporary difference when settled or realized. We record U.S. tax expense resulting from Global Intangible Low Taxed Income (“GILTI”) as a current period expense.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In millions or as otherwise noted)
In assessing the realizability of deferred tax assets, we consider all available positive and negative evidence factors. Evidence considered includes historical and projected future taxable income by tax jurisdiction, character and timing of income or loss, and prudent and feasible tax planning strategies. The Company recordsWe record a valuation allowance to reduce our deferred tax assets to equal an amountthe net realizable value that is more likely than not to be realized.
Changes inWe record tax laws and tax rates could also affect recorded deferred tax assets and liabilities in the future. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. ASC Topic 740, Income Taxes, states that a benefit from an uncertain tax position may be recognizedbenefits when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the basistechnical merits of the technical merits.position. The Company first recordsamount of tax benefit recorded is the largest amount of tax benefit that is greater than 50% likely to be realized upon settlement. We then record a liability for unrecognized tax benefits asresulting from uncertain tax positions taken or expected to be taken on a tax return. Uncertain tax positions are reassessed quarterly and liabilities in accordance with ASC 740 and then adjusts these liabilitiesfor unrecognized tax benefits are adjusted when our judgment changes as a result of the evaluation of new information, not previously available atsuch as developments in case law, new regulations or tax law, or changes in the timestatus of establishing the liability. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities.ongoing audits. These differencesadjustments will be reflected as increases or decreases to income tax expense in the period in which new information is available.
Interest accrued Accrued interest and penalties related to unrecognized tax benefits and income tax related penalties are included within the Provision (benefit) for income taxes in the Benefit (provision)Consolidated Statements of Operations.
Treasury Shares
Treasury share purchases, whether through share withholdings for income taxes.
Deferred tax is provided on taxable temporary differences arising on investments in foreign subsidiaries, except where we intend,taxes or repurchase programs and transactions, are able, to reinvest such amounts on a permanent basis.recorded at cost. Issuances from treasury shares are recorded using the First In, First Out (“FIFO”) method.
Revenue Recognition
The Company derivesWe derive revenue by selling informationthrough subscriptions to our product offerings, re-occurring contracts in our IP segment, and transactional sales that are typically quoted on a subscription and single transaction basis as well as from performing professional services. The Company recognizes revenue when control of these services are transferred to the customer for an amount, referred to as the transaction price, that reflects the consideration to which the Company is expected to be entitled in exchange for those goodsproduct, data set, or services. The Company determines revenue recognition utilizing the following five steps: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract (promised goods or services that are distinct), (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations, and (5) recognition of revenue when, or as, the Company transfers control of the product or service for each performance obligation. Revenue is recognized net of discounts and rebates, as well as value added and other sales taxes. Cash received or receivable in advance of the delivery of the services or publications is included in deferred revenues. The Company disaggregates revenue based on revenue recognition pattern. Subscription based revenues recognize revenue over time, whereas our transactional and re-occurring revenues recognize revenue at a point in time. The Company believes subscription, transaction and re-occurring is reflective of how the Company manages the business. The revenue recognition policies for the Company’s revenue streams are discussed below.project basis.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Subscription Revenues
•Subscription-based revenues are recurring revenues that are earnedwe typically earn under annual evergreen or multi-year contracts, pursuant to which we license the right to use our products to our customers. Revenues fromcustomers or provide maintenance services over a contractual term. We invoice and collect the salesubscription fee at the beginning of the subscription data and analytics solutions are typically invoicedperiod. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. Cash received or receivable in advance and recognizedof completing the performance obligations is included in deferred revenue. We recognize subscription revenue ratably over the yearcontract term as the access or service is provided.
•Re-occurring revenues are earned. Subscriptionderived solely from the patent and trademark maintenance services provided by our IP segment. Patents and trademarks are renewed regularly, and our services help customers maintain and protect those patents and trademarks in multiple jurisdictions around the world. Because of the re-occurring nature of the patent and trademark lifecycle, our customer base engages us to manage the renewal process on their behalf. These contracts typically include evergreen clauses or are multi-year agreements. We invoice and record revenue upon delivery of the service or report.
•Transactional and other revenues are typically generated either on (i) an enterprise basis, meaning that the organization has a license for the particular product or service offering and then anyone within the organization can use it at no additional cost, (ii) a seat basis, meaning each individual that uses the particular product or service offering has to have his or her own license, or (iii) a unit basis, meaning that incremental revenues are generated on an existing subscription each time the product is used (e.g., a trademark or brand is searched or assessed).
Transactional Revenues
Transactional revenues are revenues that are earned under contracts for specific deliverables that are typically quoted on a product, data set, or project basisbasis. Transactional and often derived from repeat customers, including customers that also generate subscription-based revenues. Revenues from the sale of transactional products and services are invoiced according to the terms of the contract, typically in arrears. Transactionalother revenues include content sales are usually delivered to the customer instantly or in a short period of time, at which time revenues are recognized. In the case of(including single-document and aggregated collection sales), consulting engagements, and other professional services these contracts vary in length from several months to yearssuch as software implementation services. We typically invoice and record revenue for multi-year projects and customers and typically invoiced based onthis revenue stream upon delivery of the achievement of milestones. Transactional revenues are typically generated on a unit basis, although for certain product and service offerings transactional revenues are generated on a seat basis. Transactional revenues may involve sales to the same customer on multiple occasions but with different products or services comprising the order.
Re-occurring Revenues
Re-occurring revenues are earned under contracts for specific deliverables that are typically quoted on a product, data set, or project, basisalthough for longer software implementation projects, we will periodically bill and often derived from repeat customers. These contracts include either evergreen clauses,recognize revenue in which at least six month advance notice is required prior to cancellation, or the contract is for multiple years. Re-occurring revenues are usually delivered to the customer instantly or in a short period of time, at which time revenues are recognized. The most significant components of our re-occurring revenues is our 'renewal' business within CPA Global.
Performance Obligations
Content Subscription: Content subscription performance obligations are most prevalent in the Web of Science, Derwent, and Life Sciences Product Lines. Content subscriptions are subscriptions that can only be accessed through the Company’s online platform for a specified period of time through downloads or access codes. In addition to the primary content subscription, these types of performance obligations can often include other performance obligations, such as training subscriptions, access to historical content, software licenses, professional services, maintenance and other optional content. Revenue for these performance obligations are primarily recognized over the length of the contract (i.e. subscription revenue). Within the Life Sciences Product Line and resulting from the DRG acquisition, the Company provides analytics and syndicated research and syndicated databases through subscription and membership contracts and through the sale of single reports from the syndicated series. Subscription based revenues are recognized ratably over the period that the service is being provided, generally one year.
There are instances where Content Subscription revenue could be recognized upon delivery (i.e. transactional revenue). Historical content and some optional content can be purchased via a perpetual license, which would be recognized upon delivery. Fees are typically paid annually at the beginning of each term. Additionally, within the Life Sciences Product Line and resulting from the DRG acquisition, the Company sells certain studies and reports on a single requisition basis to customers. Revenue from the sale of single reports is recognized at a point in time of delivery if all other revenue recognition criteria are met. Packages of select single reports are recognized pro rata as the individual reports are delivered if all other revenue recognition criteria are met based on estimated selling price.
IP Software Subscription: This performance obligation relates to the CPA Global Product Line. The Company provides a suite of software packages and solutions designed for customers to manage their own IP, using a single IP Management Software (“IPMS”) platform. All software products are delivered to the customers in one of two ways (i) On-premise the software is purchased by the customer and installed directly onto the customer’s own operating systems and (ii) Software-
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
as-a-Service (“SaaS”) software is hosted centrally on a cloud-based system and usage is licensed on an annual subscription fee basis.
IP software contracts with customers often include a number of other services such as implementation support, installation, data migration, training to help customers deploy and use products more efficiently, upgrades released over the contract period and after sales support. On-premise licenses are considered distinct performance obligations when sold with other services in the contract and revenue is recognized upfront at the point in time when the software is made available to the customer. In case of software sold as a subscription, the cloud based hosted services and post-sales support and maintenance are considered as one performance obligation distinct from other services in the contract. Revenue is recognized on a straight-line basis over the period of contract as customers simultaneously consume and receive benefits, given that distinct performance obligations are satisfied over time.
Domain Registration Services: This performance obligation relates to the MarkMonitor Product Line. This is a service to register domain namesconnection with the applicable registries, with the Company being responsible for monitoring the domain name expiration and paying the registry before expiration. In addition, the Company has an ongoing responsibility to ensure the domain name is maintained at the registry. Customers typically sign a one to two years contract, identifying specific domain names to be registered and tracked. Revenue is recognized over the term of the contract and fees are typically invoiced annually at the beginning of each contract term.
Search Services: This performance obligation relates to the CompuMark Product Line. It is a comprehensive search report across multiple databases for a proposed trademark. The report is compiled by Clarivate’s analysts and sent to customers. Revenue is recognized upon delivery of the report. Fees are typically paid upon delivery.
Trademark Watch: This performance obligation relates to the CompuMark Product Line. Trademark watch service is an annual subscription that allows customers to protect their trademarks from infringement by providing timely notification of newly filed or published trademarks. Revenue is recognized over the term of the contract, with fees paid annually at the beginning of each contract term.
IP Services: This performance obligation relates to the CPA Global Product Line. This includes services related to (i) on-premise software installation, (ii) post-sales software support services,(iii) keeping software updated for any changes in laws (i.e., law update service), (iv) docketing, (v) search and examination services provided to various PTOs. Revenue from IP services is recognized over the period of the contract as and when the service is provided.
Validation Services: This performance obligation relates to the CPA Global Product Line. This involves services related to:(i) registration of a patent granted in Europe, to various individual countries where it will ultimately been enforceable; (ii) translation of documents to be submitted to a PTO in local language; (iii) registration of address with PTO, for all future notifications to be received on behalf of the IP holder; and (iv) management of notifications on behalf of IP holder over the lifetime of the patent. The Company has determined each of the above services performed represent separate performance obligations. Revenue is recognized once the provision of the service is complete and this point is reached when a purchase invoice is received from the agent for (i) and (ii) above, when registration with the PTO gets completed for (iii) above. With respect to management of notifications, revenue is recognized over the lifetime of the patent on a straight-line basis. Revenue from Validation Services is recognized net of official fees collected from customers for remittance to the PTO and any taxes collected from customers, which are subsequently remitted to governmental authorities.
IP Transaction Processing: This performance obligation related to the IPM Product Line that was disposed of in October of 2018 and reacquired as part of the acquisition of the CPA Global business and Product Line in October of 2020. These services consist of gathering all necessary data and information, preparing the renewal applications, and submitting payment to the patent and trademark office (“PTO”) in the relevant country on behalf of the IP holders and the Company could have potential liability for the successful completion of the renewal application process, for which we carry insurance. The Company has determined there is onerelated performance obligation relating to the provision of the service, which includes compiling the necessary data and submitting the renewal application, as well as facilitating the payment from the customer to the PTO. Revenue is recognized once the provision of the service is complete and this point is reached when the PTO receives the payment and documentation to renew the patent or trademark. The PTO fees and any taxes collected from customers are deemed fees collected on behalf of third parties, and therefore revenue from renewals services is recognized net of these fees. Revenue is recognized upon transfer of control of the promised service to customers (i.e., at the time the renewal paperwork and payment are submitted to the PTO) because at that point the Company has a right to payment andobligations.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
the risks and rewards associated with the Renewal Preparation service are transferred to the customer, coupled with the fact customer acceptance is deemed a formality that does not impact the timing of transfer of control.
Principal Versus Agent
For revenue generated from contracts with customers involving another party, the Company considers if we maintain control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, collection risk, and discretion in establishing price. The assessment of whether we are considered the Principal or the Agent in a transaction could impact our revenues and cost of revenues recognized on the consolidated statements of operations.
The Company evaluated whether contracts with customers involving another party related to the Content Subscription performance obligation have been provided in the capacity as principal or agent and concluded that the Company acts as a Principal based on our responsibility for fulfilling the contract and latitude in establishing the price. Therefore, the Company reports the revenues from these transactions on a gross basis and records the related third-party commission fees as cost of revenues.
The Company evaluated whether the IP Transaction Processing performance obligation and services, as well as the Validation Services performance obligation, have been provided in the capacity as principal or agent, and on the basis of the following factors concluded the Company is acting as a Principal:
(a) The Company is responsible for compiling the necessary data and submitting the renewal application, as well as facilitating the payment from the customer to the PTO. In doing this, the Company’s performance obligation does not include legally renewing the IP, but instead facilitating that process, but the ultimate responsibility for legally renewing the IP rests with PTO;
(b) The Company has latitude in establishing pricing for its services.
Therefore, the Company reports the revenues from these transactions on a gross basis and records the related third-party commission fees as cost of revenues.
Variable Consideration
In some cases, contracts provide for variable consideration that is contingent upon the occurrence of uncertain future events, such as retroactive discounts provided to the customers, indexed or volume-based discounts, and revenue between contract expiration and renewal. Variable consideration is estimated at the expected value or at the most likely amount depending on the type of consideration. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimate of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current, and forecasted) that is reasonably available to the Company.
Significant Judgments
Significant judgments and estimates are necessary for the allocation of the proceeds received from an arrangement to the multiple performance obligations and the appropriate timing of revenue recognition. Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Determining a standalone selling price that may not be directly observable amongst all the products and performance obligations requires judgment. Specifically, many Web of Science, DRG, and CPA Global Product Line contracts include multiple product offerings, which may have both subscription and transactional revenues. Judgment is also required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the subscription service and recognized over time for other products. The Company allocates value to primary content subscriptions or licenses and accompanying performance obligations, such as training subscriptions, access to historical content, maintenance and other optional content. When multiple performance obligations exist in a single contract, the transaction price is allocated to each performance obligation based onin proportion to the standalone selling price of each performance obligation. The Company utilizes itsstandalone selling price is typically determined by reference to our standard price lists to determine the standalone selling price based on the product and country.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The Company allocates the transaction price to each performance obligation based on the best estimateis a reflection of the standalone selling price of each distinct good or service in the contract. The transaction price in the contract is allocated at contract inception to the distinct good or service underlying each performance obligation in proportion to the standalone selling price. The standalone selling prices are based on the Company’sour normal pricing practices when sold separately with consideration of market conditions and other factors, including customer demographics and geographic location. Discounts applied to the contract will beare allocated based on the same proportion of standalone selling prices.
CostFor transactions that involve a third party, we evaluate whether we are acting as the principal or the agent in the transaction by considering factors such as control of the specified goods or services before they are transferred to Obtainthe customer, fulfillment responsibility, collection risk, and discretion in establishing price. If we determine that we control the good or service before it is transferred to the customer, we recognize revenue on a Contractgross basis. Conversely, if we determine that we do not control the good or service before it is transferred to the customer, we recognize revenue on a net basis.
Commission costs represent costs to obtain a contract and are considered contract assets. The Company paysWe pay commissions to the sales managers and support teams for earning new customers and renewing contracts with existing customers. TheseWe treat these commission costs as costs to obtain a contract and are capitalizedtherefore considered contract assets. We capitalize certain of these commission costs within Prepaid expenses and Other non-current assets on the Consolidated
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In millions or as otherwise noted)
Balance Sheets. The costs are amortized to Selling, general and administrative expensescosts within the Consolidated Statements of Operations. The amortization period is between one and fiveseven years based on the estimated length of the customer relationship.
Deferred Revenues
The timing of revenue recognition may differ from the timing of invoicing to customers. We record deferred revenues when revenue is recognized subsequent to invoicing. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period and recognize revenue over the term of the coverage period.
Cost of Revenues
Cost of revenues consists of costs related to the production and servicing of the Company’s offerings. These costs primarily relate to information technology, production and maintenance of content and personnel costs relating to professional services and customer service.
Selling, General and Administrative
Selling, general and administrative includes compensation for support and administrative functions in addition to rent, office expenses, professional fees and other miscellaneous expenses. In addition, it includes selling and marketing costs associated with acquiring new customers or selling new products or product renewals to existing customers. Such costs primarily relate to wages and commissions for sales and marketing personnel.
Depreciation
Depreciation expense relates to the Company’s fixed assets including furniture & fixtures, hardware, and leasehold improvements. These assets are depreciated over their expected useful lives, and in the case of leasehold improvements over the shorter of their useful life or the term of the related lease.
Amortization
Amortization expense relates to the Company’s finite-lived intangible assets including databases and content, customer relationships, computer software, and trade names. These assets are being amortized over periods of 2 to 23 years.
Impairment on Assets Held for Sale
Impairment on assets held for sale represents an impairment charge recorded for certain assets classified as assets held for sale.
Share-based Compensation
Share-basedWe recognize compensation expense includes cost associated with stock options, restricted share units (“RSUs”), performance share units ("PSUs"), 2019 Transaction related shares granted to certain members of key management and equity compensation plans of the acquired CPA Global business. Share-basedfor share-based awards are recognized in the Consolidated Statements of Operations based on their grant date fair values.value. The fair value of RSUs is based on the fair value of our common shares on the date of grant, and we use a Monte Carlo simulation to determine the fair value of our PSUs at grant date. We use the graded vesting method to amortize the value of share-based awards to expense over the vesting period on a graded-scale basis. The incremental fair value of modifications to stock awards is estimated at the date of modification.expense. We recognize any additional estimated expense in the period of modification for vested awards and over the remaining vesting period for un-vested awards. The Company elects to recognize forfeitures as they occur.
CLARIVATE PLCDefined Contribution Plans
NotesEmployees participate in various defined contribution savings plans that provide for Company-matching contributions. Costs for future employee benefits are accrued over the periods in which employees earn the benefits. Total expense related to defined contribution plans was $34.9, $30.5, and $18.1 for the years ended December 31, 2023, 2022, and 2021, respectively, which approximates the cash outlays related to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model, which requires management to make certain assumptions of future expectations based on historical and current data. The assumptions include the expected term of the stock option, expected volatility, dividend yield, and risk-free interest rate. The expected term represents the amount of time that options granted are expected to be outstanding, based on forecasted exercise behavior. The risk-free rate is based on the rate at grant date of zero-coupon U.S. treasury notes with a term comparable to the expected term of the option. Expected volatility is estimated based on the historical volatility of comparable public entities' stock price from the same industry. The Company’s dividend yield is based on forecasted expected payments, which are expected to be zero for current plan. The Company recognizes compensation expense over the vesting period of the award on a graded-scale basis.
The share-based compensation cost of time-based RSU and PSU grants is calculate by multiplying the grant date fair market value by the number of shares granted. We recognize compensation expense over the vesting period of the award.
Equity compensation plans of the acquired CPA Global business are accounted for as a liability as they will be paid in cash. Changes in the fair value of the award are marked to market at the end of each reporting period. In connection with the CPA Global Equity Plan, a related trust was established by Leonard Green & Partners, L. P. to fund the plan. Clarivate will consolidate the substance of the CPA Global Equity Plan trust asset, comprised of cash that already existed in the trust as of the acquisition date, and the ordinary shares classified as treasury shares, to fund the payout.plans.
Restructuring
Restructuring expense includes costs associated with involuntary termination benefits provided to employees, certain contract termination costs, and other costs associated with an exit or disposal activity. The involuntaryInvoluntary termination benefits includedare recognized within restructuring charges are recognized in accordance with ASC 420, Exit or Disposal Cost Obligations or ASC 712, Compensation – Nonretirement Postemployment Benefits, as applicable. Liabilities are recognized in accordance with ASC 420 whenat the programstime that the program was approved and all necessary communications were approved, the employees to be terminated were identified, the terms of the arrangement were established, it was determined changes to the plan were unlikely to occur and the arrangements were communicated to employees. Liabilities for nonretirement postemployment benefits that fall under ASC 712 are recognized when the severance liability was determined to be probable of being paid and reasonably estimable.made. The liabilities are recorded within Accrued expenses and other current liabilities in the Consolidated Balance Sheets. The corresponding expenses are recorded within Restructuring and impairmentother impairments in the Consolidated Statements of Operations. See For further details, see Note 2513 - Restructuring and Impairment for further details.
Other Operating Income (Expense), NetImpairments.
Other operating income (expense) consists of gains or losses related to the disposal of our assets, asset impairments or write-downs and the consolidated impact of re-measurement of the assets and liabilities of our company and our subsidiaries that are denominated in currencies other than each relevant entity’s functional currency. Other operating income (expense), net includes a tax indemnification write down related to the 2016 Transaction for the year ended December 31, 2018. See Note 23 - Commitments and Contingencies - Tax Indemnity section for further details. The gain on sale of the divested IPM Product Line and related assets is also included in the year ended December 31, 2018. The gain and loss of certain divested non-core assets and liabilities of the IP segment and MarkMonitor Product Line of the IP segment are included in the year ended December 31, 2020. See Note 5 - Assets Held for Sale and Divested Operations for further details.
Interest Expense, Net
Interest expense, net consists of interest expense related to our borrowings under the Term Loan Facility and the Notes as well as the amortization of debt issuance costs and interest related to certain derivative instruments.
Foreign Currency Translation
The operations of each of the Company’s entities are measured using the currency of the primary economic environment in which the subsidiary operates (“functional currency”). Nonfunctional currency monetary balances are re-measured into the functional currency of the operation with any related gain or loss recorded in Selling, general and administrative costs, excluding depreciation and amortization in the accompanying Consolidated Statements of Operations. Assets and liabilities of operations outside the U.S., for which the functional currency is the local currency, are translated into U.S. dollars using period-end exchange rates. Revenues and expenses are translated at the average exchange rate in effect during each fiscal
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
month during the year. The effects of foreign currency translation adjustments are included as a component of Accumulated other comprehensive income (loss) in the accompanying Consolidated Balance Sheets.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from Net loss, transactions and other events or circumstances from non-owner sources.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as of the first date that the advertisements take place. Advertising expense was approximately $7,090, $9,574 and $12,150 for the years ended December 31, 2020, 2019, and 2018, respectively.
Legal Costs
Legal costs expected to be incurred in connection with a loss contingency are expensed and accrued for expectedat the outset of the legal costsmatter giving rise to be incurred forthe estimated legal matters.costs.
Debt Issuance CostsOther Operating (Income) Expense, Net
Fees incurred to issue debtOther operating expense (income), net consists of the following: | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| Gain on sale from divestitures | Note 2 | $ | — | | | $ | (278.5) | | | $ | — | |
| Gain on legal settlement | Note 17 | (49.4) | | | — | | | — | |
| Net foreign exchange loss (gain) |
| 38.9 | | | (45.4) | | | 19.6 | |
| Miscellaneous, net | | (0.3) | | | (0.9) | | | 7.9 | |
| Total | | $ | (10.8) | | | $ | (324.8) | | | $ | 27.5 | |
|
Foreign Currency Translation
The operations of each of our entities are generally deferredmeasured using the currency of the primary economic environment in which the subsidiary operates (“functional currency”). Assets and amortizedliabilities of foreign subsidiaries whose functional currency is the local currency are translated into U.S. dollars using period-end exchange rates. Revenues and expenses are translated at the average exchange rate in effect during each fiscal month during the year. The effects of foreign currency translation adjustments are included as a component of interest expense overAccumulated other comprehensive income (loss) in the estimated term of the related debt using the effective interest rate method.accompanying Consolidated Balance Sheets.
Earnings Per Share
The calculation ofBasic earnings per share (“EPS”) is based oncalculated by dividing net income (loss) attributable to ordinary shares by the weighted average number of ordinary shares or ordinary stock equivalents outstanding duringfor the applicable period. The dilutive effectDiluted EPS is computed by dividing net income (loss) attributable to ordinary shares, adjusted for the change in fair value of the private placement warrants, by the weighted average number of ordinary stock equivalents is excluded from basic earnings per shareshares and is included in the calculation of diluted earnings per share. Potentially dilutive securities include outstanding stock options. Employee equity share options and similar equity instruments granted by the Company are treated as potential ordinary shares outstanding in computing diluted earnings per share.for the applicable period. Diluted EPS reflects the potential dilution that could occur if securities were exercised or converted into ordinary shares, outstanding areas calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of benefits that would be recorded in Ordinary shares when the award becomes deductible for tax purposes are assumed to be used to repurchase shares.
Newly Adopted Accounting Standards
In February 2016, the FASB issued new guidance, Accounting Standard Update (“ASU”) 2016-02, related to leases in which lessees are required to recognize assets and liabilities on the balance sheet for leases having a term of more than 12 months. Recognition of these lease assets and lease liabilities represents a change from previous U.S. GAAP, which did not require lease assets and lease liabilities to be recognized for operating leases. Qualitative disclosures along with specific quantitative disclosures are required to provide enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. The Company adopted the standard, using a modified retrospective approach, on January 1, 2019.
The provisions of ASU 2016-02 are effective for the Company’s fiscal year beginning January 1, 2019, including interim periods within that fiscal year. The Company elected the package of practical expedients included in this guidance, which allows it to not reassess whether any expired or existing contracts contain leases, the lease classification for any expired or existing leases, and the initial direct costs for existing leases. The Company does not recognize short-term leases on its Consolidated Balance Sheets, and recognizes those lease payments in Selling, general and administrative costs, excluding depreciation and amortization on the Consolidated Statements of Operations on a straight-line basis over the lease term.
In June 2016, the FASB issued new guidance, ASU 2016-13, related to measurement of credit losses on financial instruments which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The Company has determined that the impact of this new accounting guidance will primarily affect our trade receivables. The Company prospectively adopted the standard on January 1, 2020. The adoption of this standard had an impact of $10,097 on the beginning Accumulated deficit balance in the Consolidated Balance Sheets as of January 1, 2020. In April 2019 and November 2019, the FASB issued ASU 2019-05 and ASU
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
2019-11, respectively, effective forRecently Issued Accounting Standards
In November 2023, the same period as ASU 2016-03. These updates offered options to entities intended to bring transition relief and offered clarification on the previously issued standard, respectively. The Company's accounting for credit losses did not change as a result of these two updates.
In January 2017, the FASB issued new guidance, ASU 2017-04, which simplifies testing goodwill for impairment by eliminating Step 2 from the goodwill impairment test as described in previously issued guidance. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company elected to adopt this standard on January 1, 2019. This standard did not have a material impact on the Company’s Consolidated Financial Statements.
In July 2018, the FASBAccounting Standards Board (“FASB”) issued ASU 2018-11, Leases — Targeted 2023-07, Improvements asto Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. The amendments in this update to the previously-issued guidance. This update added a transition option which allows for the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption without recasting the financial statements in periods prior to adoption. The Company elected this transition option.
In March 2019, the FASB issued ASU 2019-01, Leases, as an update to the previously-issued guidance. This update added a transition option which clarified the interim disclosure requirements as defined in ASC 250-10-50-3. The Company elected to provide the ASU 2016-02 transition disclosures as of the beginning of the period of adoption rather than the beginning of the earliest period presented. The guidance isare effective for all entities during the same period that ASU 2016-02 is adopted.
The standard had a material impact on our Consolidated Balance Sheets and Consolidated Statements of Cash Flows, but did not have an impact on our Consolidated Statements of Operations. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.
In June 2018, the FASB issued guidance, ASU 2018-07, Compensation - Stock Compensation, which simplifies the accounting for nonemployee share-based payment transactions. The guidance is effective for all entities for fiscal years beginning after December 15, 2018,2023, and interim periods within those fiscal years. This standard did not haveyears beginning after December 15, 2024 on a materialretrospective basis. Early adoption is permitted. We are currently assessing the impact of this update on the Company’s Consolidated Financial Statements.our consolidated financial statements and related disclosures.
In July 2018,December 2023, the FASB issued guidance, ASU 2018-09, Codification 2023-09, Improvements to Income Tax Disclosures, which clarifies guidance that may have been incorrectly or inconsistently appliedis designed to provide greater income tax disclosure transparency by certain entities.requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The guidance isamendments in this update are effective for all entities for fiscal years beginning after December 15, 2018. This standard did not have2024 on a material impact on the Company’s Consolidated Financial Statements.
In August 2018, the FASB issued guidance, ASU 2018-13, Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. The guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 with early adoption permitted upon issuance of this update. The Company adopted this standard on January 1, 2019. This standard did not have a material impact on the Company’s Consolidated Financial Statements.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, which provides targeted improvements or clarification and correction to the ASU 2016-01 Financial Instruments Overall, ASU 2016-13 Financial Instruments Credit Losses, and ASU 2017-12 Derivatives and Hedging, accounting standards updates that were previously issued. The guidance is effective upon adoption of the related standards. The Company prospectively adopted the standard on January 1, 2020. This standard did not have a material impact on the Company’s Consolidated Financial Statements.
In November 2019, the FASB issued ASU 2019-10, Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which provides improvements or clarification and correction to the ASU 2016-02 Leases, ASU 2016-13 Financial Instruments Credit Losses, and ASU 2017-12 Derivatives and Hedging, accounting standards updates. The guidance is effective upon adoption of the three ASUs, all of which the Company had already adopted. This standard did not have a material impact on the Company’s Consolidated Financial Statements.
In August 2018, the FASB issued guidance, ASU 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The Company prospectively adopted the standard on January 1, 2020. The adoption of this standard did not
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
have a material impact on the Company’s Consolidated Financial Statements. All future capitalized implementation costs incurred related to these hosting arrangements will be recorded as a prepaid asset and as a charge to operating expenses over the expected life of the contract.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance is effective for all entities from the period March 12, 2020 through December 31, 2022. The Company has elected the optional expedients for its interest rate swap agreements and debt agreements with reference to LIBOR. Upon meeting the specified criteria in the guidance, the Company will continue to account for its interest rate swaps in accordance with hedge accounting and will not apply modification accounting to its debt agreements. In January 2021, the FASB issued ASU 2021-01, which made clarifications relating to the previously issued Reference Rate Reform guidance effective for the same period as ASU 2020-04. This clarification did have an effect on how the Company accounts for its interest rate swaps and debt agreements.
Recently Issued Accounting Standards
In August 2018, the FASB issued guidance, ASU 2018-14, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance is effective for all entities for fiscal years beginning after December 15, 2020.prospective basis. Early adoption is permitted. The Company isWe are currently in the process of evaluatingassessing the impact of the adoption of this standardupdate on its Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12, which enhancesour consolidated financial statements and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The guidance is effective for all entities for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company will adopt ASU 2019-12 in Q1 of 2021, and it is expected that the adoption will not have a material impact to the Consolidated Financial Statements.
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity and amends the scope guidance for contracts in an entity's own equity and certain aspects of the EPS guidance. The guidance is effective for all entities for fiscal years beginning after December 15, 2021, albeit early adoption is permitted no earlier than fiscal years beginning after December 15, 2020. The Company evaluated the initial impact of the adoption of this standard and determined that there is no impact on its Consolidated Financial Statements as of December 31, 2020.
There were no other new accounting standards that we expect to have a material impact to our financial position or results of operations upon adoption.
Note 4: Business Combinations2: Acquisitions and Divestitures
2021 Acquisition of ProQuest
On May 13, 2019, the Company completed the 2019 Transaction. Jersey began operations in 2016 as a provider of proprietary and comprehensive content, analytics, professional services and workflow solutions that enables users across government and academic institutions, life science companies and R&D intensive corporations to discover, protect and commercialize their innovations. Churchill was a special purpose acquisition company whose business was to effect a merger, capital stock exchange, asset acquisition, stock purchase reorganization or similar business combination. The shares and earnings per share available to holders of the Company’s ordinary shares, prior to the 2019 Transaction, have been recasted as shares reflecting the exchange ratio established in the 2019 Transaction (1.0 Jersey share to 132.13667 Clarivate shares).
Pursuant to the Merger Agreement, the aggregate stock consideration issued by the Company in the 2019 Transaction was $3,052,500, consisting of 305,250,000 newly issued ordinary shares of the Company valued at $10.00 per share, subject to certain adjustments described below. Of the $3,052,500, the shareholders of Jersey prior to the closing of the 2019 Transaction (the “Company Owners”) received $2,175,000 in the form of 217,500,000 newly issued ordinary shares of the Company. In addition, of the $3,052,500, Churchill public shareholders received $690,000 in the form of 68,999,999 newly issued ordinary shares of the Company. In addition, Churchill Sponsor LLC (the “sponsor”) received $187,500 in the form
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
of 17,250,000 ordinary shares of the Company issued to the sponsor, and 1,500,000 additional ordinary shares of the Company were issued to certain investors. See Note 16 - Shareholders’ Equity for further information.
Upon consummation of the 2019 Transaction, each outstanding share of ordinary stock of Churchill was converted into one ordinary share of the Company. At the closing of the 2019 Transaction, the Company Owners held approximately 74% of the issued and outstanding ordinary shares of the Company and stockholders of Churchill held approximately 26% of the issued and outstanding shares of the Company excluding the impact of (i) 52,800,000 warrants, (ii) approximately 24,806,793 compensatory options issued to the Company's management (based on number of options to purchase Jersey ordinary shares outstanding immediately prior to the 2019 Transaction, after giving effect to the exchange ratio described above) and (iii) 10,600,000 ordinary shares of Clarivate owned of record by the sponsor and available for distribution to certain individuals following the applicable lock-up and vesting restrictions.
Certain restrictions were removed following the Secondary Offering on August 14, 2019. See Note 17 - Employment and Compensation Arrangements for further information. After giving effect to the satisfaction of the vesting restrictions the Company Owners held approximately 60% of the issued and outstanding shares of the Company at the close of the 2019 Transaction. See Note 16 - Shareholders’ Equity for further information on equity instruments.
Acquisition of Decision Resources Group
On February 28, 2020,December 1, 2021, we acquired 100% of the assets, liabilitiesProQuest, a leading global software, data and equity interests of Decision Resourcesanalytics provider to academic, research and national institutions, and its subsidiaries from Cambridge Information Group ("DRG"(“CIG”), a premier provider of high-value data, analyticsAtairos and insights products and services tocertain other equity holders (collectively, the healthcare industry, from Piramal Enterprises Limited ("PEL"“Seller Group”), which is a part of global business conglomerate Piramal Group. The acquisition helps us expand our core businesses and provides us with the potential to grow in the Life Sciences Product Line.
. The aggregate consideration paid in connection with the closing of the DRGProQuest acquisition was $964,997, comprised$5,002.3, net of $900,000$52.5 cash acquired. The aggregate consideration was composed of base cash plus $6,100(i) $1,094.9 from the issuance of adjusted closing cash paid on the closing date and up to 2,895,638 of the Company's46.9 million ordinary shares to be issuedthe Seller Group and (ii) approximately $3,959.9 in total cash consideration, including approximately $917.5 to PEL followingfund the one-year anniversaryrepayment of closing. The contingent stock consideration was valued at $58,897 on the closing date and will be revalued at each period end. For the year ended December 31, 2020, the fair value of the contingent stock consideration increased by $27,132, which was recorded to selling, general and administrative costs in the Consolidated Statements of Operations. The corresponding liability increased to $86,029 as of December 31, 2020 which was recorded to Accrued expenses and other current liabilities in the Consolidated Balance Sheets. See Note 23 - Commitments and Contingencies for more information. The DRG acquisition was accounted for using the acquisition method of accounting. ProQuest debt.
The excess of the purchase price over the net tangible and intangible assets iswas recorded to Goodwill and primarily reflectsreflected the assembled workforce and expected synergies. Goodwill is notsynergies, with the majority being deductible for tax purposes. For additional information, see Note 6 - Other Intangible Assets, net and Goodwill. Total transaction costs incurred in connection with the acquisition of DRG was $47,068were $16.2 and $63.0 for the year ended December 31, 2020.
The amount2022 and 2021, respectively. ProQuest is reported primarily as part of Revenues, net and Net loss resulting from the acquisition that are attributable to the Company's stockholders and included in the Consolidated Statements of Operations and Comprehensive Loss were as follows:
| | | | | |
| |
| |
| |
|
| |
| Year ended
December 31, 2020
|
Revenues, net our A&G segment.(1)
| $ | 186,428 | |
Net income attributable to the Company's stockholders | $ | 4,999 | |
| |
(1) Includes $7,157 of a deferred revenue haircut recognized during the year ended December 31, 2020. |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
The following table summarizes the final purchase price allocation forbased on the DRG acquisitionfair value of assets acquired and liabilities assumed as of the close date of February 28, 2020 is final. The following table summarizes the preliminary purchase price allocation for this acquisition:December 1, 2021: | | | | | | | | | |
| | | | | Final
Purchase Price Allocation |
| Accounts receivable | | | | | $ | 114.7 | |
| Prepaid expenses | | | | | 23.2 | |
| Other current assets | | | | | 23.7 | |
| Property and equipment, net | | | | | 65.2 | |
Other intangible assets(1) | | | | | 3,533.7 | |
| Other non-current assets | | | | | 18.0 | |
| Deferred income taxes | | | | | 3.5 | |
| Operating lease right-of-use assets | | | | | 28.4 | |
| Total assets | | | | | $ | 3,810.4 | |
| Accounts payable | | | | | 17.1 | |
| Accrued expenses and other current liabilities | | | | | 133.2 | |
| Current portion of long-term debt | | | | | 1.1 | |
| Current portion of deferred revenue | | | | | 335.2 | |
| Current portion of operating lease liabilities | | | | | 8.0 | |
| Long-term debt | | | | | 33.4 | |
| Deferred income taxes | | | | | 58.9 | |
| Non-current portion of deferred revenue | | | | | 6.8 | |
| Other non-current liabilities | | | | | 91.3 | |
| Operating lease liabilities | | | | | 23.1 | |
| Total liabilities | | | | | 708.1 | |
| Fair value of acquired identifiable assets and liabilities | | | | | $ | 3,102.3 | |
| | | | | |
| Purchase price, net of cash acquired | | | | | $ | 5,002.3 | |
| Less: Fair value of acquired identifiable assets and liabilities | | | | | 3,102.3 | |
| Goodwill | | | | | $ | 1,900.0 | |
(1)$3,528.0 relates to the valued intangible assets as per the purchase price allocation with the remaining amount attributable to acquired assets under construction. |
| | | | | | | | | | | | | | | | | |
| As Originally Reported | | Adjustments(1) | | As Restated Amendment No. 2 |
| Accounts receivable | $ | 52,193 | | | $ | — | | | $ | 52,193 | |
| Prepaid expenses | 4,295 | | | — | | | 4,295 | |
| Other current assets | 68,001 | | | — | | | 68,001 | |
| Property and equipment, net | 4,136 | | | — | | | 4,136 | |
Other intangible assets(1) | 491,366 | | | — | | | 491,366 | |
| Other non-current assets | 2,960 | | | — | | | 2,960 | |
| Operating lease right-of-use assets | 25,099 | | | — | | | 25,099 | |
| Total assets | $ | 648,050 | | | $ | — | | | $ | 648,050 | |
| Accounts payable | 3,474 | | | — | | | 3,474 | |
| Accrued expenses and other current liabilities | 88,561 | | | — | | | 88,561 | |
| Current portion of deferred revenue | 35,126 | | | — | | | 35,126 | |
| Current portion of operating lease liabilities | 5,188 | | | — | | | 5,188 | |
Deferred income taxes(2) | 47,467 | | | 1,936 | | | 49,403 | |
| Non-current portion of deferred revenue | 936 | | | — | | | 936 | |
| | | | | |
| Operating lease liabilities | 20,341 | | | — | | | 20,341 | |
| Total liabilities | 201,093 | | | 1,936 | | | 203,029 | |
| Fair value of acquired identifiable assets and liabilities | $ | 446,957 | | | $ | (1,936) | | | $ | 445,021 | |
| | | | | |
Purchase price, net of cash(3) | 944,220 | | | — | | | 944,220 | |
| Less: Fair value of acquired identifiable assets and liabilities | 446,957 | | | (1,936) | | | 445,021 | |
| Goodwill | $ | 497,263 | | | $ | 1,936 | | | $ | 499,199 | |
| | | | | |
(1) Includes $3,966 of internally developed software in progress acquired. | | | | | |
(2) The Company has corrected for the understatement of deferred tax liabilities of $1,936 with an offset to goodwill relating to the DRG acquisition opening balance sheet in February 28, 2020. |
(3) The Company acquired cash of $20,777. | | | | | |
The identifiable intangible assets acquired are amortized on a straight-line basis over their estimated useful lives. The following table summarizes the estimated fair value of DRG’sProQuest’s identifiable intangible assets acquired and their remaining amortization period (in years): as of the close date: | | | | | | | | | | | |
| Fair Value | | Remaining
Amortization Period |
| Customer relationships | $ | 2,773.0 | | | 17-23 |
| Technology and content | 709.3 | | | 5-17 |
| Trade names | 45.7 | | | 2-10 |
| Total identifiable intangible assets | $ | 3,528.0 | | | |
| | | |
|
| | | | | | | | | | | |
| Fair Value as of February 28, 2020 | | Remaining
Range of Years |
| Customer relationships | $ | 381,000 | | | 10-21 |
| Database and content | 50,200 | | | 2-7 |
| Trade names | 5,200 | | | 4-7 |
| Purchased software | 23,000 | | | 3-8 |
| Backlog | 28,000 | | | 4 |
| Total identifiable intangible assets | $ | 487,400 | | | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
DuringUnaudited pro forma information for the year ended December 31, 2020, there were additional purchase accounting adjustments of $314 related to fixed assets, deferred revenue and legal accrual with a corresponding increase to goodwill and $1,804 related to the aforementioned items and a reduction in the valuation of assumed lease liabilities and a corresponding reduction in goodwill, respectively.
Restated unaudited pro forma information for the Company for the periods presented2021 as if the acquisition had occurred January 1, 20192020, is as follows:
| | | | | | | | | | | |
| As Restated |
| Year ended December 31,
|
| 2020 | | 2019 |
| Pro forma revenues, net | $ | 1,284,419 | | | $ | 1,174,295 | |
| Pro forma net loss attributable to the Company's stockholders - (As Restated) | (303,457) | | | (304,846) | |
| | | | | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| Pro forma revenues, net | $ | 2,703.0 | | | |
| Pro forma net loss attributable to shareholders | $ | (175.4) | | | |
The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the acquisition taken place on the date indicated, or the
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In millions or as otherwise noted)
future consolidated results of operations of the Company.our operations. The pro forma financial information presented above has been derived from theour historical consolidated financial statements of the Company and from the historical accounting records of DRG.ProQuest.
The unaudited pro forma results include certain pro forma adjustments to revenue and net loss that were directly attributable to the acquisition assuming the acquisition hadthat it occurred on January 1, 2019,2020, including the following: (i) additional amortization expense that would have been recognized relating to the acquired intangible assets, (ii) adjustments to interest expense to reflect the removal of DRGProQuest debt and theour additional Company borrowings in conjunction with the acquisition, and (iii) the removal of $63.0 of acquisition-related transaction costs and $55.0 of other one-time non-recurring costs related to undrawn bridge commitment fees.
2023 Pending Divestiture
During the second quarter 2023, we entered into a commercial agreement to sell a small product group within our IP segment for approximately $34 payable over ten years. The divestiture enables improved focus on our core IP business assets and empowers product development and innovation teams to build upon our market-leading IP intelligence, IP lifecycle management, and IP services solutions. The transaction, which is expected to close during the second quarter of 2024, does not represent a strategic shift, nor is it expected to have a material impact on our operations or financial results. Accordingly, the divestiture met the held-for-sale criteria but did not qualify as a discontinued operation as of December 31, 2023.
Prior to the held-for-sale determination and accompanying impairment testing as of June 30, 2023, the carrying amount of the expected assets to be disposed of consisted almost entirely of purchase-related identifiable customer relationship intangible assets of approximately $158. These intangible assets were reduced expenses by $26,348to estimated fair value of $26.1 based on the estimated present value of the consideration to be paid over ten years. The related impairment charge of $132.2, as well as a goodwill impairment charge of $3.0 related to its allocated portion of the IP segment reporting unit’s goodwill balance, is included in Goodwill and intangible asset impairments in the Consolidated Statement of Operations for the year ended December 31, 20202023. The carrying amount of the intangible assets and reduced expenses by $439the remaining deferred tax liabilities associated with those intangibles included in the disposal group were $26.7 and $6.7, respectively, and were reclassified to Assets held for sale and Liabilities held for sale on the Consolidated Balance Sheet as of December 31, 2023.
2022 Divestiture of MarkMonitor Domain Management Business
On October 31, 2022, we completed the sale of the MarkMonitor Domain Management business (IP segment) to Newfold Digital, a leading web presence solutions provider. The aggregate closing consideration included proceeds, net of cash transferred of $285.0, deferred closing consideration of $10.6, and other of $0.5. We received the deferred closing consideration during the year ended December 31, 2023.
As a result of the sale, we recorded a net gain of $278.5, which is included in Other operating expense (income), net in the Consolidated Statement of Operations for the year ended December 31, 2019.2022 and we wrote-off $10.6 of Other intangible assets, net and $42.8 of Goodwill associated with the divested business from the Consolidated Balance Sheet as of December 31, 2022.
Note 3: Revenue
Acquisition of CPA Global
On October 1, 2020, we acquired 100%The following tables present our revenues by transaction type, based on revenue recognition pattern, and by geography, based on the location of the assets, liabilities and equity interests of CPA Global, a global leader in intellectual property software and tech-enabled services from Redtop Holdings Limited ("Redtop"). The acquisition helps Clarivate create a true end-to-end platform supporting the full IP lifecycle from idea generation to commercialization and protection.
Clarivate acquired all of the outstanding shares of CPA Global in a cash and stock transaction. The aggregate consideration in connection with the closing of the CPA Global acquisition was $8,541,551, net of $102,010 cash acquired and including an equity holdback consideration of $46,485. The aggregate consideration was composed of (i) $6,565,477 from the issuance of up to 218,183,778 ordinary shares to Redtop Holdings Limited, a portfolio company of Leonard Green & Partners, L.P., representing approximately 35% customer:pro forma fully diluted ownership of Clarivate and (ii) approximately $2,078,084 in cash to fund the repayment of CPA Global's parent company outstanding debt of $2,055,822 and related interest swap termination fee of $22,262. Of the 218,306,663 ordinary shares issuable in the acquisition, Clarivate issued 210,357,918 ordinary shares as of October 1, 2020. There were 6,325,860 shares that were issued to Leonard Green & Partners, L.P. that were returned to Clarivate to fund an Employee Benefit Trust established for the CPA Global Equity Plan. Accordingly, these shares were excluded from purchase price consideration. | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Revenues by transaction type | | 2023 | | 2022 | | 2021 |
| Subscription revenues | | $ | 1,618.1 | | | $ | 1,618.8 | | | $ | 1,030.4 | |
| Re-occurring revenues | | 444.6 | | | 441.9 | | | 453.2 | |
| Transactional and other revenues | | 566.1 | | | 599.1 | | | 393.3 | |
| | | | | | |
| Revenues, net | | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | 1,876.9 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
| | | | | | | | | | | | | | | | | | | | |
| | As Originally Reported | | Adjustments(1) | | As Restated Amendment No. 2 |
Issuance of 210,357,918 shares(1) | | $ | 6,761,515 | | | $ | (196,038) | | | $ | 6,565,477 | |
| Cash paid for repayment of CPA Global's parent company debt and related interest rate swap termination charge | | 2,078,084 | | | — | | | 2,078,084 | |
| Total purchase price | | 8,839,599 | | | (196,038) | | | 8,643,561 | |
Cash acquired(2) | | (98,610) | | | (3,400) | | | (102,010) | |
| Total purchase price, net of cash acquired | | $ | 8,740,989 | | | $ | (199,438) | | | $ | 8,541,551 | |
(1) Represents the adjustment to ordinary shares that were transferred from Leonard Green & Partners, L. P. to an Employee Benefit Trust established for the CPA Global Equity Plan that should have been excluded from the purchase price consideration in the amount of $196,038, or 6,325,860 ordinary shares. |
(2) The adjustment represents restricted cash acquired to fund fixed cash awards and certain taxes related to the CPA Global Equity Plan. |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Revenues by geography | | 2023 | | 2022 | | 2021 |
| Americas | | $ | 1,405.5 | | | $ | 1,462.3 | | | $ | 924.7 | |
| Europe/Middle East/Africa | | 707.5 | | | 698.3 | | | 555.8 | |
| APAC | | 515.8 | | | 499.2 | | | 396.4 | |
| Revenues, net | | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | 1,876.9 | |
The excess of the purchase price over the net tangible and intangible assets is recorded to Goodwill and primarily reflects the assembled workforce and expected synergies. Goodwill is not deductible for tax purposes. Total transaction costs incurred in connection with the acquisition of CPA was $37,164 forFor the year ended December 31, 2020.2023, 2022, and 2021, approximately 49%, 50%, and 46% of our revenues, respectively, were attributed to customers in the U.S., while no other country accounted for more than 10% of our revenues.
Costs to Obtain a Contract
The capitalized amount of Revenues, netsales commissions included in Prepaid expenses was $19.7 and Net loss resulting from$27.7, and in Other non-current assets was $23.8 and $15.5 as of December 31, 2023 and 2022, respectively. We have not recorded any impairments against these capitalized commission costs.
Contract Balances | | | | | | | | | | | | | | | | | |
| Accounts receivable, net | | Current
deferred revenues | | Non-current
deferred revenues |
| December 31, 2022 | $ | 872.1 | | | $ | 947.5 | | | $ | 38.5 | |
| December 31, 2023 | 908.3 | | | 983.1 | | | 38.7 | |
| Increase (decrease) | $ | 36.2 | | | $ | 35.6 | | | $ | 0.2 | |
| | | | | |
| December 31, 2021 | $ | 906.4 | | | $ | 1,030.4 | | | $ | 54.2 | |
| December 31, 2022 | 872.1 | | | 947.5 | | | 38.5 | |
| Increase (decrease) | $ | (34.3) | | | $ | (82.9) | | | $ | (15.7) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
During the acquisition that areyear ended December 31, 2023, we recognized revenues of $818.3 attributable to deferred revenues recorded at the Company's stockholders andbeginning of the period, primarily consisting of subscription revenues recognized ratably over the contractual term.
Our remaining performance obligations are included in the current or non-current portion of deferred revenues on the Consolidated StatementsBalance Sheets. The majority of Operationsthese obligations relate to customer contracts where we license the right to use our products or provide maintenance services over a contractual term, generally one year or less.
Note 4: Accounts Receivable
Our Accounts receivable, net balance consisted of the following as of December 31, 2023 and Comprehensive Loss since October 1, 2020 were as follows:2022: | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| Accounts receivable | $ | 934.9 | | | $ | 899.2 | |
| Less: Accounts receivable allowance | (26.6) | | | (27.1) | |
| Accounts receivable, net | $ | 908.3 | | | $ | 872.1 | |
| | | | | |
| |
| |
| |
|
| |
| Year ended
December 31, 2020
|
Revenues, net (1)
| $ | 157,504 | |
Net loss attributable to the Company's stockholders | $ | (39,985) | |
| |
(1) Includes $15,297 of a deferred revenue haircut recognized during the year ended December 31, 2020. |
The change in our accounts receivable allowance related to the following activity during each of the years presented: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Balance at beginning of year | $ | 27.1 | | | $ | 24.9 | | | $ | 23.9 | |
| Additional provisions | 7.0 | | | 10.9 | | | 9.2 | |
| Write-offs | (9.3) | | | (7.8) | | | (8.0) | |
| Exchange differences | 1.8 | | | (0.9) | | | (0.2) | |
| Balance at end of year | $ | 26.6 | | | $ | 27.1 | | | $ | 24.9 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
The purchase price allocationNote 5: Property and Equipment, Net
Property and equipment, net consisted of the following:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| Computer hardware | $ | 54.5 | | | $ | 45.1 | |
| Leasehold improvements | 15.9 | | | 16.1 | |
| Furniture, fixtures, and equipment | 44.5 | | | 39.0 | |
| Finance lease | 8.0 | | | 8.0 | |
| Other | 2.3 | | | 2.1 | |
| Property and equipment, gross | $ | 125.2 | | | $ | 110.3 | |
| Accumulated depreciation | (73.6) | | | (55.8) | |
| Property and equipment, net | $ | 51.6 | | | $ | 54.5 | |
Depreciation expense was $23.2, $35.2, and $14.0 for the CPA Global acquisition as of the close date of October 1, 2020 is preliminaryyears ended December 31, 2023, 2022, and may change upon completion of the determination of the fair value of2021, respectively.
Note 6: Other Intangible Assets, net and Goodwill
Other intangible assets, acquired and liabilities assumed. net
The following table summarizestables summarize the preliminary purchase price allocation for this acquisition:
| | | | | | | | | | | | | | | | | |
| As Originally Reported | | Adjustments (3) | | As Restated Amendment No. 2 |
| Accounts receivable | $ | 373,124 | | | $ | — | | | $ | 373,124 | |
| Prepaid expenses | 27,595 | | | — | | | 27,595 | |
| Other current assets | 215,364 | | | (176,950) | | | 38,414 | |
| Property and equipment, net | 12,288 | | | — | | | 12,288 | |
| Other intangible assets | 4,920,317 | | | — | | | 4,920,317 | |
| Deferred income taxes | 19,310 | | | — | | | 19,310 | |
| Other non-current assets | 24,613 | | | (17,333) | | | 7,280 | |
| Operating lease right-of-use assets | 30,649 | | | — | | | 30,649 | |
| Total assets | $ | 5,623,260 | | | $ | (194,283) | | | $ | 5,428,977 | |
| Accounts payable | 53,501 | | | — | | | 53,501 | |
| Accrued expenses and other current liabilities | 414,063 | | | (178,874) | | | 235,189 | |
| Current portion of deferred revenue | 180,376 | | | — | | | 180,376 | |
| Current portion of operating lease liabilities | 7,738 | | | — | | | 7,738 | |
| Non-current portion of deferred revenue | 16,786 | | | — | | | 16,786 | |
Deferred income taxes(1) | 301,946 | | | 3,328 | | | 305,274 | |
| Other non-current liabilities | 43,785 | | | (19,478) | | | 24,307 | |
| Operating lease liabilities | 23,615 | | | — | | | 23,615 | |
| Total liabilities | 1,041,810 | | | (195,024) | | | 846,786 | |
| Fair value of acquired identifiable assets and liabilities | $ | 4,581,450 | | | $ | 741 | | | $ | 4,582,191 | |
| | | | | |
Purchase price, net of cash(2)(3)(4) | $ | 8,740,989 | | | $ | (199,438) | | | $ | 8,541,551 | |
| Less: Fair value of acquired identifiable assets and liabilities | 4,581,450 | | | 741 | | | 4,582,191 | |
| Goodwill | $ | 4,159,539 | | | $ | (200,179) | | | $ | 3,959,360 | |
| | | | | |
(1) Separate from the CPA Global Equity Plan restatement in Amendment No 2, the Company has corrected the understatement of deferred tax liabilities of $3,328 with an offset to goodwill relating to the CPA Global acquisition opening balance sheet in October 1, 2020. |
(2) The Company acquired cash and cash equivalents and restricted cash of $102,010. | | | | | |
(3) Certain awards made by CPA Global under their equity plan and trust were incorrectly included as part of the acquisition accounting for the CPA Global Transaction. The Company concluded that expenses should have been recognized as share-based compensation charges over the vesting period from October 1, 2020 to October 1, 2021, with only a portion of the liability recorded as part of acquisition accounting. In connection with the purchase accounting, and in accordance with ASC 805, the Company performed an analysis by grant date to attribute the liability between the pre-and-post combination periods. This resulted in an adjustment to Accrued expenses and other current liabilities of $178,874 and Other non-current liabilities of $19,478. See Note 17 - Employment and Compensation Arrangements for further details regarding the post combination treatment of the equity plan. |
(4) In addition, ordinary shares that were transferred from Leonard Green & Partners, L. P. to an Employee Benefit Trust established for the CPA Global Equity Plan, should have been excluded from the purchase price consideration in the amount of $196,038 or 6,325,860 ordinary shares. |
Thegross carrying amounts and accumulated amortization of our identifiable intangible assets
acquired are amortized on a straight-line basis over theirby major class: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| Definite-lived intangible assets: | | | | | | | | | | | |
| Customer relationships | $ | 7,819.9 | | | $ | (1,177.2) | | | $ | 6,642.7 | | | $ | 7,809.0 | | | $ | (821.5) | | | $ | 6,987.5 | |
| Technology and content | 2,798.3 | | | (1,009.1) | | | 1,789.2 | | | 2,681.0 | | | (780.5) | | | 1,900.5 | |
| Computer software | 897.9 | | | (516.4) | | | 381.5 | | | 765.1 | | | (422.2) | | | 342.9 | |
| Trade names and other | 88.9 | | | (52.6) | | | 36.3 | | | 88.8 | | | (38.9) | | | 49.9 | |
| Definite-lived intangible assets | $ | 11,605.0 | | | $ | (2,755.3) | | | $ | 8,849.7 | | | $ | 11,343.9 | | | $ | (2,063.1) | | | $ | 9,280.8 | |
| Indefinite-lived intangible assets: | | | | | | | | | | | |
| Trade names | 156.9 | | | — | | | 156.9 | | | 156.9 | | | — | | | 156.9 | |
| Total intangible assets | $ | 11,761.9 | | | $ | (2,755.3) | | | $ | 9,006.6 | | | $ | 11,500.8 | | | $ | (2,063.1) | | | $ | 9,437.7 | |
Intangible assets amortization expense was $685.1, $675.3, and $523.8 during the years ended December 31, 2023, 2022, and 2021, respectively.
In connection with the assets and liabilities held-for-sale as of December 31, 2023, we recorded an intangible assets impairment charge of $132.2 primarily associated with purchase-related customer relationships. For further details, see Note 2 - Acquisitions and Divestitures.
As of December 31, 2023, the remaining weighted-average estimated useful lives. The following table summarizes the estimated fair valuelife (in years) of CPA Global’s identifiableour definite-lived intangible assets acquiredby major class and their remaining amortization period (in years):in total was as follows:
| | | | | |
| Customer relationships | 19 |
| Technology and content | 10 |
| Computer software | 6 |
| Trade names and other | 8 |
| |
| Total | 17 |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
| | | | | | | | | | | |
| Fair Value as of October 1, 2020 | | Remaining
Range of Years |
Customer relationships | $ | 4,643,306 | | | 17-23 |
Technology | 266,224 | | | 6-14 |
Trademarks | 10,787 | | | 2-17 |
Total identifiableAs of December 31, 2023, estimated future amortization expense related to definite-lived intangible assets | $ | 4,920,317 | | | |
Restated unaudited pro forma information for the Company for the periods presented as if the acquisition had occurred January 1, 2019 is as follows:
| | | | | | | | | | | |
| As Restated |
| Year ended December 31,
|
| 2020 | | 2019 |
| Pro forma revenues, net | $ | 1,709,312 | | | $ | 1,498,485 | |
| Pro forma net loss attributable to the Company's stockholders - (As Restated) | (349,913) | | | (403,653) | |
| | | | | |
| 2024 | $ | 678.1 | |
| 2025 | 650.8 | |
| 2026 | 613.5 | |
| 2027 | 582.1 | |
| 2028 | 552.0 | |
| Thereafter | 5,755.5 | |
| Amortizing intangible assets | $ | 8,832.0 | |
| Internally developed software projects in process | 17.7 | |
| Definite-lived intangible assets | $ | 8,849.7 | |
| |
| |
The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the acquisition taken place on the date indicated, or the future consolidated results of operations of the Company. The pro forma financial information presented above has been derived from the historical consolidated financial statements of the Company and from the historical accounting records of CPA Global.
The unaudited pro forma results include certain pro forma adjustments to revenue and net loss that were directly attributable to the acquisition, assuming the acquisition had occurred on January 1, 2019, including the following: (i) additional amortization expense that would have been recognized relating to the acquired intangible assets, (ii) adjustments to interest expense to reflect the removal of CPA Global debt and the additional Company borrowings in conjunction with the acquisition, (iii) acquisition-related transaction costs and other one-time non-recurring costs which increased expenses by $70,531 for the year ended December 31, 2020.Goodwill
AcquisitionThe change in the carrying amount of Beijing IncoPat
On October 26, 2020, the Company acquired 100% of the equity voting interest in Beijing IncoPat Technology Co., Ltd. (“IncoPat”). IncoPat is a leading patent information service provider in China via cash on hand. IncoPat is complementary to Clarivate’s intellectual property portfolio. The Company paid $52,133 in cash to acquire IncoPat. As of December 31, 2020, $6,313 of the consideration is held in escrow and will be paid in a future period. Until this balance is paid it will be held in restricted cash with the offsetting liability within accrued expenses and other current liabilities. The excess of the purchase price over the net tangible and intangible assets is recorded to Goodwill and primarily reflects the assembled workforce and expected synergies. Goodwill is not deductible for tax purposes. Total transaction costs incurred in connection with the acquisition of IncoPatby segment was $1,706 for the year ended December 31, 2020. These costs are included in selling general and administrative expense. IncoPat contributed revenues of $1,408 and a net loss of $455 to the Company's 2020 results.
as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| A&G
Segment | | IP
Segment | | LS&H
Segment | | Total Consolidated |
| Balance as of December 31, 2021 | $ | 2,862.6 | | | $ | 3,865.0 | | | $ | 1,177.3 | | | $ | 7,904.9 | |
| Acquisition measurement period adjustments | 2.9 | | | — | | | 2.1 | | | 5.0 | |
Divestiture(1) | — | | | (42.8) | | | — | | | (42.8) | |
Goodwill impairment(2) | (1,745.8) | | | (2,662.1) | | | — | | | (4,407.9) | |
Impact of foreign currency fluctuations(3) | (9.9) | | | (569.8) | | | (3.0) | | | (582.7) | |
| Balance as of December 31, 2022 | $ | 1,109.8 | | | $ | 590.3 | | | $ | 1,176.4 | | | $ | 2,876.5 | |
| Acquisition | — | | | — | | | 3.0 | | | 3.0 | |
| | | | | | | |
Goodwill impairment(4) | — | | | (582.2) | | | (265.5) | | | (847.7) | |
| Impact of foreign currency fluctuations | — | | | (8.1) | | | — | | | (8.1) | |
| Balance as of December 31, 2023 | $ | 1,109.8 | | | $ | — | | | $ | 913.9 | | | $ | 2,023.7 | |
|
|
(1) Relates to the divestiture of the MarkMonitor business in 2022. For further details, see Note 2 - Acquisitions and Divestitures. |
(2) The total goodwill impairment charge reflected in the Consolidated Statements of Operations during the year ended December 31, 2022 was $4,449. The difference represents the CTA impact from amounts recorded in our subsidiaries with functional currencies other than USD. |
(3) The impact of foreign currency fluctuations was primarily driven by changes in the GBP/USD translation rate as of December 31, 2022 compared to December 31, 2021. |
(4) In connection with the assets and liabilities held-for-sale as of December 31, 2023, a $3.0 impairment was recorded related to its allocated portion of the IP segment reporting unit’s goodwill balance. For further details, see Note 2 - Acquisitions and Divestitures. |
|
|
In connection with this acquisition,both 2023 and 2022, we completed quantitative goodwill impairment assessments using a legal entity was created in whichDCF analysis to estimate the Company hasfair value of each of our reporting units. The discount rates were derived using a variable interest. Seecapital asset pricing model and analysis of published rates for industries relevant to each reporting unit to estimate the cost of equity financing. For additional information related to our goodwill impairment testing policy and procedures, see Note 31 - Nature of Operations and Summary of Significant Accounting Policies for considerationPolicies.
In 2023, we performed our annual goodwill impairment assessment in the fourth quarter using a quantitative approach. The annual assessment coincided with a change in our reporting units wherein the legacy ProQuest and Web of accounting treatment forScience Group reporting units were combined into a single reporting unit, A&G. There was no impact to the variable interest entity.
reportable segments or operating segments. The purchase price allocation for the IncoPat acquisition asgoodwill impairment assessment included an analysis of the close date of October 26, 2020 is preliminaryimpacted reporting units immediately before and mayimmediately after the change upon completionand concluded there was no impairment in either scenario. Based on the annual quantitative analysis, we determined that the carrying value of the determinationIP and LS&H segment reporting units exceeded their respective fair values, resulting in a goodwill impairment charge of $844.7 as follows: (i) $579.2 related to the fair valueIP reporting unit within the IP segment and (ii) $265.5 related to the LS&H reporting unit within the LS&H segment. The impairments were primarily due to worsening macroeconomic and market conditions.
In the third quarter of assets acquired and liabilities assumed. The following table summarizes2022, we recorded a goodwill impairment charge of $4,407.9 as follows: (i) $1,745.8 related to the preliminary purchase price allocation forProQuest reporting unit within the acquisition:A&G segment; (ii) $2,569.1 related to the former IP Management reporting unit within
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
| | | | | |
| Total |
Accounts receivable | $ | 1,132 | |
Prepaid expenses | 168 | |
Other current assets | 100 | |
Property and equipment, net | 354 | |
Other intangible assets | 21,957 | |
Other non-current assets | 283 | |
| |
Total assets | $ | 23,994 | |
Accounts payable | 73 | |
Accrued expenses and other current liabilities | 843 | |
Current portion of deferred revenue | 6,334 | |
| |
Deferred income taxes | 4,802 | |
| |
Other non-current liabilities | 283 | |
| |
Total liabilities | $12,335 |
Fair value of acquired identifiable assets and liabilities | $ | 11,659 | |
| |
Purchase price, net of cash(1)
| 52,133 | |
Less: Fair value of acquired identifiable assets and liabilities | 11,659 | |
Goodwill | $ | 40,474 | |
| |
| |
(1) The Company acquired cash of $844.
| |
The identifiable intangible assets acquired are amortized on a straight-line basis over their estimated useful lives. The following table summarizes the estimated fair value of Beijing IncoPat’s identifiable intangible assets acquiredIP segment; and their remaining weighted-average amortization period (in years):
| | | | | | | | | | | |
| Fair Value as of October 26, 2020 | | Remaining
Amortization
Period (in years) |
| Customer relationships | $ | 19,989 | | | 11 |
| Existing technology | $ | 1,892 | | | 6 |
| Trade names | $ | 76 | | | 2 |
| Total identifiable intangible assets | $ | 21,957 | | | |
Acquisition of Hanlim IPS Co., LTC
On November 23, 2020, the Company acquired 100% of the equity voting interest in Hanlim IPS Co., LTC ("Hanlim IPS") Hanlim IPS is a patent research and consulting services provider in South Korea. The acquisitions purpose is to accelerate innovation in South Korea by offering a more comprehensive range of IP information and insights solutions. The Company paid $9,254 in cash to acquire Hanlim IPS. The excess of the purchase price over the net tangible and intangible assets is recorded to Goodwill and primarily reflects the assembled workforce and expected synergies. Goodwill is not deductible for tax purposes. Total transaction costs incurred in connection with the acquisition of Hanlim IPS was $473 for the year ended December 31, 2020. Hanlim IPS contributed revenue of $145 and net income of $90 to the Company's 2020 results.
The purchase price allocation for the Hanlim IPS acquisition as of the close date of November 23, 2020 is preliminary and may change upon completion of the determination of the fair value of assets acquired and liabilities assumed. The following table summarizes the preliminary purchase price allocation for this acquisition:
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | |
| Total |
Accounts receivable | $ | 44 | |
Prepaid expenses | 7 | |
Other current assets | 844 | |
Property and equipment, net | 75 | |
Other intangible assets | 8,805 | |
Other non-current assets | 94 | |
| |
Total assets | $ | 9,869 | |
Accounts payable | 27 | |
Accrued expenses and other current liabilities | 1,512 | |
| |
| |
Deferred income taxes | 1,937 | |
| |
| |
| |
Total liabilities | 3,476 | |
Fair value of acquired identifiable assets and liabilities | $ | 6,393 | |
| |
Purchase price, net of cash(1)
| 9,254 | |
Less: Fair value of acquired identifiable assets and liabilities | 6,393 | |
Goodwill | $ | 2,861 | |
| |
| |
(1)The Company acquired cash of $2,191.
| |
The identifiable intangible assets acquired are amortized on a straight-line basis over their estimated useful lives. The following table summarizes the estimated fair value of Hanlim’s identifiable intangible assets acquired and their remaining amortization period (in years):
| | | | | | | | | | | |
| Fair Value as of November 23, 2020 | | Remaining
Range of Years |
| Customer relationships | $ | 7,832 | | | 11-13 |
| Trade name | 15 | | | 2 |
| Non-compete agreements | 958 | | | 5 |
| Total identifiable intangible assets | $ | 8,805 | | | |
Acquisition of SequenceBase
In September 2019, the Company purchased the key business assets of SequenceBase, an international patent sequence information provider. The SequenceBase acquisition was accounted for as an asset acquisition. As a result of the SequenceBase acquisition, SequenceBase’s identifiable assets were adjusted to their fair market values as of the closing date, which included customer relations intangibles of $1,000 and computer software intangibles of $2,500. The Consolidated Financial Statements include the results of the acquisition subsequent to the closing date.
Acquistion of Darts-ip
On November 27, 2019, the Company closed on the acquisition of Darts-ip, (“Darts”), a provider of global IP case law data and analytics headquartered in Brussels, Belgium. The Company acquired 100% of the voting equity interest of Darts for cash consideration. The Darts acquisition was accounted for using the acquisition method of accounting. As a result of the Darts acquisition and the application of purchase accounting, Darts' identifiable assets and liabilities were adjusted to their fair market values as of the closing date, which included database intangible assets of $22,012, computer software intangible assets of $9,025, customer relationships intangible assets of $2,641 and finite-lived trade names intangible assets of $1,541. The Consolidated Financial Statements include the results of the acquisition subsequent to the closing date. The excess of the purchase price over the net tangible and intangible assets is recorded to goodwill and primarily reflects the assembled
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
workforce and expected synergies. The weighted-average amortization period for total acquired finite-lived intangible assets is 11.5 years and the weighted-average amortization period by major class of intangible asset is 14.0 years for database and content, 6.0 years for computer software, 18.0 years for trade names, and 5.0 years for customer relationships.
Acquisition of TrademarkVision
On October 25, 2018, Clarivate closed on the acquisition of TrademarkVision USA, LLC (“TrademarkVision”), an artificial intelligence technology start-up organization headquartered in Brisbane, Australia. The total purchase price for the acquisition consisted of $20,042 in closing date net cash consideration, subject to subsequent working capital adjustments, plus potential earn-out cash payments dependent upon achievement of certain milestones and financial performance metrics. The fair market value of the liability associated with the earn-out was $4,115 on the date of acquisition. Additionally, the excess value of the total purchase price over the fair value of our identifiable assets and liabilities upon the closing of the acquisition of $19,205 was allocated to goodwill. The Consolidated Financial Statements include the results of the acquisition subsequent to the closing date. TrademarkVision and its revolutionary image recognition software search tool for trademarks joined the trademark clearance and protection partner CompuMark. The fair value of the earn-out liability was $8,000 and $4,115 at December 31, 2019 and 2018.
Acquistion of Kopernio
On March 15, 2018, the Company acquired all of the outstanding stock of Kopernio (“Kopernio”), an artificial-intelligence technology startup, for $3,497. The Kopernio acquisition was accounted for using the acquisition method of accounting. As a result of the Kopernio acquisition and the application of purchase accounting, Kopernio’s identifiable assets and liabilities were adjusted to their fair market values as of the closing date, which included a finite life intangible of $1,258 relating to computer software. Additionally, the excess value of the total purchase price over the fair value of our identifiable assets and liabilities upon the closing of the acquisition of $2,322 was allocated to goodwill. The Consolidated Financial Statements include the results of the acquisition subsequent to the closing date. In conjunction with the acquisition of Kopernio, the Company agreed to pay former shareholders up to an additional $3,500 through 2021. Amounts payable are contingent upon Kopernio’s achievement of certain milestones and performance metrics and will be recognized over the concurrent service period.
Acquistion of Publons Limited
On June 1, 2017, the Company acquired all assets, liabilities and equity interests of Publons Limited and its wholly-owned subsidiary (“Publons”). Total net cash consideration for the acquisition was $7,401, plus potential future cash payments of up to $9,500 contingent upon Publons achieving certain milestones or financial and non-financial performance targets through 2020, including platform users and reviews. The fair market value of the liability associated with the earn-out was $5,900 on the date of acquisition. Publons is a researcher-facing peer-review data and recognition platform. The acquisition of Publons, its platform and data, is believed to increase the value of multiple existing Company products, while supporting researchers in the process. The Consolidated Financial Statements include the results of the acquisitions subsequent to the closing date. The fair value of the Publons earn-out liability was $0, $3,100, and $2,960 at December 31, 2020, 2019, and 2018, respectively.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The fair value of identifiable assets acquired and liabilities assumed for all acquisitions at closing during 2020, 2019, and 2018 respectively, net of cash acquired, and contingent consideration liabilities incurred in relation to the acquisitions are summarized below:
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019(1) | | 2018 |
| Current assets | $ | 742,867 | | | $ | 2,137 | | | $ | 706 | |
| Property and equipment, net | 16,853 | | | 86 | | | — | |
| Finite-lived intangible assets | 5,442,445 | | | 38,719 | | | 7,928 | |
| | | | | |
| Goodwill | 4,700,137 | | | 44,779 | | | 21,527 | |
| Other non-current assets | 103,008 | | | 2 | | | 38 | |
| Total assets | $ | 11,005,310 | | | $ | 85,723 | | | $ | 30,199 | |
| | | | | |
| Current liabilities | 798,753 | | | 4,366 | | | 491 | |
| Non-current liabilities | 459,961 | | | 8,920 | | | 2,054 | |
| Total liabilities | 1,258,714 | | | 13,286 | | | 2,545 | |
| Net assets acquired | $ | 9,746,596 | | | $ | 72,437 | | | $ | 27,654 | |
| | | | | |
(1) Net assets acquired includes $3,500 related to the SequenceBase acquisition.
|
None of the goodwill associated with any of the business combinations above will be deductible for income tax purposes. Pro forma information is not presented for these acquisitions as the aggregate operations of the acquired acquisitions were not significant to the overall operations of the Company.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 5: Assets Held for Sale and Divested Operations
On November 6, 2020, the Company completed the sale of certain assets and liabilities of the Techstreet business to The International Society of Interdisciplinary Engineers LLC for a total purchase price of $42,832, of which $4,300 will be held in escrow and paid to the Company in a future period. As a result of the sale, the Company recorded a net gain on sale of $28,140, inclusive of incurred transaction costs of $115 in connection with the divestiture. The gain on sale is included in Other operating income, net within the Consolidated Statements of Operations during the year ended December 31, 2020. As a result of the sale, the Company wrote off balances associated with Techstreet including intangible assets of $10,179 and Goodwill in the amount of $9,129. The Company used the proceeds for general business purposes.
On November 3, 2019, the Company entered into an agreement with OpSec Security for the sale of certain assets and liabilities of its MarkMonitor Product Line within its IP Group. The divestiture closed on January 1, 2020 for a total purchase price of $3,751. An impairment charge of $18,431 was recognized in the Consolidated Statements of Operations during the year ended December 31, 2019, to write down the Assets and Liabilities of the disposal group to fair value. Of the total impairment charge, $17,967(iii) $93.0 related to the write down of intangible assets and $468 toformer Patent reporting unit within the write down of goodwill. There was an immaterial loss on the divestiture recorded to Other operating income (expense), net during the year ended December 31, 2020. The Company used the proceeds for general business purposes. AfterIP segment. For our annual impairment Current Assets of $2,274 and Long Term Assets of $28,345 were reclassified to Current Assets Held for Saletesting as of December 31, 2019, while Current Liabilities of $21,170 and Long Term Liabilities of $5,698 were reclassified to Current Liabilities Held For Sale as of December 31, 2019.
The carrying amount of major classes of assets and liabilities that are included in Assets held for sale and Liabilities held for sale at December 31, 2019 related to certain assets and liabilities of its MarkMonitor Product Line consist of the following:
| | | | | |
| As of December 31, |
| 2019 |
Assets: | |
Current assets: | |
Cash and cash equivalents | $ | 384 | |
| |
| |
Prepaid expenses | 1,692 | |
Other current assets | 198 | |
Total current assets | 2,274 | |
Computer hardware and other property, net | 2,961 | |
Other intangible assets, net | 18,957 | |
| |
Other non-current assets | 1,993 | |
| |
Operating lease right-of-use assets | 4,434 | |
Total Assets held for sale | $ | 30,619 | |
| |
Liabilities: | |
Current liabilities: | |
Accounts payable | $ | 25 | |
Accrued expenses and other current liabilities | 1,764 | |
Current portion of deferred revenues | 18,067 | |
Current portion of operating lease liabilities | 1,314 | |
| |
Total current liabilities | 21,170 | |
| |
Non-current portion of deferred revenues | 834 | |
Other non-current liabilities | 163 | |
| |
Operating lease liabilities | 4,701 | |
Total Liabilities held for sale | $ | 26,868 | |
On October 1, 2018, all assets, liabilitieswe utilized a qualitative assessment and equity interest of the IP Management ("IPM") Product Line and related assets were sold to CPA Global for a total purchase price of $100,130. As a result of the sale, the Company recorded a net gain on
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
sale of $36,072, inclusive of incurred transaction costs of $3,032 in connection with the divestiture. The gain on sale is included in Other operating income, net within the Consolidated Statements of Operations for the year ended December 31, 2018. As a result of the sale, the Company wrote off Goodwill in the amount of $49,349. The Company used $31,378 of the proceeds to pay down the Term Loan Facility on October 31, 2018.
The divestitures of Techstreet, certain assets and liabilities of MarkMonitor and IPM Product Line do not represent a strategic shift and are not expected to have a major effect on the Company’s operations or financial results, as defined by ASC 205-20, Discontinued Operations; as a result, these divestitures do not meet the criteria to be classified as discontinued operations.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 6: Accounts Receivable
Our accounts receivable balance consists of the following as of December 31, 2020 and 2019:
| | | | | | | | | | | |
| Year ended December 31, |
| 2020 | | 2019 |
| Accounts receivable | $ | 746,478 | | | $ | 350,369 | |
| Less: Accounts receivable allowance | (8,745) | | | (16,511) | |
| Accounts receivable, net | $ | 737,733 | | | $ | 333,858 | |
The Company estimates credit losses for trade receivables by aggregating similar customer types together, because they tend to share similar credit risk characteristics, taking into consideration the number of days the receivable is past due. Provision rates for the allowance for doubtful accounts are based upon the historical loss method by evaluating factors such as the length of time receivables that are past due and historical collection experience. Additionally, provision rates are based upon current and future economic and competitive environment factors that could impact the collectability of the receivable. Trade and other receivables are written off whenconcluded there iswas no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include past due status greater than 360 days or bankruptcy of the debtor. The activity in our accounts receivable allowance consists of the following for the years ended December 31, 2020, 2019, and 2018, respectively:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2020 | | 2019 | | 2018 |
| Balance at beginning of year | $ | 16,511 | | | $ | 14,076 | | | $ | 8,495 | |
| Additional provisions | 4,339 | | | 4,662 | | | 6,469 | |
| Write-offs | (22,205) | | | (2,321) | | | (870) | |
| Opening balance sheet adjustment- ASU 2016 -13 adoption | 10,097 | | | — | | | — | |
| Exchange differences | 3 | | | 94 | | | (18) | |
| Balance at the end of year | $ | 8,745 | | | $ | 16,511 | | | $ | 14,076 | |
The potential for credit losses is mitigated because customer creditworthiness is evaluated before credit is extended.
The Company recorded write-offs against the reserve of $22,205, $2,321 and $870 for the years ended December 31, 2020, 2019, and 2018, respectively.
We are monitoring the impacts from the COVID-19 pandemic on our customers and various counterparties. During the year ended December 31, 2020, the Company’s allowance for doubtful accounts and credit losses considered additional risk related to the pandemic. However, this risk to-date was not considered material.
Note 7: Leases
As the lessee, weWe currently lease real estateoffice space automobiles, and certain equipment under non-cancelable operating lease agreements. We also have one financing lease for office space. Some of the leases include renewal options to extend the leases for up to an additional 10 years. Welease term which we do not include any of our renewal options in ourconsider with respect to the lease termsterm used for calculating ourthe lease liability asbecause the renewal options allow us to maintain operational flexibility, and we are not reasonably certain we will exercise thesethe renewal options at this time.options.
We determine if an arrangement is aThe following table presents the components of our lease at inception. Operating leases are included in Operating lease right-of-use assets, Current portion of operating lease liabilities, and Operating lease liabilities on our Consolidated Balance Sheets. The Company assesses its ROU assetcost, supplemental cash flow disclosures, and other lease-related assets for impairment consistent with other long-lived assets. As of December 31, 2020, we did not record an impairmentinformation related to these assets beyond the impairments recorded due to restructuring activity recorded within Note 25 - Restructuring and Impairment. Refer to Note 27 - Subsequent Events.our lease arrangements:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Lease Cost: | | | | | |
| Operating lease cost | $ | 22.4 | | | $ | 27.9 | | | $ | 28.8 | |
| Variable lease cost | 5.3 | | | 2.5 | | | 1.4 | |
| Short-term lease cost | 0.7 | | | 0.4 | | | 0.8 | |
| Finance lease cost | | | | | |
| Amortization of right-of-use assets | 0.5 | | | 10.8 | | | 1.3 | |
| Interest on lease liabilities | 2.1 | | | 1.2 | | | 0.1 | |
| Total lease cost | $ | 31.0 | | | $ | 42.8 | | | $ | 32.4 | |
| Supplemental Cash Flow Disclosures: | | | | | |
| Cash paid for amounts included in measurement of lease liabilities | | | | | |
| Operating cash flows for operating leases | $ | 31.9 | | $ | 34.7 | | $ | 30.8 |
| Operating cash flows for finance leases | 2.1 | | 1.2 | | 0.1 |
| Financing cash flows for finance leases | 1.0 | | 1.9 | | 0.2 |
| Right-of-use assets obtained in exchange for lease obligations | | | | | |
| Operating leases | $ | 16.2 | | $ | 2.6 | | $ | 13.4 |
| Finance leases | — | | 2.4 | | 29.9 |
| Other Information: | | | | | |
| Weighted-average remaining lease term | | | | | |
| Operating leases | 5 | | 5 | | 4 |
| Finance leases | 13 | | 14 | | 2 |
| Weighted-average discount rate | | | | | |
| Operating leases | 5.2 | % | | 4.3 | % | | 4.4 | % |
| Finance leases | 6.9 | % | | 6.9 | % | | 3.8 | % |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As mostThe following table presents an analysis of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. As such, the Company used judgment to determine an appropriate incremental borrowing rate. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our variable lease payments consist of non-lease services related to the lease and lease payments that are based on annual changes to an index. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components, which are accounted as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
The following illustrates the lease costs for the years ended December 31, 2020 and 2019:
| | | | | | | | | | | | | | | |
| December 31, | |
| 2020 | | 2019 | | | | |
| Operating lease cost | $ | 24,438 | | | $ | 27,812 | | | | | |
| Short-term lease cost | 701 | | | 296 | | | | | |
| Variable lease cost | 1,317 | | | 1,213 | | | | | |
| Total lease cost | $ | 26,456 | | | $ | 29,321 | | | | | |
| | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 | | |
| Other information | | | | | |
| Cash Paid for amounts included in measurement of lease liabilities | | | | | |
| Operating cash flows from operating leases | $31,841 | | $24,303 | | |
| Right-of-use assets obtained in exchange for lease obligations | | | | | |
| Operating leases | $8,542 | | $6,386 | | |
| Weighted-average remaining lease term - operating leases | 6 | | 6 | | |
| Weighted-average discount rate - operating leases | 5.2 | % | | 5.8 | % | | |
The future aggregate minimum lease paymentsliability maturities as of December 31,
2020 under all non-cancelable operating leases for the years noted are as follows:2023: | | | | | | | | | | | |
| Year Ending December 31, | Operating Leases | | Finance Leases |
| 2024 | $ | 28.9 | | | $ | 3.2 | |
| 2025 | 21.2 | | | 3.3 | |
| 2026 | 15.6 | | | 3.4 | |
| 2027 | 11.0 | | | 3.4 | |
| 2028 | 7.7 | | | 3.5 | |
| Thereafter | 16.4 | | | 29.7 | |
| Total undiscounted cash flows | $ | 100.8 | | | $ | 46.5 | |
| Present value: | | | |
| Current lease liabilities | 24.4 | | | 1.2 | |
| Non-current lease liabilities | 63.2 | | | 29.1 | |
| Total lease liabilities | $ | 87.6 | | | $ | 30.3 | |
| Interest on lease liabilities | $ | 13.2 | | | $ | 16.2 | |
| | | | | | | | | | | | | | |
| Year ending December 31, | |
| 2021 | $ | 35,963 | |
| 2022 | 30,808 | |
| 2023 | 26,960 | |
| 2024 | 21,976 | |
| 2025 | 15,048 | |
| 2026 & Thereafter | 29,142 | |
| Total operating lease commitments | 159,897 | |
| Less imputed interest | (21,624) | |
| Total | $ | 138,273 | |
In connection with certain leases, the Company guarantees the restoration of the leased property to a specified condition after completion of the lease period. As of December 31, 2020 and December 31, 2019, the liability of $4,396 and $3,455, respectively, associated with these restorations is recorded within Other non-current liabilities.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
There were no material future minimum sublease payments to be received under non-cancelable subleases at December 31, 2020. There was no material sublease income for the years ended December 31, 2020, 2019 and 2018 respectively.
Disclosures related to periods prior to adoption of Topic 842
As discussed above, the Company adopted Topic 842 effective January 1, 2019 using a modified retrospective approach. For comparability purposes, and as required, the following disclosure is provided for periods prior to adoption. The Company’s total future minimum annual rental payments in effect at December 31, 2018 for noncancellable operating leases, which were accounted for under the previous leasing standard, Accounting Standards Codification 840, were as follows:
| | | | | |
| Year ended December 31, | |
| 2019 | $ | 22,140 | |
| 2020 | 19,531 | |
| 2021 | 17,240 | |
| 2022 | 15,333 | |
| 2023 | 14,944 | |
| Thereafter | 40,367 | |
| Total operating lease commitments | $ | 129,555 | |
Total rental expense under operating leases amounted to $24,439 and $25,527 the years ended December 31, 2020 and 2019, respectively.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 8: Property and Equipment, Net
Property and equipment, net consisted of the following:
| | | | | | | | | | | |
| | | |
| December 31, |
| 2020 | | 2019 |
| Computer hardware | $ | 38,253 | | | $ | 24,620 | |
| Leasehold improvements | 21,614 | | | 12,496 | |
| Furniture, fixtures and equipment | 13,201 | | | 4,412 | |
| Total property and equipment, gross | 73,068 | | 41,528 |
| Accumulated depreciation | (36,801) | | | (23,486) | |
| Total property and equipment, net | $ | 36,267 | | | $ | 18,042 | |
Depreciation amounted to $12,709, $9,181, and $9,422 for the years ended December 31, 2020, 2019, and 2018 respectively.
Note 9: Other Intangible Assets, net and Goodwill
Other Intangible Assets, net
The following tables summarize the gross carrying amounts and accumulated amortization of the Company’s identifiable intangible assets by major class:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| Finite-lived intangible assets | | | | | | | | | | | |
| Customer relationships | $ | 5,598,175 | | | $ | (261,350) | | | $ | 5,336,825 | | | $ | 280,493 | | | $ | (180,571) | | | $ | 99,922 | |
| Databases and content | 1,848,041 | | | (464,683) | | | 1,383,358 | | | 1,755,323 | | | (342,385) | | | 1,412,938 | |
| Computer software | 658,976 | | | (209,611) | | | 449,365 | | | 285,701 | | | (135,919) | | | 149,782 | |
| Trade names | 18,606 | | | (2,360) | | | 16,246 | | | 1,570 | | | — | | | 1,570 | |
| | | | | | | | | | | |
| Backlog | 29,216 | | | (5,905) | | | 23,311 | | | — | | | — | | | — | |
| Finite-lived intangible assets | 8,153,014 | | | (943,909) | | | 7,209,105 | | | 2,323,087 | | | (658,875) | | | 1,664,212 | |
| Indefinite-lived intangible assets | | | | | | | | | | | |
| Trade names | 161,245 | | | — | | | 161,245 | | | 164,428 | | | — | | | 164,428 | |
| Total intangible assets | $ | 8,314,259 | | | $ | (943,909) | | | $ | 7,370,350 | | | $ | 2,487,515 | | | $ | (658,875) | | | $ | 1,828,640 | |
The Company performed the indefinite-lived impairment test as of October 1, 2020 and 2019. Additionally, the Company reviewed goodwill for indicators of impairment at December 31, 2020 and 2019. As part of this analysis, the Company determined that its trade name, with a carrying value of $161,245, and $164,428 as of December 31, 2020 and 2019, respectively, was not impaired and will continue to be reported as indefinite-lived intangible assets.
In September and November 2019, the Company purchased the key business assets of SequenceBase and Darts-ip. As a result of the purchase, customer relations balance increased $3,641, computer software increased $11,525, databases and content increased $22,012 and finite-lived trade names increased $1,541. See Note 4 - Business Combinations for further details.
On January 1, 2020, all assets, liabilities, and equity interest of the Brand Protection, AntiPiracy, and AntiFraud solutions of the MarkMonitor Product Line were sold to OpSec Security for a purchase price of $3,751, which was determined to be the approximation of the fair value. At December 31, 2019, the assets and liabilities related to the divestment met the criteria for classification as Assets held for sale on the Company’s balance sheet, which included $36,924 of intangible assets. In addition, the Company compared the book value of the assets and liabilities to the purchase price and recorded a total
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
impairment charge during the year ended December 31, 2019 of $18,431, which included the write down of the $17,967 intangible assets classified as Assets held for sale. See Note 5 - Assets Held for Sale and Divested Operations for further details.
In June 2020, the Company acquired the assets of CustomersFirst Now for a purchase price of $6,446, which was accounted for as an asset acquisition. As a result, the Company's identifiable intangible assets increased by $6,446, which consisted of $5,446 of databases and content and $1,000 of computer software. The databases and process methodology and the computer software have a remaining weighted average amortization period of 5.0 years and 3.0 years, respectively. The total remaining weighted average amortization period is 4.7 years.
The weighted-average amortization period for each class of finite-lived intangible assets and for total finite-lived intangible assets, which range between 2 and 20 years, is as follows:
| | | | | |
| Remaining Weighted - Average Amortization Period (in years) |
Customer relationships | 22.22 |
Databases and content | 13.68 |
Computer software | 9.62 |
Trade names | 5.39 |
Backlog | 4.04 |
Total | 19.73 |
Amortization amounted to $290,441, $191,361, and $227,803 for the years ended December 31, 2020, 2019, and 2018, respectively.
Estimated amortization for each of the five succeeding years as of December 31, 2020 is as follows:
| | | | | |
| 2021 | $ | 503,174 | |
| 2022 | 466,526 | |
| 2023 | 422,536 | |
| 2024 | 400,836 | |
| 2025 | 392,076 | |
| Thereafter | 5,002,280 | |
| Subtotal finite-lived intangible assets | 7,187,428 | |
| Internally developed software projects in process | 21,677 | |
| Total finite-lived intangible assets | 7,209,105 | |
| Intangibles with indefinite lives | 161,245 | |
| Total intangible assets | $ | 7,370,350 | |
Goodwill
The change in the carrying amount of goodwill is shown below:
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | |
| Science Segment
(As Restated) | | Intellectual Property Segment
(As Restated) | | Consolidated Total
(As Restated) |
| Balance as of December 31, 2018 | $ | 908,406 | | | $ | 374,513 | | | $ | 1,282,919 | |
| Acquisition | — | | | 44,779 | | | 44,779 | |
| Transferred to Assets held for sale | — | | | (468) | | | (468) | |
| Impact of foreign currency fluctuations and other | 1,531 | | | (716) | | | 815 | |
| Balance as of December 31, 2019 | $ | 909,937 | | | $ | 418,108 | | | $ | 1,328,045 | |
| Acquisition | 499,199 | | | 4,002,695 | | | 4,501,894 | |
| Divestiture | — | | | (9,129) | | | (9,129) | |
| Impact of foreign currency fluctuations and other | 607 | | | 221,547 | | | 222,154 | |
| Balance as of December 31, 2020 | $ | 1,409,743 | | | $ | 4,633,221 | | | $ | 6,042,964 | |
|
|
The Company performed the goodwill impairment test as of October 1, 2020 and 2019. Additionally, the Company reviewed goodwill for indicators of impairment at December 31, 2020 and 2019. As of December 31, 2020, 2019 and 2018, the accumulated goodwill impairment was $0.
Goodwill represents the purchase price in excess of the fair value of the net assets acquired in a business combination. If the carrying value of a reporting unit exceeds the implied fair value of that reporting unit, an impairment charge to goodwill is recognized for the excess. The Company’s reporting units are one level below the operating segment, as determined in accordance with ASC 350. For the years ended December 31, 2020 and 2019, the Company had 6 and 5 reporting units, respectively.
The Company estimates the fair value of its reporting units using the income approach. Under the income approach, the fair value of a reporting unit is calculated based on the present value of estimated cash flows. No indicators of impairment existed as a result of the Company’s assessments, except for the sale of the Brand Protection, AntiPiracy, and AntiFraud solutions of the MarkMonitor Product Line.
On January 1, 2020, all assets, liabilities, and equity interest of the Brand Protection, AntiPiracy, and AntiFraud solutions of the MarkMonitor Product Line were sold to OpSec Security for a purchase price of $3,751, which was determined to be the approximation of the fair value. At December 31, 2019, the assets and liabilities related to the divestment met the criteria for classification as Assets held for sale on the Company’s balance sheet, which included $468 of goodwill. In addition, the Company compared the book value of the assets and liabilities to the purchase price and recorded a total impairment charge during the year ended December 31, 2019 of $18,431, which included the write down of the $468 goodwill classified as Assets held for sale. See Note 5 - Assets Held for Sale and Divested Operations for further details.
On November 23, 2020, the Company acquired Hanlim IPS. Co., Ltd. (Hanlim), which included $2,861 of goodwill. See Note 4 - Business Combinations for further details. This goodwill balance is allocated to the Intellectual Property segment.
On October 26, 2020, the Company acquired Beijing IncoPat Technology Co. Ltd., which included $40,474 of goodwill. See Note 4 - Business Combinations for further details. This goodwill balance is allocated to the Intellectual Property segment.
On October 1, 2020, the Company acquired CPA Global, which included $3,959,360 (restated) of goodwill. See Note 4 - Business Combinations and Note 28 - Restatements of Previously Issued Financial Statements for further details. This goodwill balance is allocated to the Intellectual Property segment.
On February 28, 2020, the Company acquired DRG, which included $499,199 of goodwill. See Note 4 - Business Combinations and Note 28 - Restatements of Previously Issued Financial Statements for further details. This goodwill balance is allocated to the Science segment.
On November 27, 2019, the Company acquired Darts-ip, which included $44,779 of goodwill. See Note 4 - Business Combinations for further details.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 10: Derivative Instruments
Effective March 31, 2017, the Company enteredWe are exposed to various market risks, including foreign currency exchange rate risk and interest rate risk. We use derivative instruments to manage these risk exposures. We enter into foreign currency contracts and cross-currency swaps to help manage our exposure to foreign exchange rate risk and interest rate swaps to mitigate interest rate risk.
Interest Rate Swaps
We have interest rate swap arrangements with counterparties to reduce itsour exposure to variability in cash flows relating to interest payments on $300,000 of itsour outstanding Term Loan arrangements. Additionally, effective February 28, 2018, the Company entered into another interest rate swap relating to interest payments on $50,000 of its outstanding Term Loan arrangements. These hedging instruments mature on March 31, 2021. The Company applies hedge accounting by designatingWe have designated the interest rate swaps as a hedgecash flow hedges of the risk associated with floating interest rates on applicabledesignated future quarterlymonthly interest payments.
In April 2019, the Company entered into interest rate swap arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $50,000 of its term loans, effective April 30, 2021. Additionally, in May 2019, the Company entered into additional interest rate swap arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $100,000 of its term loan, effective March 2021. Both of these derivatives have notional amounts that amortize downward, and both have a maturity of September 2023. The Company will apply hedge accounting by designating the interest rate swaps as a hedge in applicable future quarterly interest payments.
Changes in the fair value are recorded in Accumulated other comprehensive income(loss) ("AOCI") and the amounts reclassified out of AOCI are recorded to Interest expense, net. The fair value of the interest rate swaps is recorded in Other current assets or Accrued expenses and other current liabilities and Other non-current assets or liabilities, according to the duration of related cash flows. The total fair value of the interest rate swaps was a liability of $5,159 as of December 31, 2020 and a liability of $2,778 as of December 31, 2019.
In March 2020, the Company amended all of its interest rate derivatives to reduce the 1% LIBOR floor to a 0% LIBOR floor. For the current derivatives, all other terms and conditions remain unchanged. The Company collected $1,737 in the year ended December 31, 2020, for the amendments of these derivatives. For the two forward starting swaps, an adjustment was made to reduce the weighted average fixed rate from 2.183% at December 31, 2019 to 1.695% at the amendment date.
The Company had a period of ineffectiveness related to the cash flow hedges in the three months ended March 31, 2020. The ineffectiveness was due to a drop in LIBOR rates below the LIBOR floor defined per the credit facilities, which were amended on March 31, 2020, resulting in a highly effective hedge. As a result of the ineffectiveness, the Company recognized a loss of $978 for the year ended December 31, 2020, which was recorded to Interest expense, net on the Consolidated Statements of Operations. As of December 31, 2020, there was no hedge ineffectiveness associated with the Company’s2023, our outstanding interest rate swaps.
The following table summarizes the changes in AOCI (net of tax) related to cash flow hedges for the year ended December 31, 2020, 2019, and 2018:
| | | | | | | |
AOCI Balance at December 31, 2017 | $ | 1,107 | | | |
Derivative gains recognized in Other comprehensive loss | 2,313 | | | |
Amount reclassified out of Other comprehensive loss to Net loss | 224 | | | |
AOCI Balance at December 31, 2018 | $ | 3,644 | | | |
Derivative losses recognized in Other comprehensive loss | (7,107) | | | |
Amount reclassified out of Other comprehensive loss to Net loss | 685 | | | |
AOCI Balance at December 31, 2019 | $ | (2,778) | | | |
Derivative losses recognized in Other comprehensive loss | (4,432) | | | |
Amount reclassified out of Other comprehensive loss to Net loss | 3,454 | | | |
AOCI Balance at December 31, 2020 | $ | (3,756) | | | |
Foreign Currency Forward Contracts
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The IPM Product Line and related assets, which were divested on October 1, 2018, had forward contracts withswaps have an aggregate notional values of $0 as of December 31, 2020 and December 31, 2019. Gains on the forward contracts amounted to $0, $0 and $240 for the years ended December 31, 2020, 2019 and 2018, respectively. These amounts were recorded in Revenues, net in the Consolidated Statements of Operations.
In September 2020, the Company entered into two foreign exchange forward contracts to reduce its exposure to variability in cash flows relating to funding of the repayment of CPA Global's parent company outstanding debt on October 1, 2020. This contract was settled as of October 1, 2020. The Company recognized a gain from the mark to market adjustment of $2,903, in Other operating income, net on the Consolidated Statements of Operations for the year ended December 31, 2020. The nominal amount of outstanding foreign currency contracts was $0 and $0 as of December 31, 2020 and December 31, 2019.
The Company periodically enters into foreign currency contracts. The purpose of these derivative instruments is to help manage the Company’s exposure to foreign exchange rate risks within the acquired CPA Global business. These contracts generally do not exceed 180 days in duration. The Company recognized a gain from the mark to market adjustment of $17,902, in Other operating income, net on the Consolidated Statements of Operations for the year ended December 31, 2020. The nominal amount of outstanding foreign currency contracts was $354,751 and $0 as of December 31, 2020 and December 31, 2019, respectively.
The Company accounts for these forward contracts at fair value and recognizes the associated realized and unrealized gains and losses in Other operating income, net in the Consolidated Statements of Operations, as the contracts are not designated as accounting hedges under the applicable sections of ASC Topic 815. The total fair value of the forward contracts represented an asset balance of $8,574$1,112.4 and $0 and a liability balance of $106 and $0 as of December 31, 2020 and December 31, 2019, respectively, which was classified within Other current assets and Accrued expenses and other current liabilities ,respectively, on the Consolidated Balance Sheets. The Company recognized gainsmaturities ranging from the markMarch 2024 to market adjustment of $20,805, $0, and $0 in Other operating income, net on the Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018, respectively. October 2026.
See Note 11 - Fair Value Measurements for additional information on derivative instruments.
Note 11: Fair Value Measurements
The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3 — Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
Below is a summary of the valuation techniques used in determining fair value:
Derivatives - Derivatives consist of foreign exchange contracts and interest rate swaps. The fair value of foreign exchange contracts is based on observable market inputs of spot and forward rates or using other observable rates. The fair value of the interest rate swaps is the estimated amount that the Companywe would receive or pay to terminate such agreements, taking into account market interest rates and the remaining time to maturities or using market inputs with mid-market pricing as a practical expedient for bid-ask spread. See Changes in fair value are recorded to Accumulated other comprehensive income loss (“AOCL”) in the Consolidated Balance Sheets with a related offset in derivative asset or liability, and the amounts reclassified out of AOCL are recorded within Interest expense, net in the Consolidated Statements of Operations. Any gain or loss will be subsequently reclassified into net earnings in the same period during which transactions affect earnings, or upon termination of the arrangements. For additional information on changes recorded to AOCL, see Note 10 - Derivative Instruments forShareholders' Equity.
As of December 31, 2023, we estimate that $17.2 of pre-tax gain related to interest rate swaps recorded in AOCL is expected to be reclassified into earnings within the next twelve months.
For additional information.information on our outstanding Term Loan Facility, see Note 9 - Debt.
Cross-Currency Swaps
In July 2023, we entered into a cross-currency swap that matures in 2026 to mitigate foreign currency exposure related to our net investment in various euro-functional-currency consolidated subsidiaries. This swap is designated and qualifies as a net investment hedge. We elected to assess the effectiveness of this net investment hedge based on changes in spot rates and are amortizing the portion of the net investment hedge that was excluded from the assessment of effectiveness over the life of the swap within Interest expense, net in the Consolidated Statements of Operations. The notional amount of the cross-currency swap associated with euro-denominated subsidiary net investments was €100.0 as of December 31, 2023.
Changes in fair value are recorded in AOCL (as a foreign currency translation adjustment) in the Consolidated Balance Sheets, with a related offset in derivative asset or liability. Any gain or loss will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated. For additional information on changes recorded to AOCL, see Note 10 - Shareholders' Equity.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
Contingent consideration - The Company values contingent cash consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. Key assumptions used to estimate the fair value of contingent consideration include revenue, net new business and operating forecasts and the probability of achieving the specific targets. The Company values contingent stock consideration related to business combinations using observable market data, adjusted for indemnity losses and claims for indemnity losses valued using other indirect market inputs observable in the marketplace.Foreign Currency Forward Contracts
The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other accruals readily convertible into cash approximate fair value because of the short-term nature of the instruments. The carrying value of the Company's variable interest rate debt, excluding unamortized debt issuance costs and original issue discount, approximates fair value due to the short-term nature of the interest rate benchmark rates. The fair value of the fixed rate debt is estimated based on market observable data for debt with similar prepayment features. The fair value of the Company's debt was $3,574,282 and $1,692,750 at December 31, 2020 and 2019, respectively. The fair value is considered Level 2 under the fair value hierarchy.
Private Placement Warrants - The Company has determined that the Private Placement Warrants are subject to accounting treatment as a liability. The Company determined the fair value of each Private Placement Warrant at issuance and subsequent measurement periods using a Monte Carlo simulation approach for valuations performed through the August 14, 2019 modification described in Note 17 - Employment and Compensation Arrangements and a Black-Scholes option valuation model thereafter. Accordingly, the Private Placement Warrants issued are classified as Level 3 financial instruments. The assumptions in the models include, but are not limited to, risk-free interest rate, expected volatility of the Company’s and the peer group’s stock prices, dividend yield, and a discount for lack of marketability (“DLOM”) was applied to shares that are subject to remaining post vesting lock up restrictions.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The Company has determined that its forward contracts, included in other current assets, along with its interest rate swaps, included in Accrued expenses and other current liabilities and Other non-current liabilities according to the duration of related cash flows, reside within Level 2 of the fair value hierarchy.
In accordance with ASC 805, we estimated the fair value of the earn-outs using a Monte Carlo simulation. The amount of the earn-outs approximate fair value due to the short term nature of their remaining payments as of December 31, 2020 and December 31, 2019. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. As of December 31, 2020, the Company paid the remaining earn-out liabilities related to Publons and TrademarkVision. These acquisitions occurred in 2017 and 2018, respectively. The amounts payable were contingent upon the achievement of certain company specific milestones and performance metrics including number of cumulative users, cumulative reviews and annual revenue over a 1-year and 3-year period. Changes in the earn-out are recorded to Selling, general and administrative costs in the Consolidated Statements of Operations.
As of December 31, 2020, the Company maintains a contingent stock liability based on observable market data relating to the DRG acquisition that occurred on February 28, 2020. Changes in the contingent stock liability are recorded to Selling, general and administrative costs in the Consolidated Statements of Operations. The contingent stock liability is recorded in Accrued expenses and other current liabilities and is classified as Level 2 in the fair value hierarchy. The amount is payable on the one year anniversary of the acquisition date and is contingent upon any indemnity losses or claims for indemnity losses as defined in the purchase agreement. This fair value measurement is based on observable market data and other indirect observable market inputs and thus represents a Level 2 measurement as defined in ASC 820.
As of December 31, 2020, the Company maintains a contingent stock liability based on observable market data relating to the CPA Global acquisition that occurred on October 1, 2020. Changes in the contingent stock liability are recorded to Selling, general and administrative costs in the Consolidated Statements of Operations. The contingent stock liability is recorded in Accrued expenses and other current liabilities and is classified as Level 2 in the fair value hierarchy. The amount is payable 110 days after the acquisition date and is contingent upon any indemnity losses or claims for indemnity losses as defined in the purchase agreement. This fair value measurement is based on observable market data and other indirect observable market inputs and thus represents a Level 2 measurement as defined in ASC 820.
As of December 31, 2020, the Company maintains a liability associated with the CPA Global Equity Plan, a portion of which was recorded in connection with the acquisition opening balance sheet. Changes in the liability are recorded to
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Selling, general and administrative costs and Cost of revenues in the Consolidated Statements of Operations. The current and non-current portions of the liability are recorded in Accrued expenses and other current liabilities and Other non-current liabilities, respectively. The current and non-current portions of the receivable asset is recorded in Other current assets and Other non-current assets, respectively. The balances are classified as Level 2 in the fair value hierarchy. This fair value measurement is based on observable market data and other indirect observable market inputs and thus represents a Level 2 measurement as defined in ASC 820.
The Company entersWe periodically enter into foreign currency contracts, that arewhich generally do not designated as hedges as defined under ASC 815. The purpose of these derivatives instruments isexceed 180 days in duration, to help manage the Company'sour exposure to foreign exchange rate risks. We have not designated these contracts as accounting hedges.
These contracts are initially recognized at fair value at the date of the contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. These contracts generally do not exceed 180 days in duration, and these instruments are carried as assets when the fair value is positive (Other current assets on the Consolidated Balance Sheets), and as liabilities when the fair value is negative (Other current liabilities on the Consolidated Balance Sheets) The resulting gain or loss is recognized in profit or loss (other operating income (expense), net) immediately.
The Company assessesWe assess the fair value of these instruments, considering current and anticipated movements in future interest rates and the relevant currency spot and future rates available in the market. The Company receives third partyWe receive third-party valuation reports to corroborate our determination of fair value. Accordingly, these instruments are classified as Level 2 inputs.
The following table summarizesWe recognize the changesassociated realized and unrealized gains and losses in Private Placement Warrant Liability asOther operating expense (income), net in the Consolidated Statements of December 31, 2020 and 2019.
| | | | | | | |
Balance at December 31, 2018 | $ | — | | | |
Merger recapitalization | 64,157 | | | |
Mark to market adjustment on financial instruments | 47,656 | | | |
Exercise of Private Placement Warrants | — | | | |
Balance at December 31, 2019 | $ | 111,813 | | | |
Mark to market adjustment on financial instruments | 205,062 | | | |
Exercise of Private Placement Warrants | (4,124) | | | |
Balance at December 31, 2020 | $ | 312,751 | | | |
There were no transfers of assets or liabilities between levels duringOperations. For the years ended December 31, 20202023, 2022, and 2019.2021, we recognized a loss (gain) from the mark to market adjustment of $(0.8), $1.2, and $6.9, respectively. The notional amount of outstanding foreign currency contracts was $140.5 and $165.1 as of December 31, 2023 and December 31, 2022, respectively.
The following table presentsprovides information on the changes in the earn-out for the years endedlocation and fair value amounts of our derivative instruments as of December 31, 20202023 and 2019:December 31, 2022:
| | | | | |
Balance at December 31, 2018 | $ | 7,075 | |
Payment of earn-out liability(1)
| (2,371) | |
Revaluations included in earnings | 6,396 | |
Balance at December 31, 2019 | $ | 11,100 | |
Payment of earn-out liability(1)
| (11,701) | |
Revaluations included in earnings | 601 | |
Balance at December 31, 2020 | $ | — | |
| |
(1) See Note 23 - Commitments and Contingencies for further details.
| |
| |
| |
| |
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| Balance Sheet Classification | | 2023 | | 2022 |
| Asset Derivatives | | | | | |
| Derivatives designated as accounting hedges: | | | | | |
| Interest rate swaps | Other current assets | | $ | 4.1 | | | $ | 2.3 | |
| Interest rate swaps | Other non-current assets | | 17.7 | | | 47.2 | |
| | | | | |
| Derivatives not designated as accounting hedges: | | | | | |
| Foreign currency forwards | Other current assets | | 1.3 | | | 0.8 | |
| | | | | |
| Total Asset Derivatives | | | $ | 23.1 | | | $ | 50.3 | |
| | | | | |
| Liability Derivatives | | | | | |
| Derivatives designated as accounting hedges: | | | | | |
| Cross-currency swaps | Other non-current liabilities | | $ | 2.0 | | | $ | — | |
| Derivatives not designated as accounting hedges: | | | | | |
| Foreign currency forwards | Accrued expenses and other current liabilities | | 0.1 | | | 0.4 | |
| Total Liability Derivatives | | | $ | 2.1 | | | $ | 0.4 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
Note 9: Debt
The following table provides a summarysummarizes our total indebtedness: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2023 | | December 31, 2022 |
| Type | | Maturity | | Effective
Interest
Rate | | Carrying
Value | | Effective
Interest
Rate | | Carrying
Value |
| Senior Notes | | 2029 | | 4.875 | % | | $ | 921.4 | | | 4.875 | % | | $ | 921.4 | |
| Senior Secured Notes | | 2028 | | 3.875 | % | | 921.2 | | | 3.875 | % | | 921.2 | |
| Revolving Credit Facility | | 2027 | | 8.206 | % | | — | | | 7.234 | % | | — | |
| Term Loan Facility | | 2026 | | 8.470 | % | | 2,197.4 | | | 7.384 | % | | 2,497.4 | |
| Senior Secured Notes | | 2026 | | 4.500 | % | | 700.0 | | | 4.500 | % | | 700.0 | |
Finance lease(1) | | 2036 | | 6.936 | % | | 30.3 | | | 6.936 | % | | 31.3 | |
| Total debt outstanding | | | | | | 4,770.3 | | | | | 5,071.3 | |
| | | | | | | | | | |
| Debt discounts and issuance costs | | | | | | (48.0) | | | | | (65.3) | |
Current portion of long-term debt | | | | | | (1.2) | | | | | (1.0) | |
| Long-term debt | | | | | | $ | 4,721.1 | | | | | $ | 5,005.0 | |
(1) See Note 18 - Related Party Transactions for additional information. |
Financing Transactions
Senior Notes (2029) and Senior Secured Notes (2028)
Interest on the Senior Notes due 2029 and the Senior Secured Notes due 2028 is payable semi-annually to holders of the Company’s assetsrecord on June 30 and liabilities that were recognized at fair valueDecember 30 of each year.
The Senior Secured Notes due 2028 are secured on a recurringfirst-lien pari passu basis as at December 31, 2020with borrowings under the existing credit facilities and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| As Restated |
| December 31, 2020 |
| Level 1 | | Level 2
(As Restated) | | Level 3
(As Restated) | | Total Fair Value
(As Restated) |
| Assets | | | | | | | |
| Forward contracts asset | $ | — | | | $ | 8,574 | | | $ | — | | | $ | 8,574 | |
| Total | — | | | 8,574 | | | — | | | 8,574 | |
| | | | | | | |
| Liabilities | | | | | | | |
| Warrant liability (As Restated) | — | | | — | | | 312,751 | | | 312,751 | |
| Employee phantom share liability - current | — | | | 57,752 | | | — | | | 57,752 | |
| Employee phantom share liability - non-current | — | | | 393 | | | — | | | 393 | |
| Forward contracts liability | — | | | 106 | | | — | | | 106 | |
| Interest rate swap liability | — | | | 5,159 | | | — | | | 5,159 | |
| Earn-out liability | — | | | — | | | — | | | — | |
| Contingent stock liability | — | | | 130,594 | | | — | | | 130,594 | |
| Total | $ | — | | | $ | 194,004 | | | $ | 312,751 | | | $ | 506,755 | |
| | | | | | | |
| As Restated |
| December 31, 2019 |
| Level 1 | | Level 2 | | Level 3
(As Restated) | | Total Fair Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Liabilities | | | | | | | |
| Interest rate swap liability | $ | — | | | $ | 2,778 | | | $ | — | | | $ | 2,778 | |
| Warrant liability (As Restated) | — | | | — | | | 111,813 | | | 111,813 | |
| Earn-out liability | — | | | — | | | 11,100 | | | 11,100 | |
| Total | $ | — | | | $ | 2,778 | | | $ | 122,913 | | | $ | 125,691 | |
| | | | | | | |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Non-Financial Assets ValuedSenior Secured Notes due 2026. Both of these series of Notes are guaranteed on a Non-Recurring Basisjoint and several basis by each of our indirect subsidiaries that is an obligor or guarantor under our existing credit facilities and Senior Secured Notes due 2026.
The Company’s long-lived assets, including goodwill, indefinite-lived intangibleSenior Secured Notes and finite-lived intangible assetsSenior Notes are subject to amortization, are measured at fair value on a non-recurring basis. These assets are measured at cost but are written-down to fair value, if necessary,redemption as a result of impairment.certain changes in control at 101% of the principal amount, plus accrued and unpaid interest to the date of purchase. At our election, these Notes may be redeemed (i) prior to June 30, 2024, at a redemption price equal to 100% of the aggregate principal amount of the Notes being redeemed, plus a “make-whole” premium and accrued and unpaid interest to the date of redemption; (ii) prior to June 30, 2024, we may use funds, in an aggregate amount not exceeding the net cash proceeds of one or more specified equity offerings, to redeem up to 40% of the aggregate principal amount of the Senior Notes and Senior Secured Notes at a redemption price equal to 104.875% and 103.875% of the aggregate principal amount being redeemed, respectively, plus accrued and unpaid interest and additional amounts to the date of redemption provided that at least 50% of the original aggregate principal amount of the Notes issued on the Closing Date remains outstanding after the redemption (or all Notes are redeemed substantially concurrently) and the redemption occurs within 120 days of the date of the closing of such equity offering; or, (iii) on or after June 30, 2024, during the 12 month period commencing on June 30 of each of the years referenced below based on the call premiums listed below, plus accrued and unpaid interest to the date of redemption.
Finite-lived Intangible Assets — If a triggering event occurs, | | | | | | | | |
| Redemption Price
(as a percentage of principal) |
| Period | Senior Notes (2029) | Senior Secured Notes (2028) |
| 2024 | 102.438 | % | 101.938 | % |
| 2025 | 101.219 | % | 100.969 | % |
| 2026 and thereafter | 100.000 | % | 100.000 | % |
The Indentures governing our Senior Notes due 2029 and Senior Secured Notes due 2028 contain covenants which, among other things, limit the Company determinesincurrence of additional indebtedness (including acquired indebtedness), issuance of certain preferred stock, the estimated fairpayment of dividends, making restricted payments and investments, the purchase or acquisition or retirement for value of finite-lived intangible assets by determiningany equity interests, the present valueprovision of loans or advances to restricted subsidiaries, the expected cash flows.
Indefinite-lived Intangible Asset — If a qualitative analysis indicates that it is more likely than not that the estimated fair value is less than the carrying valuesale or lease or transfer of an indefinite-lived intangible asset, the Company determines the estimated fair value of the indefinite-lived intangible asset (trade name) by determining the present value of the estimated royalty payments on an after-tax basis that it would be required to pay the owner for the right to use such trade name. If the carrying amount exceeds the estimated fair value, an impairment loss is recognized in an amount equal to the excess.
Goodwill — Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets resulting from business combinations. The Company evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment or one level below an operating segment, annually as of October 1 or more frequently if impairment indicators arise in accordance with ASC Topic 350. The Company performs qualitative analysis of macroeconomic conditions, industry and market considerations, internal cost factors, financial performance, fairany
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
value history and other company specific events. If this qualitative analysis indicates that it is more likely than not thatproperties to any restricted subsidiaries, the estimated fair value is less than the book value for the respective reporting unit, the Company applies a two-step impairment test in which the Company determines whether the estimated fair value of the reporting unit is in excess of its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the estimated fair value of the reporting unit, the Company performs the second step of the impairment test to determine the implied estimated fair value of the reporting unit’s goodwill. The Company determines the implied estimated fair value of goodwill by determining the present value of the estimated future cash flows for each reporting unit and comparing the reporting unit’s risk profile and growth prospects to selected, reasonably similar publicly traded companies.
Effective January 1, 2020, all assets, liabilities, and equity interest of the Brand Protection, AntiPiracy, and AntiFraud solutions of the MarkMonitor Product Line were sold to OpSec Security for a purchase price of $3,751, which approximates fair value of the assets as of December 31, 2019. To measure the amount of impairment related to the divestiture, the Company compared the fair valuestransfer or sale of assets, and liabilities at the evaluation date to the carrying amounts ascreation of December 31, 2019. The loss on impairment was $18,431 as of December 31, 2019. The sale of the Brand Protection, AntiPiracy, and AntiFraud solutions of the MarkMonitor Product Line assets and liabilities are categorized as Level 2 within the fair value hierarchy. The key assumption included the negotiated sales price of the assets and the assumptions of the liabilities. See Note 5 - Assets Held for Sale and Divested Operations for additional information.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 12: Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities, consisted of the following as of December 31, 2020 and December 31, 2019:
| | | | | | | | | | | |
| | | |
| December 31, |
| 2020
(As Restated) | | 2019 |
Employee phantom share plan liability (1) | $ | 57,752 | | | $ | — | |
Contingent stock liability(2) | 130,594�� | | | — | |
Employee related accruals(3) | 98,481 | | | 55,155 | |
Accrued professional fees(4) | 67,628 | | | 46,161 | |
Tax related accruals (5) | 45,127 | | | 6,994 | |
Other accrued expenses and other current liabilities(6) | 170,100 | | | 50,907 | |
| Total accrued expenses and other current liabilities | $ | 569,682 | | | $ | 159,217 | |
(1) See Note 4 - Business Combinations, Note 11 - Fair Value Measurements, Note 17 - Employment and Compensation Arrangements, Note 25 - Restructuring and Impairment for further information with respect to the employee phantom share plan liabilities.
(2) Contingent stock consideration associated with the CPA Global and DRG acquisitions. See Note 4 - Business Combinations and Note 23 - Commitments and Contingencies for further information.
(3) Employee related accruals include accrued payroll, bonus and employee commissions.
(4) Professional fee related accruals include accrued legal fees, audit fees and contractor fees.
(5) Tax related accruals include value-added tax payable and other current taxes payable.
(6) Includes current liabilities due to customers, royalty accruals, interest payable, and a collection of miscellaneous other current liabilities.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 13: Pension and Other Post‑Retirement Benefits
Retirement Benefits
Defined contribution plans
Employees participate in various defined contribution savings plans that provide for Company-matching contributions. Costs for future employee benefits are accrued over the periods in which employees earn the benefits. Total expense related to defined contribution plans was $13,262, $12,143 and $13,170 for the years ended December 31, 2020, 2019 and 2018, respectively, which approximates the cash outlays related to the plans.
Defined benefit plans
A limited number of employees participate in noncontributory defined benefit pension plans that are maintained in certain international markets. The plans are managed and funded to provide pension benefits to covered employees in accordance with local regulations and practices. The Company’s obligations related to the defined benefit pension plans is in Accrued expenses and other current liabilities and Other non-current liabilities.
The following table presents the changes in projected benefit obligations, the plan assets, and the funded status of the defined benefit pension plans:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| Obligation and funded status: | | | |
| Change in benefit obligation | | | |
| Projected benefit obligation at beginning of year | $ | 16,563 | | | $ | 14,486 | |
| Service costs | 1,136 | | | 870 | |
| Interest cost | 292 | | | 311 | |
| Plan participant contributions | 124 | | | 114 | |
| Actuarial losses | 695 | | | 1,492 | |
| Acquisition/Business Combination/Divestiture | 2,393 | | | — | |
| Benefit payments | (357) | | | (312) | |
| Expenses paid from assets | (40) | | | (36) | |
| Settlements | — | | | (89) | |
| Curtailment | (510) | | | — | |
| Effect of foreign currency translation | 1,319 | | | (273) | |
| Projected benefit obligation at end of year | $ | 21,615 | | | $ | 16,563 | |
| Change in plan assets | | | |
| Fair value of plan assets at beginning of year | $ | 5,487 | | | $ | 5,184 | |
| Actual return on plan assets | 213 | | | 198 | |
| Settlements | — | | | (89) | |
| Plan participant contributions | 124 | | | 113 | |
| Acquisition/Business Combination/Divestiture | 99 | | | — | |
| Employer contributions | 583 | | | 533 | |
| Benefit payments | (357) | | | (312) | |
| Expenses paid from assets | (40) | | | (36) | |
| Effect of foreign currency translation | 556 | | | (104) | |
| Fair value of plan assets at end of year | 6,665 | | | 5,487 | |
| Unfunded status | $ | (14,950) | | | $ | (11,076) | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The following table summarizes the amounts recognized in the Consolidated Balance Sheets related to the defined benefit pension plans:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| | | |
| Current liabilities | $ | (902) | | | $ | (635) | |
| Non-current liabilities | $ | (14,048) | | | $ | (10,441) | |
| AOCI | $ | 1,195 | | | $ | 470 | |
| | | |
| | | |
| | | |
The following table provides information for those pension plans with an accumulated benefit obligation in excess of plan assets and projected benefit obligations in excess of plan assets:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| Plans with accumulated benefit obligation in excess of plan assets: | | | |
| Accumulated benefit obligation | $ | 18,991 | | | $ | 15,465 | |
| Fair value of plan assets | $ | 6,665 | | | $ | 5,487 | |
| Plans with projected benefit obligation in excess of plan assets: | | | |
| Projected benefit obligation | $ | 21,615 | | | $ | 16,563 | |
| Fair value of plan assets | $ | 6,665 | | | $ | 5,487 | |
The components of net periodic benefit cost changes in plan assets and benefit obligations recognized as follows:
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 | | 2018 |
| Service cost | $ | 1,136 | | | $ | 870 | | | $ | 888 | |
| Interest cost | 292 | | 311 | | | 283 | |
| Expected return on plan assets | (178) | | (157) | | | (150) | |
| Amortization of actuarial gains | (46) | | (76) | | | (78) | |
| Settlement/(Curtailment) | (499) | | 7 | | | — | |
| Net periodic benefit cost | $705 | | $ | 955 | | | $ | 943 | |
The following table presents the weighted-average assumptions used to determine the net periodic benefit cost as of:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| Discount rate | 1.60 | % | | 2.26 | % |
| Expected return on plan assets | 3.00 | % | | 3.00 | % |
| Rate of compensation increase | 3.78 | % | | 3.68 | % |
| Social Security increase rate | 2.50 | % | | 2.50 | % |
| Pension increase rate | 1.80 | % | | 1.80 | % |
| | | |
| | | |
| | | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The following table presents the weighted-average assumptions used to determine the benefit obligations as of:
| | | | | | | | | | | |
| |
| | | |
| December 31, |
| 2020 | | 2019 |
| Discount rate | 1.66 | % | | 1.60 | % |
| Rate of compensation increase | 5.18 | % | | 3.77 | % |
| Social Security increase rate | 2.50 | % | | 2.50 | % |
| Pension increase rate | 1.80 | % | | 1.80 | % |
The Company determines the assumptions used to measure plan liabilities as of the December 31 measurement date.
The discount rate represents the interest rate used to determine the present value of the future cash flows currently expected to be required to settle the Company’s defined benefit pension plan obligations. The discount rates are derived using weighted average yield curves on corporate bonds. The cash flows from the Company’s expected benefit obligation payments are then matched to the yield curve to derive the discount rates. At December 31, 2020, the discount rates ranged from 0.35% to 5.20% for the Company’s pension plan and postretirement benefit plan. At December 31, 2019, the discount rates ranged from 0.45% to 6.45% for the Company’s pension plan and postretirement benefit plan.
Plan Assets
The general investment objective for our plan assets is to obtain a rate of investment return consistent with the level of risk being taken and to earn performance rates of return as required by local regulations for our defined benefit plans. For such plans, the strategy is to invest primarily 100% in insurance contracts. Plan assets held in insurance contracts do not have target asset allocation ranges. The expected long-term return on plan assets is estimated based off of historical and expected returns.liens. As of December 31, 2020, the expected weighted-average long-term rate of return on plan assets was 3%.
The fair value of our plan assets and the respective level2023, we were in the far value hierarchy by asset category is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Fair value measurement of pension plan assets: | Level 1 | Level 2 | Level 3 | Total Assets | | Level 1 | Level 2 | Level 3 | Total Assets |
| Insurance contract | $ | — | | — | | 6,665 | | $ | 6,665 | | | $ | — | | — | | 5,487 | | $ | 5,487 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
The fair valuecompliance with all of the insurance contracts is an estimate of the amount that would be received in an orderly sale to a market participant at the measurement date. The amount the plan would receive from the contract holder if the contracts were terminated is the primary input and is unobservable. The insurance contracts are therefore classified as Level 3 investments.indenture covenants.
The following table provides the estimated pension benefit payments that are payable from the plans to participants as of December 31, 2020 for the following years:Senior Secured Notes (2026)
| | | | | |
| 2021 | $ | 1,005 | |
| 2022 | 1,284 | |
| 2023 | 1,240 | |
| 2024 | 1,397 | |
| 2025 | 1,510 | |
| 2026 to 2030 | 6,985 | |
| Total | $ | 13,421 | |
BasedInterest on the current status of our defined benefit obligations, we expect to make payments in the amount of $357 to fund these plans in 2021. However, this estimate may change based on future regulatory changes.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 14: Debt
The following is a summary of the Company’s debt:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2020 | | December 31, 2019 |
| Type | | Maturity | | Effective
Interest
Rate | | Carrying
Value | | Effective
Interest
Rate | | Carrying
Value |
| Senior Secured Notes (2026) | | 2026 | | 4.500 | % | | $ | 700,000 | | | 4.500 | % | | $ | 700,000 | |
| Term Loan Facility (2026) | | 2026 | | 3.626 | % | | 2,847,400 | | | 5.049 | % | | 900,000 | |
| | | | | | | | | | |
| The Revolving Credit Facility | | 2024 | | — | % | | — | | | 5.049 | % | | 65,000 | |
| Total debt outstanding | | | | | | 3,547,400 | | | | | 1,665,000 | |
| Debt issuance costs | | | | | | (51,309) | | | | | (25,205) | |
| Term Loan Facility, discount | | | | | | (9,591) | | | | | (2,184) | |
| Short-term debt, including current portion of long-term debt | | | | | | (28,600) | | | | | (9,000) | |
| Long-term debt, net of current portion and debt issuance costs | | | | | | $ | 3,457,900 | | | | | $ | 1,628,611 | |
The loans were priced at market terms and collectively have a weighted average interest rate and term of 3.799% and 4.818% for the year ended December 31, 2020 and 2019, respectively.
Financing Transactions
Senior Secured Notes due 2026
On October 31, 2019, we closed a private placement offering of $700,000 in aggregate principal amount of Senior Secured Notes ("Notes") due 2026 bearing interest at 4.50% per annum,is payable semi-annually to holders of record inon May 1 and November.November 1 of each year. The first interest payment was paid in May 2020. TheSenior Secured Notes due 2026 were issued by Camelot Finance S.A., an indirect wholly-owned subsidiary of Clarivate, and are secured on a first-lien pari passu basis with borrowings under the Credit Facilities.Facilities and Senior Secured Notes due 2028. These Notes are guaranteed on a joint and several basis by certain Clarivate subsidiaries. The Notes will be general senior secured obligationseach of our indirect subsidiaries that is an obligor or guarantor under the IssuerCredit Facilities and will beare secured on a first-priority basis by the collateral now owned or hereafter acquired by the IssuerCamelot Finance S.A. (the issuer) and each of the Guarantorsguarantors that secures the Issuer’sissuer’s and such Guarantor’sguarantor’s obligations under the New Senior Credit Facilityour credit facilities (subject to permitted liens and other exceptions).
We used the net proceeds from the offering of theThe Senior Secured Notes due 2026 together with proceeds from the $900,000 Term Loan Facility and a $250,000 Revolving Credit Facility with a $40,000 letter of credit sub-limit, collectively the "Credit Facilities" discussed below to, among other things, redeem the 7.875% senior notes due 2024 issued by Camelot Finance S.A. ("Prior Notes") in full, refinance all amounts outstanding under the $175,000 revolving credit facility which was governed by the credit agreement dated as of October 3, 2016 ("Prior Revolving Credit Facility") and the $1,550,000 term loan facility ("Prior Term Loan Facility"), collectively the "Prior Credit Facilities", fund in full the TRA Termination Payment pursuant to the TRA Buyout Agreement and pay fees and expenses related to the foregoing. We redeemed the Prior Notes at a fixed price of 103.938%, plus accrued and unpaid interest to the date of the purchase. The total loss on the extinguishment of debt, including the transactions noted below, was $3,179.
In connection with the DRG acquisition, the Company incurred an incremental $360,000 of borrowings under our term loan facility and used the net proceeds from such borrowings to fund a portion of the DRG acquisition and to pay related fees and expenses.
In addition, the Company secured the backstop of a $950,000 fully committed bridge facility in connection with the DRG acquisition. However, the Company obtained all required financing with proceeds from the additional term loan borrowings and through a primary equity offering in February 2020. As such, the bridge facility remained undrawn through its expiration on closing of the acquisition.
On October 1, 2020, in connection with the CPA Global acquisition, the Company incurred an incremental $1,600,000 of borrowings under our term loan facility and used the net proceeds from such borrowings to fund the repayment of CPA
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Global's parent company outstanding debt of $2,055,822 of outstanding debt. Previously, the Company had secured the backstop of a $1,500,000 fully committed bridge facility. However, the Company obtained all required financing with proceeds from the additional term loan borrowings and the bridge facility remained undrawn through its expiration on closing of the acquisition.
The Notes are subject to redemption as a result of certain changes in tax laws or treaties of (or their interpretation by) a relevant taxing jurisdiction at 100% of the principal amount, plus accrued and unpaid interest to the date of redemption, and upon certain changes in control at 101% of the principal amount, plus accrued and unpaid interest to the date of purchase. Additionally, at the Company’sour election, the Notes may be redeemed (i) prior toon November 1, 20222024 and thereafter at a redemption price equal to 100% of the aggregate principal amount, of Notes being redeemed plus a “make-whole” premium, plus accrued and unpaid interest to the date of redemption or (ii) prior to November 1, 2022, the Company may use funds in an aggregate amount not exceeding the net cash proceeds of one or more specified equity offerings to redeem up to 40% of the aggregate principal amount of the Notes at a redemption price equal to 104.500% of the aggregate principal amount of the Notes being redeemed, plus accrued and unpaid interest and additional amounts to the date of redemption provided that at least 50% of the original aggregate principal amount of the Notes issued on the Closing Date remains outstanding after the redemption (or all Notes are redeemed substantially concurrently) and the redemption occurs within 120 days of the date of the closing of such equity offering or (iii) on November 1, 2022 of each of the years referenced below based on the call premiums listed below, plus accrued and unpaid interest to the date of redemption.
| | | | | |
| Period | Redemption Price
(as a percentage of principal) |
| 2022 | 102.250 | % |
| 2023 | 101.125 | % |
| 2024 and thereafter | 100.000 | % |
The Indenture governing the senior secured notes due 2026 contains covenants which, among other things, limit the incurrence of additional indebtedness (including acquired indebtedness), issuance of certain preferred stock, the payment of dividends, making restricted payments and investments, the purchase or acquisition or retirement for value of any equity interests, the provision of loans or advances to restricted subsidiaries, the sale or lease or transfer of any properties to any restricted subsidiaries, the transfer or sale of assets, and the creation of certain liens. As of December 31, 2020, we were in compliance with the indenture covenants.
Credit Facilities
On October 31, 2019, we entered into the Credit Facilities. The Credit Facilities consist of a $900,000 Term Loan Facility, which was fully drawn at closing, and a $250,000 Revolving Credit Facility with a $40,000 letter of credit sublimit, which was undrawn at closing. The Revolving Credit Facility carries an interest rate at LIBOR plus 3.25% per annum or Prime plus a margin of 2.25% per annum, as applicable depending on the borrowing, and matures on October 31, 2024. The Revolving Credit Facility interest rate margins will decrease upon the achievement of certain first lien net leverage ratios (as the term is used in the Credit Agreement). The Term Loan Facility matures on October 31, 2026. Principal repayments under the Term Loan Facility are due quarterly in an amount equal to 0.25% of the aggregate outstanding principal amount borrowed under the Term Loan Facility on October 31, 2019 and on the maturity date, in an amount equal to the aggregate outstanding principal amount on such date, together in each case, with accrued and unpaid interest. The Prior Credit facility and Prior Notes were replaced by the Credit Facility and Notes. $41,980 of old unamortized discount and fees were written off as part of the restructuring, and of the new costs incurred under the Credit Facility and the Notes, $17 was expensed and $25,818 was deferred.
On October 1, 2020, the Company borrowed $60,000 on the existing Revolving Credit Facility and used the net proceeds from such borrowings to fund the debt extinguishment costs in connection with funding of the repayment of CPA Global's parent company outstanding debt.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
During the year ended December 31, 2020, the Company paid down $125,000 on the revolving credit facility. The revolving credit facility has remained undrawn in the period subsequent to the pay down. The revolving credit facility is subject to a commitment fee of 0.375% per annum.
Borrowings under the Credit FacilityFacilities, bear interest at a floating rate which can be, at our option, either (i) a Eurocurrency rate plus an applicable margin or (ii) an alternate base rate (equal to the highest of (i) the rate which Bank of America, N.A. announces as its prime lending rate, (ii) the Federal Funds Effective Rate plus one-half of 1.00% and (iii) the Eurocurrency rate for an interest period of one month for loans denominated in dollars plus 1.00% plus an applicable margin, in either case, subject to a Eurocurrency rate floor of 0.00%margin). Commencing with the last day of the first full quarter ending after the closing date of the Credit Facilities, the Term Loan Facility will amortize in equal quarterly installments in an amount equal to 1.00% per annum of the original par principal amount thereof, with the remaining balance due at final maturity.
The Credit Facilities are secured by substantially all of our assets and the assets of all of our U.S. restricted subsidiaries and certain of our non-U.S. subsidiaries, including those that are or may be borrowers or guarantors under the Credit Facilities, subject to customary exceptions. The Credit Agreement governing the Credit Facilities contains customary events of default and restrictive covenants that limit us from, among other things, incurring certain additional indebtedness, issuing preferred stock, making certain restricted payments and investments, certain transfers or sales of assets, entering into certain affiliate transactions, or incurring certain liens.
The Credit Facilities provide that, upon the occurrence of certain events of default, our obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness (including the senior secured notesSenior Secured Notes due 2026)2026 and 2028 and Senior Notes 2029), voluntary and involuntary bankruptcy proceedings, material money judgments, loss of perfection over a material portion of collateral, material ERISA/pension plan events, certain change of control events, and other customary events of default, in each case subject to threshold, notice, and grace period provisions.
The Revolving Credit Facility provides for revolving loans, same-day borrowings and letters of credit pursuant to commitments in an aggregate principal amount of $250,000 with a letter of credit sublimit of $40,000. Proceeds of loans made under the Revolving Credit Facility may be borrowed, repaid and reborrowed prior to the maturity of the Revolving Credit Facility. Our ability to draw under the Revolving Credit Facility or issue letters of credit thereunder will be conditioned upon, among other things, delivery of required notices, accuracy of the representations and warranties contained in the Credit Agreement and the absence of any default or event of default under the Credit Agreement.
With respect to the Credit Facilities, the CompanyWe may be subject to certain negative covenants, including either a fixed charge coverage ratio, total first lien net leverage ratio, or total net leverage ratio if certain conditions are met. These conditions were not met and the Company was not required to perform these covenants asAs of December 31, 2020 .2023, we were in compliance with the covenants for the credit facilities.
Revolving Credit Facility
The Revolving Credit Facility provides for revolving loans, same-day borrowings, and letters of credit pursuant to commitments in an aggregate principal amount of $750.0, with a letter of credit sublimit of $80.0. The maturity date for revolving credit commitments is March 31, 2027, subject to a “springing” maturity date that is 90 days prior to the maturity date of (i) the term loans outstanding under the credit facility or (ii) the 4.50% Senior Secured Notes due 2026.
The obligationsRevolving Credit Facility carries a base interest rate at Term SOFR, plus a 0.1% SOFR adjustment, plus 3.25% per annum (or 2.75% per annum, based on first lien leverage ratios) or Prime plus a margin of 2.25% per annum, as applicable depending on the borrowers underborrowing. The Revolving Credit Facility interest rate margins will decrease upon the Credit Agreement are guaranteed by UK Holdco andachievement of certain of its restricted subsidiaries and are collateralized by substantially all of UK Holdco’s and certain of its restricted subsidiaries’ assets (with customary exceptions describedfirst lien net leverage ratios (as the term is used in the Credit Agreement). UK Holdco and its restricted subsidiaries areis subject to certain covenants including restrictionsa commitment fee rate of 0.5% per annum (or 0.375% per annum, based on UK Holdco’s ability to pay dividends, incur indebtedness, grant afirst lien over its assets, merge or consolidate, make investments, or make payments to affiliates.leverage ratios) times the unutilized amount of total revolving commitments.
As of December 31, 2020,2023, letters of credit totaling $5,262$9.2 were collateralized by the Revolving Credit Facility. Notwithstanding the Revolving Credit Facility, as of December 31, 2020 the Company had an unsecured corporate guarantee outstanding for $11,466 and cash collateralized letters of credit totaling $38, all of which were not collateralized by the Revolving Credit Facility. The Company borrowed $0 and $65,000 against the Revolving Credit Facility as of December 31, 2020 and 2019, respectively, to support current operations.
Amounts due under all of the outstanding borrowings as of December 31, 2020 for the next five years are as follows:
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, exceptmillions or as otherwise noted)
Term Loan Facility (2026)
We have a Term Loan Facility due in 2026, which was fully drawn at closing in October 2021. During each of the years ended December 31, 2023 and 2022, we made prepayments of $300.0 towards the Term Loan Facility.
The carrying value of our variable interest rate debt, excluding unamortized debt issuance costs, approximates fair value due to the short-term nature of the interest rate benchmark rates. The fair value of the fixed rate debt is estimated based on market observable data for debt with similar prepayment features. The fair value of our debt was $4,615.3 and $4,709.6 at December 31, 2023 and December 31, 2022, respectively, and is considered Level 2 under the fair value hierarchy.
Amounts due under our outstanding borrowings as of December 31, 2023 are as follows:
| | | | | |
| 2024 | $ | 1.2 | |
| 2025 | 1.3 | |
| 2026 | 2,898.9 | |
| 2027 | 1.7 | |
| 2028 | 923.1 | |
| Thereafter | 944.1 | |
| Total maturities | 4,770.3 | |
| Less: capitalized debt issuance costs and original issue discount | (48.0) | |
| Total, including the current portion of long-term debt | $ | 4,722.3 | |
Note 10: Shareholders' Equity
As of December 31, 2023, there were unlimited shares of ordinary stock authorized and 666.1 million shares issued and outstanding, with no par value. We did not hold any shares as treasury shares as of December 31, 2023 and December 31, 2022. Our ordinary shareholders are entitled to one vote per share.
MCPS Offering
In June 2021, we completed a public offering of 14.4 million of our 5.25% Series A Mandatory Convertible Preferred Shares (“MCPS”), which included 1.9 million of our MCPS that the underwriters purchased pursuant to their option to purchase additional shares. We received approximately $1,392.7 in net proceeds from the offering. Dividends on our MCPS are payable, as and if declared by our Board of Directors, at an annual rate of 5.25% of the liquidation preference of $100.00 per share. We may pay declared dividends on March 1, 2024 and June 1, 2024 prior to the automatic conversion of these shares. Each of our convertible preferred shares has a liquidation preference of $100.00.
As of December 31, 2023, we accrued $6.4 of preferred share dividends within Accrued expenses and other current liabilities. While the dividends on the MCPS are cumulative, they are not paid until declared by our Board of Directors. If the dividends are not declared, they will continue to accumulate until paid, due to a backstop contained in the agreement (even if never declared).
On June 1, 2024, our MCPS will automatically convert into between 3.2052 and 3.8462 of our ordinary shares (respectively, the “Minimum Conversion Rate” and “Maximum Conversion Rate”), each subject to anti-dilution adjustments. The number of our ordinary shares issuable on conversion of the convertible preferred shares will be determined based on an Average VWAP per ordinary share over the settlement period. At any time prior to June 1, 2024, holders may elect to convert each convertible preferred share into ordinary shares at the Minimum Conversion Rate.
Holders of the preferred shares have the right to convert all or any portion of their shares at any time until the close of business on the mandatory conversion date. The preferred shares are not redeemable at our election before the mandatory conversion date and the holders of the preferred shares do not have any voting rights.
Treasury Shares
CPA Global Acquisition Shares- During the year ended December 31, 2021, 5.8 million shares held in the Employee Benefit Trust (“EBT”), further described in Note 12 - Share-based Compensation, were sold at an average net price per share data, option prices, ratios orof $23.78 to fund the payment to the respective employees via payroll in the first quarter of 2022 as noted)
| | | | | |
| 2021 | $ | 28,600 | |
| 2022 | 28,600 | |
| 2023 | 28,600 | |
| 2024 | 28,600 | |
| 2025 | 28,600 | |
| Thereafter | 3,404,400 | |
| Total maturities | 3,547,400 | |
| Less: capitalized debt issuance costs and original issue discount | (60,900) | |
| Total debt outstanding as of December 31, 2020 | $ | 3,486,500 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
Note 15: Revenue
Disaggregated Revenues
The tables below showdate of the Company’s disaggregated revenue for the periods presented:
| | | | | | | | | | | | | | | | | |
| Year ended December 31,
|
| 2020 | | 2019 | | 2018 |
| Subscription revenues | $ | 867,731 | | | $ | 805,518 | | | $ | 794,097 | |
| Transactional revenues | 294,889 | | | 169,265 | | | 177,523 | |
| Re-occurring revenues | 114,528 | | | — | | | — | |
| Total revenues, gross | 1,277,148 | | | 974,783 | | | 971,620 | |
Deferred revenues adjustment(1) | (23,101) | | | (438) | | | (3,152) | |
| Total revenues, net | $ | 1,254,047 | | | $ | 974,345 | | | $ | 968,468 | |
| | | | | |
| (1) Reflects the deferred revenue adjustment as a result of purchase accounting. |
Cost to Obtain a Contract
The Company has prepaid sales commissions included in both Prepaid expenses and Other non-current assets on the balance sheets. The amount of prepaid sales commissions included in Prepaid expensesacquisition, an associated loss was $13,970 and $12,387 as of December 31, 2020 and 2019, respectively. The amount of prepaid sales commissions included in Other non-current assets was $14,102 and $11,620 as of December 31, 2020 and 2019, respectively. The Company has not recorded any impairments against these prepaid sales commissions.
Contract Balances
| | | | | | | | | | | | | | | | | |
| Accounts receivable, net | | Current portion of deferred revenues | | Non-current portion of deferred revenues |
| Opening (1/1/2020) | $ | 333,858 | | | $ | 407,325 | | | $ | 19,723 | |
| Closing (12/31/2020) | 737,733 | | | 707,318 | | | 41,399 | |
| (Increase)/decrease | $ | (403,875) | | | $ | (299,993) | | | $ | (21,676) | |
| | | | | |
| Opening (1/1/2019) | $ | 331,295 | | | $ | 391,102 | | | $ | 17,112 | |
| Closing (12/31/2019) | 333,858 | | | 407,325 | | | 19,723 | |
| (Increase)/decrease | $ | (2,563) | | | $ | (16,223) | | | $ | (2,611) | |
| | | | | |
| Opening (1/1/2018) | $ | 317,808 | | | $ | 361,260 | | | $ | 15,796 | |
| Closing (12/31/2018) | 331,295 | | | 391,102 | | | 17,112 | |
| (Increase)/decrease | $ | (13,487) | | | $ | (29,842) | | | $ | (1,316) | |
The amounts of revenues recognized in the period that were included in the opening deferred revenues balances $400,656, $391,102 and $361,260 for years ended 2020, 2019, and 2018, respectively. This revenue consists primarily of subscription revenue.
Transaction Price Allocated to the Remaining Performance Obligation
As of December 31, 2020, approximately $70,576 of revenues is expected to be recognized in the future from remaining performance obligations, excluding contracts with a remaining duration of one year or less. The Company expects to recognize revenue on approximately 48.8% of these performance obligations over the next 12 months. Of the remaining
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
51.2%, 24.5% is expected to be recognized within the following year, with the final 26.7% expected to be recognized within years 3 to 10.
Note 16: Shareholders’Consolidated Statement of Changes in Equity
Pre-2019 Transaction
In March 2017, the Company formed the Management Incentive Plan under which certain employees of the Company may be eligible to purchase shares of the Company. In exchange for each share purchase subscription, the purchaser is entitled to a fully vested right to an ordinary share. Additionally, along with a subscription, employees receive a corresponding number of options to acquire additional ordinary shares subject to five years vesting. See Note 17 - Employment and Compensation Arrangementsfor additional detail related to the options. There were no share subscriptions received prior to or following the close of the 2019 Transaction as of December 31, 2020.
Post-2019 Transaction
Immediately prior to the closing of the 2019 Transaction, there were 87,749,999 shares of Churchill ordinary stock issued and outstanding, consisting of (i) 68,999,999 public shares (Class A) and (ii) 18,750,000 founder shares (Class B). On May 13, 2019, in connection with the 2019 Transaction, all of the Class B ordinary stock converted into Class A ordinary stock of the post-combination company on a 1-for-one basis, and effected the reclassification and conversion of all of the Class A ordinary stock and Class B ordinary stock into a single class of ordinary stock of Clarivate Plc. One stockholder elected to have one share redeemed in connection with the 2019 Transaction.
In June 2019, the Company formed the 2019 Incentive Award Plan under which employees of the Company may be eligible to purchase shares of the Company. See Note 17 - Employment and Compensation Arrangements for additional detail related to the 2019 Incentive Award Plan. In exchange for each share subscription purchased, the purchaser is entitled to a fully vested right to an ordinary share. At December 31, 2020 there were unlimited shares of ordinary stock authorized, and 606,329,598 shares issued and outstanding, with a par value of $0.00. The Company held 6,325,860 and 0 shares as treasury shares as of December 31, 2020 and December 31, 2019, respectively. The Company’s ordinary stockholders are entitled to one vote per share.
Warrants
Upon consummation of the 2019 Transaction, the Company had warrants outstanding to purchase an aggregate of 52,800,000 ordinary shares. Each outstanding whole warrant of Churchill represents the right to purchase one ordinary share of the Company in lieu of 1 share of Churchill ordinary stock upon closing of the 2019 Transaction at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing upon the later of (i) 30 days after the completion of the 2019 Transaction and (ii) September 11, 2019. The holder does not have the right to exercise the Warrants to the extent that they would beneficially own in excess of 4.9% or 9.8% (as specified by the holder) of the shares of ordinary stock outstanding immediately after giving effect to such exercise. As of December 31, 2019, 100,114 warrants had been exercised.
During the period January 1, 2020 through February 21, 2020, 24,132,666 of the Company’s outstanding public warrants were exercised for 1 ordinary share per whole public warrant at a price of $11.50 per share. On February 20, 2020, we announced the redemption of all of our outstanding public warrants to purchase our ordinary shares that were issued as part of the units sold in the Churchill Capital Corp initial public offering that remained outstanding at 5:00 p.m. New York City time on March 23, 2020, for a redemption price of $0.01 per public warrant. In addition, our board of directors elected that, upon delivery of the notice of the redemption on February 20, 2020, all public warrants were to be exercised only on a “cashless basis.” Accordingly, by virtue of the cashless exercise of public warrants, exercising public warrant holders received 0.4626 of an ordinary share for each public warrant, and 4,747,432 ordinary shares were issued for public warrants exercised on a cashless basis and 4,649 public warrants were redeemed for $0.01 per public warrant. As of December 31, 2020, no public warrants were outstanding.
Merger Shares
Upon consummation of the 2019 Transaction, there were 7,000,000 ordinary shares of Clarivate that are issuable to persons designated by Messrs. Stead and Klein, including themselves, if the last sale price of Clarivate’s ordinary shares is at least
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
$20.00 for 40 days over a 60 consecutive trading day period on or before the sixth anniversary of the closing of the 2019 Transaction. On January 31, 2020, our Board agreed to waive all performance vesting conditions associated with the Merger Shares (as defined below). The Merger Shares were issued as ordinary shares to persons designated by Jerre Stead and Michael Klein on June 1, 2020 as part of the June 2020 underwritten public offering. See Note 17 - Employment and Compensation Arrangements for additional detail related to the Merger Shares.
DRG Acquisition Shares
In connection with the DRG acquisition, up to 2,895,638 ordinary shares of the Company are issuable to PEL following the one-year anniversary of the closing, which will take place on February 28, 2021. See Note 4 - Business Combinations for additional details.
CPA Global Acquisition Shares
In connection with the CPA Global acquisition, on October 1, 2020, the Company issued as part of the purchase consideration, 210,357,918 ordinary shares of the Company. See Note 4 - Business Combinations for additional details and see also Note 27 - Subsequent Events.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 17: Employment and Compensation Arrangements
Employee Incentive Plans
Prior to the 2019 Transaction, the Company operated under its 2016 Equity Incentive Plan, which provided for certain employees of the Company to be eligible to participate in equity ownership in the Company. On May 8, 2019, in anticipation of the 2019 Transaction, the Board adopted the 2019 Incentive Award Plan, which was an amendment, restatement and continuation of the 2016 Equity Incentive Plan. Upon closing of the 2019 Transaction, awards under the 2016 Equity Incentive Plan were converted using the exchange ratio established during the 2019 Transaction and assumed into the 2019 Incentive Award Plan (See Note 4 - Business Combinations). The 2019 Incentive Award Plan permits the granting of awards in the form of incentive stock options, non-qualified stock options, share appreciation rights, restricted shares, restricted share units and other share-based or cash based awards. Equity awards may be issued in the form of restricted shares or restricted share units with dividend rights or dividend equivalent rights subject to vesting terms and conditions specified in individual award agreements. The Company’s Management Incentive Plan provides for employees of the Company to be eligible to purchase shares of the Company. See Note 16 - Shareholders’ Equity for additional information.
A maximum aggregate amount of 60,000,000 ordinary shares are reserved for issuance under the 2019 Incentive Award Plan. Equity awards under the 2019 Incentive Award Plan may be issued in the form of options to purchase shares of the Company which are exercisable upon the occurrence of conditions specified within individual award agreements. As of December 31, 2020 and 2019, 42,785,926 and 37,302,599, respectively, awards have not been granted. The 2020 figure includes PSU awards at grant. Refer to the PSU section below for specifications of payout of these awards deemed probable.$(41.6).
Total share-based compensation expense included in the Consolidated Statements of Operations amounted to $70,472, $51,383, and $13,715 for the years ended December 31, 2020, 2019, and 2018, respectively. The total associated tax benefits recognized amounted to $30,620, $751, and $2,740 for the years ended December 31, 2020, 2019, and 2018, respectively.
The Company’s Management Incentive Plan provides for certain employees of the Company to be eligible to purchase shares of the Company. See Note 16 - Shareholders’ Equity for additional information. Along with each subscription, employees may receive a corresponding number of options to acquire additional ordinary shares subject to five years vesting.
As of December 31, 2020 and 2019, there was $0 and $6,873, respectively, of total unrecognized compensation cost related to outstanding stock options.
Stock Options
The Company’s stock option activity is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of
Options | | Weighted
Average Exercise
Price per Share | | Weighted-Average
Remaining
Contractual Life
(in years) | | Aggregate
Intrinsic
Value |
| Balance at December 31, 2019 | 20,880,225 | | | $ | 12.18 | | | 7.3 | | $ | 105,119 | |
| Granted | — | | | — | | | 0 | | — | |
| Expired | (3,964) | | | 29.33 | | | 0 | | — | |
| Forfeited | (972,781) | | | 12.07 | | | 0 | | — | |
| Exercised | (12,042,862) | | | 11.67 | | | 0 | | — | |
| Outstanding as of December 31, 2020 | 7,860,618 | | | $ | 12.95 | | | 6.2 | | $ | 131,956 | |
| Vested and exercisable at December 31, 2020 | 7,860,618 | | | $ | 12.95 | | | 6.2 | | $ | 131,956 | |
The aggregate intrinsic value in the table above represents the difference between the Company’s most recent valuation and the exercise price of each in-the-money option on the last day of the period presented. 12,042,862 and 2,416,534 stock options were exercised as of December 31, 2020 and 2019, respectively. The total intrinsic value of stock options exercised was approximately $150,381 and $25,123 during the years ended December 31, 2020 and 2019, respectively.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The Company accounts for awards issued under the 2019 Incentive Award Plan as additional contributions to equity. Share-based compensation includes expense associated with stock option grants which is estimated based on the grant date fair value of the award issued. Share-based compensation expense related to stock options is recognized over the vesting period of the award which is generally five years, on a graded-scale basis. The weighted-average fair value of options granted per share was $0 and $2.94 as of December 31, 2020 and 2019, respectively.
In connection with the sale and divestiture of non-core assets and liabilities within the IP segment on November 6, 2020, the Company accelerated 43,605 unvested stock options, which resulted in recognition of $791 of compensation expense duringDuring the year ended December 31, 2020.
On November 30, 2020,2022, the Company accelerated the vesting of approximately 3,530,000last remaining unvested stock options of the original 28,400,000 issued pursuant to the private company equity plan adopted in 2016 at the time of the formation of Clarivate as a standalone business after its divestiture from Thomson Reuters, including the previously disclosed unvested options0.5 million shares held by key officers of the Company. The Company views this as an appropriate step to take at this time to streamline the Company’s equity compensation program by easing the administration of the plan and by allowing the Company to better manage the logistics and vesting of these options. The accelerated vesting resulted in the recognitionEBT were sold at an average net price per share of approximately $2,007$10.72 and an associated loss was recognized within the Consolidated Statement of compensation expense duringChanges in Equity in the amount of $(11.2).
Share Repurchase Program and Share Retirements- In February 2022, our Board of Directors approved the purchase of up to $1,000.0 of our ordinary shares through open-market purchases, to be executed through December 31, 2023. During the year ended December 31, 2020.
The Company uses the Black-Scholes option pricing model to estimate the fair2022, we repurchased 10.7 million ordinary shares at an average price per share of $16.33 with a total carrying value of options granted. The Black-Scholes model takes into$175.0, all of which were subsequently retired at an average price at retirement of $15.61 and were restored as authorized but unissued ordinary shares. Upon formal retirement and in accordance with ASC Topic 505, Equity, we reduced our ordinary shares account by the faircarrying amount of the treasury shares. Additionally, given the differences of the original repurchase share value of an ordinary share and the contractual and expected termvalue at the time of formal retirements, an associated loss was recognized within the Consolidated Statement of Changes in Equity in the amount of $(7.7). In May 2023, our Board of Directors approved the extension of the stock option, expected volatility, dividend yield,share repurchase authorization through December 31, 2024, and risk-free interest rate. Priorreduced the authorization from $1,000.0 to becoming a public company,$500.0. To enable the fair valuebuybacks under the Board’s authorization, we obtained shareholder approval on July 27, 2023 to permit us to conduct open-market purchases of the Company’s ordinary shares were determined utilizing an external third-party pricing specialist.
The contractual term of the option ranges from the oneup to ten years. Expected volatility is the average volatility over the expected terms of comparable public entities from the same industry. The risk-free interest rate is based on a treasury rate with a remaining term similar to the contractual term of the option. The Company is recently formed and at this time does not expect to distribute any dividends. The Company recognizes forfeitures as they occur.
The assumptions used to value the Company’s options granted during the period presented and their expected lives were as follows:
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 | | 2018 |
| Weighted-average expected dividend yield | — | | — | | — | % |
| Expected volatility | 34.05% - 39.43% | | 19.52% - 20.26% | | 21.00% - 23.05% |
| Weighted-average expected volatility | 34.79 % | | 19.87 | % | | 21.86 | % |
| Weighted-average risk-free interest rate | 0.14 % | | 2.43 | % | | 3.02 | % |
| Expected life (in years) | 1 | | 7.3 | | 8.5 |
Restricted Stock Units (“RSUs”)
RSUs typically vest from 100.0 millionone to three years and are generally subject to either cliff vesting or graded vesting. RSUs do not have non-forfeitable rights to dividends or dividend equivalents. The fair value of RSUs is typically based on the fair value of our ordinary shares onfrom time to time as approved by the dateBoard of grant. We amortize the valueDirectors at a minimum purchase price of these awards to expense over the vesting period on a graded-scale basis. The Company recognizes forfeitures as they occur.
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value per Share |
| Outstanding as of December 31, 2019 | 293,182 | | | $ | 16.75 | |
| Granted | 1,918,288 | | | 22.12 | |
| Vested | (289,641) | | | 17.17 | |
| Forfeited | (111,283) | | | 21.19 | |
| Outstanding as of December 31, 2020 | 1,810,546 | | | $ | 19.30 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except$1 per share and maximum purchase price of $35per share data, option prices, ratios or as noted)
share. During the fourth quarter, as a result of divestitures and restructuring activities, there was an acceleration of 5,846 unvested RSUs, which resulted in recognition of $121 of compensation expense during the year ended December 31, 2020.
On November 12, 2020, 354,096 RSU awards were granted with a one year vesting period, which resulted in recognition of $1,300 of compensation expense during the year ended December 31, 2020.
The total fair value of RSUs that vested during the year ended December 31, 2020 and 20192023 was $4,972 and $544, respectively.
Performance Stock Units (“PSUs”)
The Company began granting PSUs (the "Original PSUs") to certain members of management on April 1, 2020 under the 2019 Incentive Award Plan. The Original PSUs typically vest over three years and are subject to performance condition with a modifier of relative TSR as compared to the S&P 500 for vesting. The fair value of the PSUs is based on the fair value of our, we repurchased 13.8 million ordinary shares on the datefor $100.0 at an average price of grant$7.22 per share. The repurchased shares were immediately retired and valued using a Monte Carlo simulation. In years one and two of the three year vesting period, it was not possible to predict the likelihood of achieving the target and therefore, the performance condition was deemed not probablerestored as authorized but unissued ordinary shares. As of December 31, 2020. Accordingly, no compensation expense was recognized for the year ended December 31, 2020.
During December2023, we had $400.0 of 2020, the Human Resources and Compensation Committee (the “HRCC”) considered the need to continue to align the interests of our named executive officers with those of Clarivate’s shareholders and to compensate our named executive officers for the significant value created for shareholders in 2020. In addition, the HRCC considered the effects of the Covid-19 pandemic on the value of the Original PSUs granted to our named executive officers earlier in 2020, which are eligible to vest based on the achievement of certain three-year financial performance metrics. In choosing the primary performance goals for the Original PSUs, the HRCC had not anticipated the Covid-19 pandemic and its impact on certain elements of performance, which significantly reduced the anticipated value of the Original PSUs.
The Company made a one-time grant of additional PSUs to certain key employees, including its named executive officers on December 17, 2020availability remaining under the 2019 Incentive Award Plan. The PSUs are eligible to vest based upon Clarivate’s three-year total shareholder returnBoard’s authorization program.
Accumulated Other Comprehensive Income (Loss) (“TSR”AOCI” or “AOCL”) as compared to the TSR of the S&P 500 for the same period (the “TSR PSUs”). The TSR PSUs cover the period from January 1, 2020 to December 31, 2022 and have a payout range of 0% to 120% of target. The TSR PSU grants vest over three years and are subject to market conditions for vesting. The probability of achieving the market conditions are incorporated into the fair value of the award, and related expense is recognized over the vesting period. The fair value of the PSUs is based on the fair value of our ordinary shares on the date of grant and valued using a Monte Carlo simulation. Accordingly, the Company recognized $178 of compensation expense for the year ended December 31, 2020. In the event that the Original PSUs vest, the TSR PSUs will be forfeited.
| | | | | | | | | | | |
| Number of Shares (1) | | Weighted
Average Grant Date Fair Value per Share |
| Outstanding as of December 31, 2019 | — | | | $ | — | |
| Granted - Original PSUs | 582,217 | | | 22.51 | |
| | | |
| | | |
| Granted - TSR PSUs | 291,108 | | | $ | 30.46 | |
| Outstanding as of December 31, 2020 | 873,325 | | | $ | 25.16 | |
(1)The tables below provide information about the changes in The PSUs numberAccumulated Other Comprehensive Income (Loss) by component and the related amounts reclassified to net earnings during the periods indicated (net of shares are at grant amount and are not reflective of the maximum shares that may ultimately be issued, if any.tax): | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate swaps | | Defined benefit pension plans | | Foreign currency translation adjustment | | Accumulated Other Comprehensive Income (Loss) |
| Balance as of December 31, 2020 | $ | (3.7) | | | $ | (0.8) | | | $ | 496.9 | | | $ | 492.4 | |
| Other comprehensive income (loss) before reclassifications | 1.9 | | | (0.6) | | | (169.9) | | | (168.6) | |
| Reclassifications from AOCI to net earnings | 2.9 | | | — | | | — | | | 2.9 | |
| Net other comprehensive income (loss) | 4.8 | | | (0.6) | | | (169.9) | | | (165.7) | |
| Balance as of December 31, 2021 | $ | 1.1 | | | $ | (1.4) | | | $ | 327.0 | | | $ | 326.7 | |
| Other comprehensive income (loss) before reclassifications | 41.1 | | | 2.9 | | | (1,032.5) | | | (988.5) | |
| Reclassifications from AOCI to net earnings | (4.1) | | | — | | | — | | | (4.1) | |
| Net other comprehensive income (loss) | 37.0 | | | 2.9 | | | (1,032.5) | | | (992.6) | |
| Balance as of December 31, 2022 | $ | 38.1 | | | $ | 1.5 | | | $ | (705.5) | | | $ | (665.9) | |
| Other comprehensive income (loss) before reclassifications | 14.9 | | | (1.1) | | | 194.2 | | | 208.0 | |
| Reclassifications from AOCL to net earnings | (36.8) | | | — | | | (0.6) | | | (37.4) | |
| Net other comprehensive income (loss) | (21.9) | | | (1.1) | | | 193.6 | | | 170.6 | |
| Balance as of December 31, 2023 | $ | 16.2 | | | $ | 0.4 | | | $ | (511.9) | | | $ | (495.3) | |
Note 11: Private Placement Warrants
In connection with the acquisition of Churchill Capital Corp consummated on May 13, 2019, the Companywe had warrants outstanding for certain individuals to purchase an aggregate of 52,800,00052.8 million ordinary shares with an exercise price of $11.50 per share, consisting of 34,500,00034.5 million public warrants and 18,300,000 Private Placement Warrants.18.3 million private placement warrants. As of December 31, 2020, no public2023, there were 17.8 million unexercised private placement warrants, were outstanding. On November 23, 2020, one individual exercisedwhich expire in May 2024.
We account for the private placement warrants for 274,000 ordinary shares throughas a cashless redemption in which 110,484 shares were withheld to coverliability that is reported at fair value on the exercise price. The net impactbalance sheet on a recurring basis. We determine the fair value of the redemption was an issuance of 163,516 shares. As of December 31, 2020, there were 18,026,000 ordinary shares outstanding for Private Placement Warrants.warrants using a Black-Scholes option valuation model; accordingly, the warrants are classified as Level 3 financial instruments within the fair value hierarchy and are subject to remeasurement at each
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
balance sheet date. The total fair value of private placement warrants represented a liability balance of $5.1 and $21.0 as of December 31, 2023 and December 31, 2022, respectively, and was classified within Accrued expenses and other current liabilities and Other non-current liabilities, respectively, in the Consolidated Balance Sheets. Any change in fair value is recognized as a fair value adjustment of warrants in the Consolidated Statements of Operations.
The following table summarizes the changes in Private Placement Warrant shares outstanding as of December 31, 2020 and December 31, 2019.
| | | | | | | | | | | | | |
| Number of Shares | | Weighted Average Fair Value per Share | | |
| Outstanding at December 31, 2018 | — | | | $ | — | | | |
| Merger Recapitalization | 18,300,000 | | | 3.51 | | | |
| Exercise of Private Placement Warrants | — | | | — | | | |
| Outstanding at December 31, 2019 | 18,300,000 | | | $ | 6.11 | | | |
| Exercise of Private Placement Warrants | (274,000) | | | 15.05 | | |
| Outstanding at December 31, 2020 | 18,026,000 | | | $ | 17.35 | | | |
2019 Transaction Related Awards
Upon consummation of the 2019 Transaction, there were 7,000,000 ordinary shares of Clarivate (the "Merger Shares") issuable if the last sale price of Clarivate’s ordinary shares is at least $20.00private placement warrants liability for 40 days over a 60 consecutive trading day period on or before the sixth anniversary of the closing of the 2019 Transaction. In accordance with the terms of the Sponsor Agreement and in connection with our merger with Churchill in 2019, the Merger Shares were issued to persons designated by Messrs. Stead and Klein. On January 31, 2020, our Board agreed to waive the performance vesting condition, and the Merger Shares became issuable on or prior to December 31, 2020 to persons designated by Messrs. Stead and Klein. We engaged a third party specialist to fair value the awards at the modification date using the Monte Carlo simulation approach. The assumptions in the model included, but were not limited to, risk-free interest rate, 1.33%; expected volatility of the Company's and its peer group's stock prices, 20.00%; and dividend yield, 0.00%. The Company has evaluated and recorded additional stock compensation expense as required upon the assignment of Merger Shares as applicable. The Merger Shares were issued as ordinary shares to persons designated by Jerre Stead and Michael Klein on June 1, 2020 as part of the June 2020 underwritten public offering. The Company recognized $13,720 of expense during the year ended December 31, 2020, in2023 and 2022:
| | | | | | | | | | | | | |
| 2023 | | 2022 | | |
| Balance as of January 1 | $ | 21.0 | | | $ | 227.8 | | | |
| Fair value adjustment of warrants | (15.9) | | | (206.8) | | | |
| Exercise of Private Placement Warrants | — | | | — | | | |
| Balance as of December 31 | $ | 5.1 | | | $ | 21.0 | | | |
Note 12: Share-based Compensation
We grant share-based awards under the Clarivate Plc 2019 Incentive Award Plan (“the Plan”). A maximum aggregate amount of 60.0 million ordinary shares are reserved for issuance under the Plan. The Plan provides for the issuance of options, share appreciation rights, restricted shares, restricted share units, and cash awards. As of December 31, 2023 and 2022, approximately 26.8 million and 29.7 million shares, respectively, of our ordinary shares were available for share-based awards.
Total share-based compensation expense as a result offor the waived performance vesting conditions.
The Sponsor Agreement provided that certain ordinary shares of Clarivate available for distribution to persons designated in the Sponsor Agreement in connection with the Transactions,years ended December 31, 2023, 2022, and certain Clarivate warrants available for distribution to such persons, in each case, were subject to certain time and performance-based vesting provisions described below.
The vesting conditions added to certain ordinary shares include2021, comprised the following:
5,309,713 ordinary shares of Clarivate held by persons designated in | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Cost of revenues | $ | 39.9 | | | $ | 36.3 | | | $ | 45.2 | |
| Selling, general and administrative costs | 69.0 | | | 65.9 | | | 93.9 | |
| Total share-based compensation expense | $ | 108.9 | | | $ | 102.2 | | | $ | 139.1 | |
Total income tax provision (benefit) recognized for stock-based compensation arrangements were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Provision (benefit) for income taxes | $ | (8.7) | | | $ | (8.3) | | | $ | (8.5) | |
Stock Options
No stock option awards have been granted to plan participants since 2019. Outstanding options were granted to plan participants at a price equal to the Sponsor Agreement, will vest in three equal annual installmentsmarket price on the first, secondgrant date, and third anniversariestheir fair value was determined using a Black-Scholes model. As of December 31, 2023 and 2022, there was no unrecognized compensation cost related to outstanding stock options.
A summary of stock option activity for the closing of the 2019 Transaction, respectively, and are not contingent on continuing or future service of the respective holders to the Company.year ended December 31, 2023, is presented below:
2,654,856 ordinary shares of Clarivate held by such persons will vest at such time as the last sale price of Clarivate’s ordinary shares is at least $15.25 on or before the date that is 42 months after the closing of the 2019 Transaction; provided that none of such Clarivate ordinary shares will vest prior to the first anniversary of the closing of the 2019 Transaction, not more than 1/3 of such Clarivate warrants will vest prior to the second anniversary of the closing of the 2019 Transaction, and not more than 2/3 of such Clarivate warrants will vest prior to the third anniversary of the closing of the 2019 Transaction. Further, such vesting is not contingent on continuing or future service of the respective holders to the Company.
2,654,856 ordinary shares of Clarivate held by such persons will vest at such time as the last sale price of Clarivate’s ordinary shares is at least $17.50 on or before the fifth anniversary of the closing of the 2019 Transaction; provided that none of such Clarivate ordinary shares will vest prior to the first anniversary of the closing of the 2019 Transaction, not more than 1/3 of such Clarivate warrants will vest prior to the second anniversary of the closing of the 2019 Transaction, and not more than 2/3 of such Clarivate warrants will vest prior to the third anniversary of the closing of the 2019 Transaction. Further, such vesting is not contingent on continuing or future service of the respective holders to the Company.
The vesting conditions added to certain warrants include the following: | | | | | | | | | | | | | | | | | | | | | | | |
| Number of
Options | | Weighted
Average Exercise
Price per Share | | Weighted-Average
Remaining
Contractual Life
(in years) | | Aggregate Intrinsic Value(1) |
| Outstanding at December 31, 2022 | 3.7 | | | $ | 13.12 | | | 3.96 | | $ | 1.2 | |
| | | | | | | |
| Exercised | (0.2) | | | 7.08 | | | — | | 0.5 | |
| Forfeited | (0.4) | | | 14.91 | | | — | | — | |
| Outstanding at December 31, 2023 | 3.1 | | | $ | 13.41 | | | 3.07 | | $ | 1.4 | |
| Vested and exercisable at December 31, 2023 | 3.1 | | | $ | 13.41 | | | 3.07 | | $ | 1.4 | |
(1) Represents the difference between the closing price of our ordinary shares on December 31, 2023 and the exercise price, multiplied by the number of in-the-money stock options as of that date. |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
17,265,826 of certain warrants held by persons designated in the Sponsor Agreement, will vest at such time as the last sale price of Clarivate’s ordinary shares is at least $17.50 on or before the fifth anniversary of the closing of the 2019 Transaction; provided that none of such Clarivate warrants will vest prior to the first anniversary of the closing of the 2019 Transaction, not more than 1/3 of such Clarivate warrants will vest prior to the second anniversary of the closing of the 2019 Transaction, and not more than 2/3 of such Clarivate warrants will vest prior to the third anniversary of the closing of the 2019 Transaction. Further, such vesting is not contingent on continuing or future service of the respective holders to the Company.
In considering the terms of the transaction related awards, the Company notes that the time based vesting restrictions were not conditioned on any continuing or future service of the holders to the Company, and reflect “lock-up” periods of the issuable shares. Further, the above mentioned performance-based restrictions were considered market conditions pursuant to ASC 718, and are contemplated in theThe total intrinsic value of stock options exercised during the awards. As suchyears ended December 31, 2023, 2022, and 2021 was approximately $0.5, $0.8, and $43.4, respectively.
Restricted Share Units (“RSUs”) and Performance Share Units (“PSUs”)
RSUs typically vest from one to three years under a graded vesting restrictions were contemplated in conjunction with the granting of the merger shares (See Note 16 - Shareholders’ Equity), the Company considered such terms of the total basket of transaction awards in determination of themethod. RSUs do not have nonforfeitable rights to dividends or dividend equivalents. The fair value of the awards. As no continued or future service was required by the holders of such awards, the Company recognized compensation expense in the second quarter of 2019RSUs is based on the fair value of such awards upon closing of the 2019 Transaction. The Company recognized $25,013 expense, net in Share-based compensation expense as ofour common shares on the date of grant.
PSUs typically either cliff vest over three years or vest ratably between three and five years. Payout percentages are based on accomplishing certain levels of growth and profitability, subsequently adjusted for our total shareholder return (“TSR”) compared to the 2019 Transaction in accordance with the issuanceTSR of the merger shares offset by the addition of vesting terms to certain ordinary shares and warrants, as described above. The expense included the increases in value of $48,102 for the granting of merger shares, the increase in value of $1,193 for ordinary shares with only time vesting conditions, and the increase in value of shares purchased by the Founders immediately prior to the transaction of $4,411, all offset by the reduction in value of $9,396 for ordinary shares with performance vesting condition of $15.25, the reduction in value of $13,101 for ordinary shares with performance vesting condition of $17.50 and the reduction in value of $6,297 related to warrants. Pursuant to the Sponsor Agreement, certain founders of Churchill Capital Corp purchased an aggregate of 1,500,000 shares of Class B ordinary stock of Churchill immediately prior to the closing of the 2019 Transaction for an aggregate purchase price of $15,000.
S&P 500. We useduse a third-party specialist to fair value the awards at the 2019 Transaction close date of May 13, 2019 using the Monte Carlo simulation approach. The assumptions included into determine the model include, but are not limitedfair value of our PSUs at grant date. Each quarter, we evaluate the likelihood that the performance criteria will be met. As the number of PSUs expected to risk-free interest rate, 2.20%;vest increases or decreases, compensation expense is also adjusted up or down to reflect the number of shares expected volatility of the Company’sto vest and the peer group’s stock prices, 20.00%;cumulative vesting period met to date.
A summary of RSU and dividend yield, 0.00%. A discountPSU activity for lack of marketability (“DLOM”) was applied to shares that are subject to remaining post vesting lock up restrictions. the year ended December 31, 2023, is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| RSUs | | RSUs Weighted
Average Grant Date Fair Value | | PSUs | | PSUs Weighted
Average Grant Date Fair Value |
| Outstanding at December 31, 2022 | 13.5 | | | $ | 13.40 | | | 2.1 | | | $ | 17.67 | |
| Granted | 6.3 | | | 10.34 | | 1.6 | | | 13.55 |
| Exercised/Vested | (7.5) | | | 13.18 | | (0.1) | | | 13.21 |
| Forfeited/Unexercised | (1.5) | | | 12.48 | | (0.8) | | | 20.87 |
| Outstanding at December 31, 2023 | 10.8 | | | $ | 11.89 | | | 2.8 | | | $ | 12.95 | |
| | | | | | | |
| Total remaining unamortized compensation costs | $ | 47.6 | | | | | $ | 13.5 | | | |
| | | | | | | |
| Weighted average remaining service period | 0.92 years | | | | 1.69 years | | |
The DLOM was between 3% - 7% dependent on the length of the post vesting restriction period.
On August 14, 2019, Clarivate (on its behalf2023, 2022, and on behalf of its subsidiaries) agreed to waive the performance and time vesting conditions, described above, subject to the consummation of the secondary offering. These shares and warrants nevertheless remain subject to a lock-up for a period ranging from two to three years following the closing of the Mergers. We used a third-party specialist to2021 weighted average grant date fair value for RSUs was $10.34, $12.14, and $23.91 and for PSUs was $13.55, $13.83, and $23.56, respectively.
For the awards atyears ended December 31, 2023, 2022, and 2021, the modification date using the Monte Carlo simulation approach. The assumptions included in the model include, but are not limited to, risk-free interest rate, 1.42%; expected volatilityfair value of the Company’sRSUs vested was $62.4, $39.9, and $25.0, respectively, and the peer group’s stock prices, 20.00%; and dividend yield, 0.00%. A (DLOM)fair value of PSUs vested was applied to shares that are subject to remaining post vesting lock up restrictions. The DLOM was between 3% - 7% dependent on the length of the post vesting restriction period.insignificant.
CPA Global Equity Plan
The acquiredIn connection with the CPA Global business had a legacy phantom equity compensation plan. Underacquisition in October 2020, an EBT was established for the CPA Global Equity Plan, there are two groups of employee participants, including a non-management employee participant group and a management participant group. The vestingPlan. Vesting for the awards was determined by reference to the respective lock-up period for the management and non-management participant group plan includes both a lock up period vesting date of October 1, 2021, and, for certain grants that were issued, an extended lock up period vesting date of October 1, 2022. The non-management employee participant group included a lock up period vesting period of October 1, 2021. Under the plan, participants who cease to be employed prior to vesting would forfeit their awards. Additionally, the vesting of awards for severed participants will accelerate and be expensed upon termination. Given thatgroups. Compensation expense associated with the awards will be settledwas recorded in cash, they are accounted for as a liability awardshare-based compensation expense, with changes in accordance with ASC 718. The liability balance is marked to marketfair value being recorded at the end of each reporting period. ExpensesThe last remaining shares were sold and the EBT was terminated during the year ended December 31, 2022. Compensation expense associated with this plan for the years ended December 31, 2022 and 2021, was $8.1 and $82.9, respectively.
Note 13: Restructuring and Other Impairments
Restructuring costs, including lease impairments
We have engaged in various restructuring programs to strengthen our business and streamline our operations, including taking actions related to the location and use of leased facilities. Our recent restructuring programs include the accelerationfollowing:
•Segment Optimization Program - During the second quarter of equity based awards for severed individuals under2023, we approved a restructuring plan to streamline operations within targeted areas of the CPA Global Equity Plan.
In connectionCompany to reduce operational costs, with the purchase accountingprimary cost savings driver being from a reduction in accordance with ASC 805, the Company performed an analysis by grant date to attribute the liability between the pre-and-post combination periods. Accordingly, the Company recorded a pre-workforce.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
combination liability•One Clarivate Program - During the second quarter of $19,478 which was offset2021, we approved a restructuring plan to goodwillstreamline operations within targeted areas of the company to reduce operational costs, with the primary cost savings driver being from a reduction in acquisition accounting. The post-combination liability is accreted overworkforce.
•ProQuest Acquisition Integration Program - During the remaining service periodsfourth quarter of 2021, we approved a restructuring plan to streamline operations within targeted areas of the company to reduce operational costs, with the primary cost savings driver being from a reduction in workforce.
•Other Restructuring Programs - During 2020 and the related share-based compensation charge is recorded within the Consolidated Statementfourth quarter of Operations.
Given the nature of the lock up periods2019, we engaged a strategic consulting firm to assist us in optimizing our structure and the retentive element to the awards for the benefit of Clarivate, post acquisition share-based compensation charges of $29,924 were recorded within the Cost of revenues and Selling, general and administrative costs line items of the Consolidated Statement of Operations. To the extent vesting of awards were accelerated for colleagues, the Company accounted for these as a modification and acceleration of share-based compensation charges of $8,543 within the Restructuring and impairment line item of the Consolidated Statement of Operations.
Additionally, there was a related adjustment to ordinary shares that were transferred from Leonard Green & Partners, L. P. to an Employee Benefit Trust established for the CPA Global Equity Plan that should have been excluded from the purchase price considerationcost base, resulting in the amountimplementation of $196,038, or 6,325,860 ordinary shares.
Note 18: Income Taxes
Income tax (benefit)/expense on income/(loss) analyzed by jurisdiction is as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2020 | | | | |
| (As Restated) | | 2019 | | 2018 |
| Current | | | | | |
| U.K. | $ | 1,288 | | | $ | 677 | | | $ | 1,014 | |
| U.S. Federal | 17,540 | | | 6,917 | | | 6,395 | |
| U.S. State | 2,861 | | | 988 | | | 2,146 | |
| Other | 15,855 | | | 9,959 | | | 11,061 | |
| Total current | 37,544 | | | 18,541 | | | 20,616 | |
| Deferred | | | | | |
| U.K. | (15,932) | | | — | | | 85 | |
| U.S. Federal | (15,020) | | | (824) | | | (5,465) | |
| U.S. State | (1,013) | | | (223) | | | (227) | |
| Other | (8,277) | | | (7,293) | | | (9,360) | |
| Total deferred | (40,242) | | | (8,340) | | | (14,967) | |
| | | | | |
| | | | | |
| Total provision (benefit) for income taxes | $ | (2,698) | | | $ | 10,201 | | | $ | 5,649 | |
|
|
The components offollowing table summarizes the pre-tax loss are as follows:charges by activity and program during the periods indicated:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Severance and Related Benefit Costs: | | | | | |
| Segment Optimization Program | 13.4 | | | — | | | — | |
| One Clarivate Program | — | | | 16.7 | | | 17.3 | |
| ProQuest Acquisition Integration Program | 16.7 | | | 22.9 | | | 1.9 | |
| Other Restructuring Programs | — | | | (0.4) | | | 38.1 | |
| Total Severance and Related Benefit Costs | $ | 30.1 | | | $ | 39.2 | | | $ | 57.3 | |
| Exit and Disposal Costs: | | | | | |
| Segment Optimization Program | — | | | — | | | — | |
| One Clarivate Program | — | | | — | | | 2.7 | |
| ProQuest Acquisition Integration Program | 0.2 | | | 2.2 | | | — | |
| Other Restructuring Programs | — | | | 1.0 | | | 8.4 | |
| Total Exit and Disposal Costs | $ | 0.2 | | | $ | 3.2 | | | $ | 11.1 | |
| Lease Abandonment Costs: | | | | | |
| Segment Optimization Program | 3.7 | | | — | | | — | |
| One Clarivate Program | — | | | — | | | — | |
| ProQuest Acquisition Integration Program | — | | | 24.3 | | | — | |
| Other Restructuring Programs | (0.1) | | | — | | | 61.1 | |
| Total Lease Abandonment Costs | $ | 3.6 | | | $ | 24.3 | | | $ | 61.1 | |
| Restructuring Costs | $ | 33.9 | | | $ | 66.7 | | | $ | 129.5 | |
The following table summarizes the pre-tax charges by program and segment during the periods indicated:
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
| | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | |
| 2020 | | 2019 | | | | |
| (As Restated) | | 2018 | | |
| U.K. loss | $ | (347,158) | | | $ | (246,688) | | | $ | (222,043) | | | |
| U.S. income (loss) | (47,198) | | | 3,733 | | | (11,880) | | | |
| Other loss | 41,033 | | | (5,477) | | | (2,590) | | | |
| Pre-tax loss | $ | (353,323) | | | $ | (248,432) | | | $ | (236,513) | | | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Academia & Government: | | | | | |
| One Clarivate Program | — | | | 9.3 | | | 7.0 | |
| ProQuest Acquisition Integration Program | 9.1 | | | 26.5 | | | 0.7 | |
| Segment Optimization | 4.8 | | | — | | | — | |
| Other Restructuring Programs | (0.1) | | | 0.4 | | | 24.9 | |
| Total Academia & Government | $ | 13.8 | | | $ | 36.2 | | | $ | 32.6 | |
| Intellectual Property: | | | | | |
| One Clarivate Program | — | | | 4.4 | | | 9.1 | |
| ProQuest Acquisition Integration Program | 4.6 | | | 15.3 | | | 0.8 | |
| Segment Optimization | 4.6 | | | — | | | — | |
| Other Restructuring Programs | — | | | 0.2 | | | 58.8 | |
| Total Intellectual Property | $ | 9.2 | | | $ | 19.9 | | | $ | 68.7 | |
| Life Sciences & Healthcare: | | | | | |
| One Clarivate Program | — | | | 3.0 | | | 3.9 | |
| ProQuest Acquisition Integration Program | 3.2 | | | 7.6 | | | 0.4 | |
| Segment Optimization | 7.7 | | | — | | | — | |
| Other Restructuring Programs | — | | | — | | | 23.9 | |
| Total Life Sciences & Healthcare | $ | 10.9 | | | $ | 10.6 | | | $ | 28.2 | |
| Restructuring Costs | $ | 33.9 | | | $ | 66.7 | | | $ | 129.5 | |
The table below summarizes the activity related to the restructuring reserves across each of our cost-saving programs during the periods indicated: | | | | | | | | | | | | | | | | | |
| Severance and Related Benefit Costs | | Exit, Disposal, and Abandonment Costs | | Total |
| Reserve Balance as of December 31, 2021 | $ | 28.3 | | | $ | 0.7 | | | $ | 29.0 | |
| Expenses recorded | 39.2 | | | 27.5 | | | 66.7 | |
| Payments made | (51.5) | | | (3.5) | | | (55.0) | |
Noncash items(1) | (4.5) | | | (24.6) | | | (29.1) | |
| Reserve Balance as of December 31, 2022 | $ | 11.5 | | | $ | 0.1 | | | $ | 11.6 | |
| Expenses recorded | 30.1 | | | 3.8 | | | 33.9 | |
| Payments made | (29.9) | | | (2.5) | | | (32.4) | |
| Noncash items | (5.8) | | | — | | | (5.8) | |
| Reserve Balance as of December 31, 2023 | $ | 5.9 | | | $ | 1.4 | | | $ | 7.3 | |
(1) For the year ended December 31, 2022, noncash items primarily represent non-cash adjustments related to operating and finance lease abandonments of $23.6 based on the estimate of future recoverable cash flows. |
Other impairments
In the fourth quarter of 2023, we recorded a charge of approximately $6.1 related to the impairment of two equity investments, both of which are now fully impaired.
Note 14: Income Taxes
Provision (benefit) for income taxes analyzed by jurisdiction was as follows:
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In millions or as otherwise noted)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Current | | | | | |
| U.K. | $ | (1.2) | | | $ | 9.7 | | | $ | 4.4 | |
| U.S. Federal | 14.5 | | | (1.1) | | | 4.8 | |
| U.S. State | 4.4 | | | 2.8 | | | 0.3 | |
| Other | (40.8) | | | 25.4 | | | 20.2 | |
| Total current | (23.1) | | | 36.8 | | | 29.7 | |
| Deferred | | | | | |
| U.K. | (0.4) | | | 2.2 | | | (8.3) | |
| U.S. Federal | (30.5) | | | (56.0) | | | 6.0 | |
| U.S. State | (4.4) | | | (3.8) | | | (2.8) | |
| Other | (42.9) | | | (8.1) | | | (12.3) | |
| Total deferred | (78.2) | | | (65.7) | | | (17.4) | |
| | | | | |
| | | | | |
| Provision (benefit) for income taxes | $ | (101.3) | | | $ | (28.9) | | | $ | 12.3 | |
|
The components of Income (loss) before income tax are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| U.K. income (loss) | $ | (180.1) | | | $ | 174.7 | | | $ | (13.1) | |
| U.S. income (loss) | (477.9) | | | (3,721.5) | | | (284.9) | |
| Other income (loss) | (354.5) | | | (442.3) | | | 39.8 | |
| Income (loss) before income tax | $ | (1,012.5) | | | $ | (3,989.1) | | | $ | (258.2) | |
A reconciliation of the statutory U.K. income tax rate to the Company’s effective tax rate is as follows:
| | Year ended December 31, | |
| 2020 | | 2019 | | |
| As Restated | | 2018 | |
| Loss before tax: | $ | (353,323) | | | $ | (248,432) | | | $ | (236,513) | | |
| Income tax (benefit) provision | (2,698) | | | 10,201 | | 5,649 | | |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Income (loss) before income tax | |
| Provision (benefit) for income taxes | |
| | Statutory rate | Statutory rate | 19.0 | % | | 19.0 | % | | 19.0 | % | |
| Statutory rate | |
| Statutory rate | | 23.5 | % | | 19.0 | % | | 19.0 | % |
| | Effect of different tax rates | |
| Effect of different tax rates | |
| Effect of different tax rates | Effect of different tax rates | 1.8 | % | | (4.0) | % | | (1.2) | % | | — | % | | 1.5 | % | | 3.2 | % |
| BEAT | BEAT | (1.9) | % | | (0.9) | % | | — | % | | BEAT | (0.7) | % | | (0.2) | % | | (3.8) | % |
| Valuation Allowances | (21.1) | % | | (17.6) | % | | (18.0) | % | |
| Tax rate modifications | | Tax rate modifications | — | % | | — | % | | 17.4 | % |
| Valuation allowances | | Valuation allowances | (4.4) | % | | (15.2) | % | | (39.0) | % |
| Share-based compensation | Share-based compensation | 6.6 | % | | (0.2) | % | | (0.3) | % | | Share-based compensation | (1.3) | % | | (0.2) | % | | (2.7) | % |
| Other permanent differences | Other permanent differences | (1.9) | % | | (0.9) | % | | (0.4) | % | | Other permanent differences | (0.6) | % | | — | % | | 2.3 | % |
| Non-deductible transaction costs | Non-deductible transaction costs | (1.4) | % | | (1.7) | % | | — | % | | Non-deductible transaction costs | — | % | | — | % | | (0.8) | % |
| | Withholding tax | Withholding tax | (0.2) | % | | (0.5) | % | | (0.2) | % | |
| Tax indemnity | — | % | | 3.0 | % | | (2.7) | % | |
| Sale of Subsidiary | — | % | | — | % | | 2.2 | % | |
| Withholding tax | |
| Withholding tax | | (0.5) | % | | — | % | | (0.4) | % |
| Uncertain tax positions | | Uncertain tax positions | 7.0 | % | | 0.4 | % | | (0.5) | % |
| Outside basis difference in foreign subsidiary | | Outside basis difference in foreign subsidiary | 2.1 | % | | (0.1) | % | | (0.4) | % |
| Impairments | | Impairments | (15.4) | % | | (6.0) | % | | — | % |
| Tax exempt gain | | Tax exempt gain | — | % | | 1.3 | % | | — | % |
| Other | Other | (0.1) | % | | (0.2) | % | | (0.8) | % | | Other | 0.3 | % | | 0.2 | % | | 0.9 | % |
| Effective rate | 0.8 | % | | (4.1) | % | | (2.4) | % | |
| Effective tax rate | | Effective tax rate | 10.0 | % | | 0.7 | % | | (4.8) | % |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
The primary components of the income tax benefit for the year ended December 31, 2023, is the recognition of $(21.2) of net tax (benefit) due to release of valuation allowance recorded against certain U.S. federal and state tax attributes. This release of valuation allowance is netted against the overall increase in the valuation allowance due to current year losses in various jurisdictions reflected in the Deferred Tax Valuation Allowance table below. In addition, we recognized a $(70.4) net tax (benefit) on the settlement of an open tax dispute; the tax benefit is inclusive of indirect tax impacts, interest, and penalties.
The primary component of the income tax benefit for the year ended December 31, 2022, is the recognition of $(63.2) of net tax (benefit) due to the release of valuation allowance associated with an internal legal entity restructuring. This release of valuation allowance is netted against the overall increase in the valuation allowance due to current year losses in various jurisdictions, inclusive of the impacts of impairments, reflected in the Deferred Tax Valuation Allowance table below.
The tax effects of the significant components of temporary differences giving rise to the Company’sour deferred income tax assets and liabilities are as follows:
| | December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| Accounts receivable | |
| Accrued expenses | |
| Deferred revenue | |
| Partnerships outside basis difference | |
| Other assets | |
| | Debt issuance costs | |
| | Debt issuance costs | |
| | Debt issuance costs | |
| Lease liabilities | |
| Goodwill | |
| Operating losses and tax attributes | |
| Total deferred tax assets | |
| Valuation Allowances | |
| Net deferred tax assets | |
| | | Year ended December 31, |
| | 2020 | | 2019 |
| | As Originally Reported | Adjustment Amendment No. 1 | Adjustment Amendment No. 2 | As Restated | | As Originally Reported | Adjustment Amendment No. 1 | As Restated |
| Accounts receivable | $ | 1,564 | | $ | — | | $ | (14) | | $ | 1,550 | | | $ | 1,346 | | $ | — | | $ | 1,346 | |
| Accrued expenses | 4,271 | | — | | (193) | | 4,078 | | | 4,461 | | — | | 4,461 | |
| Deferred revenue | 12,020 | | — | | (64) | | 11,956 | | | 2,679 | | — | | 2,679 | |
| Other assets | 11,230 | | — | | 3,331 | | 14,561 | | | 5,721 | | — | | 5,721 | |
| Unrealized gain/loss | 208 | | — | | — | | 208 | | | 94 | | — | | 94 | |
| Fixed assets, net | 6,298 | | — | | (62) | | 6,237 | | | — | | — | | — | |
| Debt issuance costs | 14,879 | | — | | — | | 14,879 | | | 3,176 | | — | | 3,176 | |
| Goodwill | 125,880 | | — | | (2,705) | | 123,175 | | | — | | — | | — | |
| Operating losses and tax attributes | 355,334 | | 4,946 | | 8,390 | | 368,670 | | | 177,853 | | 8,102 | | 185,955 | |
| Total deferred tax assets | 531,684 | | 4,946 | | 8,684 | | 545,314 | | | 195,330 | | 8,102 | | 203,432 | |
| Valuation allowances | (354,409) | | (4,946) | | (8,607) | | (367,962) | | | (165,157) | | (8,102) | | (173,259) | |
| Net deferred tax assets | 177,275 | | — | | 77 | | 177,352 | | | 30,173 | | — | | 30,173 | |
| Other identifiable intangible assets, net | |
| | Other identifiable intangible assets, net | |
| | | Other identifiable intangible assets, net | Other identifiable intangible assets, net | (437,540) | | — | | (4,735) | | (442,275) | | | (32,834) | | — | | (32,834) | |
| Other liabilities | Other liabilities | (72,210) | | — | | — | | (72,210) | | | (21,012) | | — | | (21,012) | |
| Goodwill | — | | — | | — | | — | | | (4,233) | | — | | (4,233) | |
| | Right-of-use assets | |
| Right-of-use assets | |
| Right-of-use assets | |
| | Fixed assets, net | |
| Fixed assets, net | |
| Fixed assets, net | Fixed assets, net | — | | — | | — | | — | | | (1,153) | | — | | (1,153) | |
| Total deferred tax liabilities | Total deferred tax liabilities | (509,750) | | — | | (4,735) | | (514,485) | | | (59,232) | | — | | (59,232) | |
| Net deferred tax liabilities | Net deferred tax liabilities | $ | (332,475) | | $ | — | | $ | (4,658) | | $ | (337,133) | | | $ | (29,059) | | $ | — | | $ | (29,059) | |
|
In the Consolidated Balance Sheets, deferred tax assets and liabilities are shown net if they are in the same jurisdiction. The components of the net deferred tax liabilities as reported on the Consolidated Balance Sheets are as follows:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| Deferred tax asset | $ | 29,863 | | | $ | 19,488 | |
| Deferred tax liability | (366,996) | | | (48,547) | |
| Net deferred tax liability | $ | (337,133) | | | $ | (29,059) | |
The Tax Cuts and Jobs Act (the Act) was enacted in the US on December 22, 2017. Of most relevance to the Company, the Act reduced the US federal corporate income tax rate to 21% from 35%, established a Base Erosion Anti-Abuse Tax (“BEAT”) regime and changed the provisions limiting current interest deductions and use of NOL carryforwards. Certain new provisions are effective for the Company beginning December 1, 2018 and did not have a material impact to the 2018 financial statements. | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| Deferred tax asset | $ | 46.7 | | | $ | 24.2 | |
| Deferred tax liability | (249.6) | | | (316.1) | |
| Net deferred tax liability | $ | (202.9) | | | $ | (291.9) | |
Deferred Tax Assets and Liabilities
As of December 31, 2017, we remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future (which was generally 21% for the US and 25% for Belgium), by recording a tax benefit amount of $2,237 (provisional) related to the US and $14,290 related to Belgium. Upon further analysis and refinement of
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
our calculations during the 12 months ended December 31, 2018, it was determined that no adjustment to these amounts was necessary.
The Company isWe are required to assess the realization of itsour deferred tax assets and the need for a valuation allowance. The assessment requires judgment on the part of management with respect to benefits that could be realized from future taxable income. The valuation allowance is $367,962was $1,256.6 and $173,259 at$1,179.3 as of December 31, 20202023 and 2019,2022, respectively, against certain deferred tax assets, as it more likely than not that such amounts will not be fully realized. During the years ended December 31, 20202023 and 2019,2022, the valuation allowance increased by $194,703$77.3 and $39,403,$632.5, respectively.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In millions or as otherwise noted)
As of December 31, 2020, the Company2023, we had U.S. federal tax loss carryforwards of $609,603,$1,485.4, U.K. tax loss carryforwards of $519,968,$465.9, U.S. state tax loss carryforwards of $450,522,$706.2, Japan tax loss carryforwards of $67,281,$46.2, and tax loss carryforwards in other foreign jurisdictions of $132,983, respectively. The majority of the unrecognized tax loss carryforwards relate to UK and U.S.$136.8. The carryforward period for USU.S. federal tax losses is twenty years for losses generated in tax years ended prior to December 31, 2017. The expiration period for these losses begins in 2036. For USU.S. losses generated in tax years beginning after January 1, 2018, the carryforward period is indefinite. The carryforward period for the U.K. tax losses is indefinite. The carryforward period for USU.S. state losses varies, and the expiration period is between 20202024 and 2039.2043. The carryforward period for the Japan tax losses is nine years, and the expiration period begins in 2025. The carryforward period of other losses varies by jurisdiction. As of December 31, 2023, we also had R&D and other tax credit carryforwards of $17.4 that have various carryforward periods, and the expiration period begins in 2027.
The Company has notWe have provided income taxes and withholding taxes in the amount of $13.2 on the undistributed earnings of foreign subsidiaries as of December 31, 2020 because the Company has determined that the amount of such taxes would not be significant. The Company is2023. In general, we are not permanently reinvesting itsour foreign earnings offshore.
Deferred Tax Valuation Allowance
The following table shows the change in the deferred tax valuation as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | |
| 2020 | | 2019 | | | | |
| As Originally Reported | | Restatement Impact Amendment No 1. | | Restatement Impact Amendment No. 2 | | As Restated | | As Originally Reported | | Restatement Impact | | As Restated | | 2018 | | |
| Beginning Balance, January 1 | $ | 165,157 | | | $ | 8,102 | | | $ | — | | | $ | 173,259 | | | $ | 133,856 | | | $ | — | | | $ | 133,856 | | | $ | 92,944 | | | |
| Change Charged to Expense/(Income) | 49,984 | | | (3,156) | | | 5,283 | | | 52,111 | | | 30,854 | | | 8,102 | | | 38,956 | | | 41,629 | | | |
| Change Charged to CTA | 1,667 | | | — | | | 120 | | | 1,787 | | | 447 | | | — | | | 447 | | | 381 | | | |
| Change Charged to OCI | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,098) | | | |
| Change Charged to Goodwill | 137,601 | | | — | | | 3,204 | | | 140,805 | | | — | | | — | | | — | | | — | | | |
| Ending Balance, December 31 | $ | 354,409 | | | $ | 4,946 | | | $ | 8,607 | | | $ | 367,962 | | | $ | 165,157 | | | $ | 8,102 | | | $ | 173,259 | | | $ | 133,856 | | | |
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 | | 2021 |
| Beginning balance, January 1 | $ | 1,179.3 | | | $ | 546.8 | | | $ | 368.0 | |
| Change charged to expense/(income) | 51.4 | | | 657.5 | | | 100.7 | |
| Change charged to CTA | 25.9 | | | (17.0) | | | (4.7) | |
| | | | | |
| | | | | |
| Change charged to goodwill | — | | | (8.0) | | | 82.8 | |
| Ending balance, December 31 | $ | 1,256.6 | | | $ | 1,179.3 | | | $ | 546.8 | |
Uncertain Tax Positions
Unrecognized tax benefits represent the difference between the tax benefits that the Company iswe are able to recognize for financial reporting purposes and the tax benefits that have been recognized or expect to be recognized in filed tax returns. The total amount of net unrecognized tax benefits that, if recognized, would impact the Company'sour effective tax rate were $13,721$26.0 and $1,145$83.8 as of December 31, 20202023 and 2019,2022, respectively. As a result of the acquisition of CPA Global, a reserve of $12,098 has been recorded as part of the acquisition accounting related to positions taken in prior tax years by CPA Global.
The Company recognizesWe recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of December 31, 2020,2023 and 2022, the interestamount accrued was $2.6 and $25.8, respectively. Interest and penalties recognized for the years ended December 31, 2023, 2022, and 2021 were $(23.2), $3.0, and $(0.1). We are $5,454unable to estimate the range of the reasonably possible changes to our uncertain tax positions within the next twelve months.
We file income tax returns in the U.K., the U.S., and asvarious other jurisdictions. As of December 31, 2019,2023, our open tax years subject to examination were 2016 through 2023, which includes the interestmajor jurisdictions in the U.K. and penalties are $354. It is reasonably possible that the amount ofU.S.
The following table summarizes our unrecognized tax benefits, will change during the next 12 months by approximately $16,500.excluding interest and penalties:
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 | | 2021 |
| Beginning balance, January 1 | $ | 83.8 | | | $ | 100.2 | | | $ | 13.7 | |
| Increases for tax positions taken in prior years | 1.1 | | | 2.9 | | | — | |
| Increases for tax positions taken in the current year | 1.6 | | | 1.5 | | | 5.0 | |
| | | | | |
| Increases for acquisitions (recorded against goodwill) | — | | | 1.4 | | | 70.8 | |
| Increases for return to provisions | — | | | — | | | 11.0 | |
| Decreases for tax positions taken in prior years | (54.1) | | | (19.3) | | | — | |
| Decreases related to settlements with taxing authorities | (6.2) | | | — | | | — | |
| Decreases due to statute expirations | (0.2) | | | (2.9) | | | (0.3) | |
| | | | | |
| Ending balance, December 31 | $ | 26.0 | | | $ | 83.8 | | | $ | 100.2 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as noted)
The Company files income tax returns in the United Kingdom, the United States and various other jurisdictions. As of December 31, 2020, the Company’s open tax years subject to examination were 2015 through 2020, which includes the Company’s major jurisdictions in the United Kingdom and the United States.
The following table summarizes the Company’s unrecognized tax benefits, excluding interest and penalties:
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 | | 2018 |
| Balance at the Beginning of the year | $ | 1,145 | | | $ | 1,450 | | | $ | 91 | |
| Increases for tax positions taken in prior years | 12,098 | | | — | | | 1,339 | |
| | | | | |
| Increases for tax positions taken in the current year | 518 | | | 412 | | | 72 | |
| | | | | |
| | | | | |
| Decreases due to statute expirations | (40) | | | — | | | (52) | |
| Decrease due to payment | — | | | (717) | | | — | |
| Balance at the End of the year | $ | 13,721 | | | $ | 1,145 | | | $ | 1,450 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or asotherwise noted)
Note 19:15: Earnings Per Share
The basic and diluted EPS computations for our ordinary shares are calculated as follows: | | | | | | | | | | | | | | | | | |
| | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Basic EPS | | | | | |
| Net income (loss) available to ordinary shareholders | $ | (911.2) | | | $ | (3,960.2) | | | $ | (270.5) | |
| Dividends on preferred shares | 75.4 | | | 75.4 | | | 41.5 | |
| Net income (loss) attributable to ordinary shares | $ | (986.6) | | | $ | (4,035.6) | | | $ | (312.0) | |
| | | | | |
| Basic weighted-average number of ordinary shares outstanding | 671.6 | | | 676.1 | | | 631.0 | |
| Basic EPS | $ | (1.47) | | | $ | (5.97) | | | $ | (0.49) | |
| | | | | |
| Diluted EPS | | | | | |
| Net income (loss) attributable to ordinary shares | $ | (986.6) | | | $ | (4,035.6) | | | $ | (312.0) | |
| Change in fair value of private placement warrants | — | | | (197.6) | | | (81.3) | |
| Net income (loss) attributable to ordinary shares, diluted | $ | (986.6) | | | $ | (4,233.2) | | | $ | (393.3) | |
| | | | | |
| | | | | |
| Shares used in computing net income (loss) attributable to per share to ordinary shareholders, basic | 671.6 | | | 676.1 | | | 631.0 | |
| Weighted-average effect of potentially dilutive shares to purchase ordinary shares | — | | | 2.5 | | | 9.8 | |
| Diluted weighted-average number of ordinary shares outstanding | 671.6 | | | 678.6 | | | 640.8 | |
| Diluted EPS | $ | (1.47) | | | $ | (6.24) | | | $ | (0.61) | |
Potential ordinary shares on a gross basis of 32,966,127, 80,873,293,32.7 million, 11.0 million, and 24,524,698 of Private Placement Warrants, DRG Transaction Shares,9.6 million options, RSUs, PSUs, and PSUs related to the 2019 Incentive Award PlanWarrants were excluded from diluted EPS for the year ended December 31, 2020, 20192023, 2022, and 2018,2021, respectively, as the Company had a net loss and their inclusion would have been anti-dilutive or their performance metric was not met. PotentialFor additional information, see Note 11 - Private Placement Warrants and Note 12 - Share-based Compensation.
The potential dilutive effect of our MCPS outstanding during the period was calculated using the if-converted method assuming the conversion as of the earliest period reported or at the date of issuance, if later. The resulting weighted-average ordinary shares of 32,966,12755.3 million related to Private Placement Warrants, Public Warrants, Merger Shares and options related toour MCPS are not included in the 2019 Incentive Award Plan were excluded from diluted EPSdilutive weighted-average ordinary shares outstanding calculation for the year ended December 31, 2020,2023, as their effect would be anti-dilutive. For additional information about our MCPS, see Note 10 - Shareholders' Equity.
Note 16: Segment Information
Operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by the Company hadchief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. As discussed in Note 1 - Nature of Operations and Summary of Significant Accounting Policies, we have three reportable operating segments: Academia & Government (“A&G”), Intellectual Property (“IP”), and Life Sciences & Healthcare (“LS&H”). An overview of our segment structure, organized based on the products we offer and the markets they serve is as follows:
•A&G: Helps customers educate the world by advancing research excellence and student success to accelerate real-world outcomes. We help academic and government institutions advance knowledge to build a net lossbetter world. Within the A&G segment, we provide Research and Analytics, Content Aggregation, and Workflow Software solutions.
•IP: Enables organizations worldwide to unlock innovation, establish strong brands, and effectively protect critical IP assets through our trusted IP data, software, and expertise. We help customers establish, protect, and manage their inclusion would have been anti-dilutive or their performance metric was not met. See Note 16 - Shareholders’ Equityintellectual property. Within the IP segment, we provide IP Maintenance, IP Intelligence, and Note 17 - Employment and Compensation Arrangements for a description.
The 2019 Transaction was accounted for as a reverse recapitalization in accordance with U.S. GAAP. See Note 4 - Business Combinations. Accordingly, weighted-average shares outstanding for purposes of the EPS calculation have been retroactively recasted as shares reflecting the exchange ratio established in the 2019 Transaction (1.0 Jersey share to 132.13667 Clarivate shares).
The basic and diluted EPS computations, as restated, for our ordinary stock are calculated as follows (in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| As Restated | | |
| 2020 | | 2019 | | 2018 |
| Basic/Diluted EPS | | | | | |
| | | | | |
| | | | | |
| Income (loss) available to ordinary stockholders | $ | (350,625) | | | $ | (258,633) | | | $ | (242,162) | |
| | | | | |
| Basic and diluted weighted-average number of ordinary shares outstanding | 427,023,558 | | | 273,883,342 | | | 217,472,870 | |
| | | | | |
| | | | | |
| | | | | |
| Basic and diluted EPS | $ | (0.82) | | | $ | (0.94) | | | $ | (1.11) | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
Note 20: Other Operating Income, Net
Other operating income, net, consistedLS&H: Empowers customers to deliver treatments that improve patient lives and create a healthier tomorrow. Our intelligence solutions, transformative data, and technology equip our customers with the insight and foresight needed across all of their initiatives from early-stage drug discovery right through commercialization and beyond. Within the following for the years ended December 31, 2020, 2019,LS&H segment, we provide Research and 2018:
| | | | | | | | | | | | | | | | | |
| | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
Net gain on sale of business and other assets (1) | $ | 28,140 | | | $ | — | | | $ | 36,072 | |
Tax indemnity asset (2) | — | | | — | | | (33,819) | |
| Net foreign exchange gain (loss) | 19,771 | | | (191) | | | 3,574 | |
| Miscellaneous income, net | 4,470 | | | 5,017 | | | 552 | |
| Other operating income, net | $ | 52,381 | | | $ | 4,826 | | | $ | 6,379 | |
(1) Includes the net gain on sale of Techstreet in 2020 and gain on sale of IPM Product Line in 2018.
(2) Reflects the write down of a tax indemnity asset.
Note 21: Tax Receivable Agreement
At the completion of the 2019 Transaction, we recorded an initial liability of $264,600 payable to the pre-business combination equity holders under the TRA, representing approximately 85% of the calculated tax savings based on the portion of the Covered Tax Assets we anticipate being able to utilize in future years. Based on current projections of taxable income, and before deduction of any specially allocated depreciation and amortization, we anticipated having enough taxable income to utilize a significant portion of these specially allocated deductions related to the original Covered Tax Assets (as defined in the TRA). Total payments related to the TRA could be up to a maximum of $507,326 if all Covered Tax Assets are utilized. TRA payments were expected to commence in 2021 (with respect to taxable periods ending in 2019) and would have been subject to deferral, at the Company’s election, for payment amounts in excess of $30,000 for payments to be made in 2021 and 2022, but would not be subject to deferral thereafter.
The projection of future taxable income involves significant judgment. Actual taxable income may differ from our estimates, which could significantly impact the liability under the TRA. We have determined it is more-likely-than-not we will be unable to utilize all of our deferred tax assets (“DTAs”) subject to the TRA; therefore, we have not recorded a liability under the TRA related to the tax savings we may realize from the utilization of NOL carryforwards and the amortization related to basis adjustments created by the Transaction. If utilization of these DTAs becomes more-likely-than-not in the future, at such time, we will record liabilities under the TRA of up to an additional $134,377 as a result of basis adjustments under the Internal Revenue Code and up to an additional $108,350 related to the utilization of NOL and credit carryforwards, which will be recorded through charges to our statements of operations. However, if the tax attributes are not utilized in future years, it is possible no amounts would be paid under the TRA. In this scenario, the reduction of the liability under the TRA would result in a benefit to our statements of operations.
On August 21, 2019, the Company entered into a Buyout Agreement among the Company and Onex Partners IV LP (“TRA Buyout Agreement”), pursuant to which all future payment obligations of the Company under the Tax Receivable Agreement would terminate in exchange for a payment of $200,000 (the “TRA Termination Payment”), which the Company paid on November 7, 2019 with a portion of the net proceeds from the Refinancing 2019 Transaction. As a result of the payment, a gain was recorded to shareholders equity of $64,600. As of December 31, 2020, our liability under the TRA was $0.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 22: Segment Information
TheOur Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”). Prior to the fourth quarter of 2020, the Company’s CODM previously assessed the Company-wide performance and allocated resources based on consolidated financial information. During the four quarter of 2020, in connection with the CPA Global combination, the company realigned its reporting structure and changed the manner in whichidentified as the CODM, allocates resources and assesses performance. The CODM organizes the Company within products lines and, as a result, 2 new operating segments were created including the Science Group and Intellectual Property Group. The segment reporting changes were retrospectively applied to all periods presented. The CODMwho evaluates segment performance based primarily on revenuesegment revenues and segment Adjusted EBITDA,EBITDA. We use the same accounting policies for our segments as those described below.in Note 1 - Nature of Operations and Summary of Significant Accounting Policies. For disaggregated revenues by type and by geographic region, see Note 3 - Revenues. The CODM does not review assets by operating segment for the purposespurpose of assessing performance or allocatedallocating resources.
Each of the Company’s reportable segments, Science Group and Intellectual Property Group, recognizes revenue in accordance with the revenue recognition policy within Note 3 - Summary of Significant Accounting Policies. No single customer accounted for more than 1% of revenues and our ten largest customers represented only 6%, 5%, and 6% of revenues for the years ended December 31, 2020, 2019, and 2018, respectively. Below is the overview of the solutions offered within each reportable segment.
Science: The Science segment consists of the Web of Science and Life Science Product Lines. Both provide curated, high-value, structured information that is delivered and embedded into the workflows of our customers, which include research-intensive corporations, life science organizations and universities world-wide.
Intellectual Property: The Intellectual Property segment consists of the Derwent, CompuMark, MarkMonitor and CPA Global Product Lines. These Product Lines help manage customer’s end-to-end portfolio of intellectual property from patents to trademarks to corporate website domains.
Each of the two operating segments represent the segments for which discrete financial information is available and upon which operation results are regularly evaluated by the CODM in order to assess performance and allocate resources. The CODM evaluates performance based primarily on revenue and segment Adjusted EBITDA. Adjusted EBITDA represents netNet income (loss) income before provisionthe Provision (benefit) for income taxes, depreciationDepreciation and amortization, interest income and Interest expense, net, adjusted to exclude acquisition and/or disposal-related transaction costs, (such costs include net income from continuing operations before provision for income taxes, depreciation and amortization and interest income and expense from divestitures), losses on extinguishment of debt, share-based compensation, MCPS dividend expense, unrealized foreign currency gains/(losses), costs associated with the transition services agreement with Thomson Reuters, separation and integration costs, transformational andlosses, restructuring expenses, acquisition-related adjustments to deferred revenues, costs related to our merger with Churchill Capital Corp in 2019, non-cash income/(loss) on equity and cost method investments, non-operating income and/or expense, the impact of certain non-cash fair value adjustments on financial instruments, legal settlements, impairments, and other items that are included in netNet income (loss) for the period that the Company doeswe do not consider indicative of itsour ongoing operating performance and certain unusual items impacting results in a particular period.performance.
The following table summarizes revenuerevenues by reportable segment for the periods indicated:
| | | | | | | | | | | | | | | | | |
| Year ended December 31,
|
| 2020 | | 2019 | | 2018 |
| Science Segment | $ | 736,765 | | | $ | 547,542 | | | $ | 526,164 | |
Intellectual Property Segment (1) | 517,282 | | | 426,803 | | | 442,304 | |
| Total Revenues | $ | 1,254,047 | | | $ | 974,345 | | | $ | 968,468 | |
(1) The year ended December 31, 2018 includes revenue of $20,450 generated by the IPM Product Line. We sold the IPM Product Line in October 2018.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Academia & Government | $ | 1,323.3 | | | $ | 1,280.1 | | | $ | 489.4 | |
| Intellectual Property | 862.7 | | | 927.1 | | | 974.3 | |
| Life Sciences & Healthcare | 442.8 | | | 452.6 | | | 413.2 | |
| Total Revenues, net | $ | 2,628.8 | | | $ | 2,659.8 | | | $ | 1,876.9 | |
Adjusted EBITDA by segment
The following table presents segment profitability and a reconciliation to netNet income (loss) for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | As Restated | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Science Segment Adjusted EBITDA | $ | 344,000 | | | $ | 240,602 | | | $ | 227,709 | |
| Intellectual Property Segment Adjusted EBITDA | 142,600 | | | 53,463 | | | 45,152 |
| Total Adjusted EBITDA | $ | 486,600 | | | $ | 294,065 | | | $ | 272,861 | |
| Benefit (provision) for income taxes | 2,698 | | | (10,201) | | | (5,649) | |
| Depreciation and amortization | (303,150) | | | (200,542) | | | (237,225) | |
| Interest, net | (111,914) | | | (157,689) | | | (130,805) | |
| Transition services agreement costs | (650) | | | (10,481) | | | (55,764) | |
| Mark to market on financial instruments | (205,062) | | | (47,656) | | | — | |
| Transition, transformation and integration expense | (3,440) | | | (24,372) | | | (69,185) | |
| Deferred revenues adjustment | (23,101) | | | (438) | | | (3,152) | |
| Transaction related costs | (99,286) | | | (46,214) | | | (2,457) | |
| Share-based compensation expense | (70,472) | | | (51,383) | | | (13,715) | |
Gain on sale of assets1 | 28,140 | | | — | | | 36,072 | |
| Tax indemnity asset | — | | | — | | | (33,819) | |
| IPM adjusted operating margin | — | | | — | | | 5,897 | |
| Restructuring | (56,138) | | | (15,670) | | | — | |
| Legal Settlement | — | | | 39,399 | | | — | |
| Impairment on assets held for sale | — | | | (18,431) | | | — | |
| Other | 5,150 | | | (9,020) | | | (5,221) | |
| Net income attributable to Clarivate | $ | (350,625) | | | $ | (258,633) | | | $ | (242,162) | |
(1) Represents a gain on the sale of the Techstreet for the year ended December 31, 2020. Represents a gain on the sale of the IPM Product Line for the year ended December 31, 2018.
Consolidated Revenue and Long-Lived Assets Information by Geographic Area
Revenues recognized in the U.S. represented 45%, 43%, and 37% of revenues for the years ended December 31, 2020, 2019, and 2018, respectively and no other country accounted for more than 10% of revenues.
Revenue by Geography
The following table summarizes revenue from external customers by geography, which is based on the location of the customer:
| | | | | | | | | | | | | | | | | |
| Year ended December 31,
|
| Revenue: | 2020 | | 2019 | | 2018 |
| Americas | $ | 631,222 | | | $ | 463,041 | | | $ | 475,897 | |
| Europe/Middle East/Africa | 365,599 | | | 278,738 | | | 273,744 | |
| APAC | 280,327 | | | 233,004 | | | 221,979 | |
| Deferred revenues adjustment | (23,101) | | | (438) | | | (3,152) | |
| Total | $ | 1,254,047 | | | $ | 974,345 | | | $ | 968,468 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Academia & Government | $ | 558.5 | | | $ | 485.5 | | | $ | 258.8 | |
| Intellectual Property | 400.4 | | | 443.0 | | | 397.9 | |
| Life Sciences & Healthcare | 158.3 | | | 184.2 | | | 143.7 | |
| Total Adjusted EBITDA | $ | 1,117.2 | | | $ | 1,112.7 | | | $ | 800.4 | |
| Provision (benefit) for income taxes | 101.3 | | | 28.9 | | | (12.3) | |
| Depreciation and amortization | (708.3) | | | (710.5) | | | (537.8) | |
| Interest expense, net | (293.7) | | | (270.3) | | | (252.5) | |
| Fair value adjustment of warrants | 15.9 | | | 206.8 | | | 81.3 | |
| | | | | |
Transaction related costs(1) | (8.2) | | | (14.2) | | | (46.2) | |
| Share-based compensation expense | (108.9) | | | (102.2) | | | (139.6) | |
| Gain on sale from divestitures | — | | | 278.5 | | | — | |
| Restructuring and other impairments | (40.0) | | | (66.7) | | | (129.5) | |
| Goodwill and intangible asset impairments | (979.9) | | | (4,449.1) | | | — | |
Other(2) | (6.6) | | | 25.9 | | | (34.3) | |
| Net income (loss) | $ | (911.2) | | | $ | (3,960.2) | | | $ | (270.5) | |
| Dividends on preferred shares | (75.4) | | | (75.4) | | | (41.5) | |
| Net income (loss) attributable to ordinary shares | $ | (986.6) | | | $ | (4,035.6) | | | $ | (312.0) | |
|
(1) Includes costs incurred to complete business combination transactions, including acquisitions, dispositions, and capital market activities and include advisory, legal, and other professional and consulting costs. 2021 also includes the mark-to-market adjustment gains on the contingent stock consideration associated with the CPA Global and DRG acquisitions. |
|
(2) Primarily reflects the net impact of foreign exchange gains and losses related to the remeasurement of balances and other items that do not reflect our ongoing operating performance. 2023 also includes a $49.4 gain on legal settlement (for further information, see Note 17 - Commitments and Contingencies). |
Assets by Geography
Assets are allocatedThe following table summarizes our assets by geography, which is based on operations and physical location. The following table summarizes non-current assets other than financial instruments, operating lease right-of-use assets and deferred tax assets by geography:
| | | | | | | | | | | |
| Year ended December 31,
|
| Assets: | 2020 | | 2019 |
| Americas | $ | 3,238,734 | | | $ | 992,469 | |
| Europe/Middle East/Africa | 10,859,341 | | | 2,099,777 | |
| APAC | 692,623 | | | 101,113 | |
| Total Assets | $ | 14,790,698 | | | $ | 3,193,359 | |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 |
| Americas | $ | 8,372.2 | | | $ | 6,306.1 | |
| EMEA | 3,986.0 | | | 7,110.9 | |
| APAC | 348.6 | | | 537.6 | |
| Total Assets | $ | 12,706.8 | | | $ | 13,954.6 | |
Note 23:17: Commitments and Contingencies
The Company does not have any recorded or unrecorded guarantees of the indebtedness of others.
Contingencies
Lawsuits and Legal Claims
The Company isWe are engaged in various legal proceedings, claims, audits, and investigations that have arisen in the ordinary course of business. These matters may include among others, antitrust/competition claims, intellectual property infringement claims, employment matters, and commercial matters. The outcome of all of the matters against the Company isus are subject to future resolution, including the uncertainties of litigation. Based on information currently known
From time to time, we are involved in litigation in the ordinary course of our business, including claims or contingencies that may arise related to matters occurring prior to our acquisition of businesses. At the present time, primarily because the matters are generally in early stages, we can give no assurance as to the Companyoutcome of any pending litigation to which we are currently a party, and after consultation with outside legal counsel, management believes thatwe are unable to determine the ultimate resolution of any suchthese matters individually or in the aggregate,effect they may have on us.
We have and will not have a material impact on the Company’s financial condition taken as a whole.
Warrant Liabilities
Under Accounting Standards Codification 815, Derivatives and Hedging, ("ASC 815"), warrant instrumentscontinue to vigorously defend ourselves against these claims. We maintain appropriate levels of insurance, which we expect are likely to provide coverage for some of these liabilities or other losses that do not meet the criteria to be considered indexed to an entity's own stock shall be initially classified as a liability at their estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash. In periods subsequent to issuance, changes in the estimated fair value of the liabilities are reported through earnings.
Contingent Liabilities
In conjunction with the acquisition of Publons, the Company agreed to pay former shareholders up to an additional $9,500 through 2020. Amounts payable are contingent upon Publons’ achievement of certain milestones and performance metrics. The Company paid $3,701 and $2,371 of the contingent purchase price in the year ended December 31, 2020 and 2019, respectively, as a result of Publons achieving the first tier of milestones and performance metrics. The Company had an outstanding liability for $0 and $3,100 related to the estimated fair value of this contingent consideration as of December 31, 2020 and 2019, respectively. The outstanding liability balance is included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively.
In conjunction with the acquisition of Kopernio, the Company paid former shareholders $2,184 during the year ended December 31, 2020, due to the achievement of certain milestones and performance metrics. As a result of the payment, no further obligations exist as of December 31, 2020.
In conjunction with the acquisition of TrademarkVision, the Company agreed to pay former shareholders a potential earn-out dependent upon achievement of certain milestones and financial performance metrics through 2020. Amounts payable are contingent upon TrademarkVision’s achievement of certain milestones and performance metrics. During the year ended December 31, 2020, the Company paid $8,000 of the contingent purchase price to complete the earn-out. As of December 31, 2020 and 2019, the Company had an outstanding liability for $0 and $8,000, respectively, related to the estimated fairmay arise from these litigation matters.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as otherwise noted)
valueDuring the year ended December 31, 2023, we reached settlement related to a large legal claim, which was covered by insurance. We recognized a total gain on settlement of this contingent consideration. The outstanding balance was$49.4 which is included in Accrued expenses and other current liabilities as of December 31, 2019,Other operating expense (income), net in the Consolidated Balance Sheets.Statement of Operations.
In conjunctionBetween January and March 2022, three putative securities class action complaints were filed in the United States District Court for the Eastern District of New York against Clarivate and certain of its executives and directors alleging that there were weaknesses in the Company’s internal controls over financial reporting and financial reporting procedures that it failed to disclose in violation of federal securities law. The complaints were consolidated into a single proceeding on May 18, 2022. On August 8, 2022, plaintiffs filed a consolidated amended complaint, seeking damages on behalf of a putative class of shareholders who acquired Clarivate securities between July 30, 2020, and February 2, 2022, and/or acquired Clarivate ordinary or preferred shares in connection with offerings on June 10, 2021, or Clarivate ordinary shares in connection with a September 13, 2021, offering. The amended complaint, like the acquisitionprior complaints, references an error in the accounting treatment of DRG,an equity plan included in the Company’s 2020 business combination with CPA Global that was disclosed on December 27, 2021, and related restatements issued on February 3, 2022, of certain of the Company’s previously issued financial statements; the amended complaint also alleges that the Company agreedand certain of its executives and directors made false or misleading statements relating to pay upthe Company’s product quality and expected organic revenues and organic growth rate, and that they failed to 2,895,638 shares as contingent stock consideration, valueddisclose significant known changes to the Company’s business model. Defendants moved to dismiss the amended complaint on October 7, 2022. Without deciding the motion, the court entered an order on June 23, 2023, allowing plaintiffs limited leave to amend, and plaintiffs filed an amended complaint on July 14, 2023. On August 10, 2023, the court issued an order deeming defendants’ prior motions and briefs to be directed at $58,897the amended complaint and permitting defendants to file supplemental briefs to address the new allegations in the amended complaint. Supplemental briefing on the closing datemotions was completed on September 8, 2023. Defendants’ motions to dismiss the amended complaint are currently pending.
In a separate, but related litigation, on June 7, 2022, a class action was filed in Pennsylvania state court in the Court of Common Pleas of Philadelphia asserting claims under the Securities Act of 1933, based on substantially similar allegations, with respect to alleged misstatements and omissions in the offering documents for two issuances of Clarivate ordinary shares in June and September 2021. The Company moved to stay this proceeding on August 19, 2022, and filed its preliminary objections to the state court complaint on October 21, 2022, which remains pending. After granting a partial stay on January 4, 2023, the court denied a further stay of the acquisition. See Note 4 - Business Combinations for more informationproceedings on the contingent stock consideration. Amounts payable are contingent upon any indemnity losses or claims to indemnity losses occurring within that one-year period. The liability increased by $27,132 during the year ended December 31, 2020, due to an increase in the estimated fair value of this contingent stock consideration, which resulted in a liability of $86,029 as of December 31, 2020. The outstanding balance was included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets as of December 31, 2020.
In conjunction with the acquisition of CPA Global, the Company agreed to pay up to 1,500,000 shares as contingent stock consideration, valued at $46,485 on the closing date of the acquisition. See Note 4 - Business Combinations for more information on the contingent stock consideration. The amount is payable 110 days after the acquisition date and is contingent upon any indemnity losses or claims for indemnity losses as defined in the purchase agreement. The liability decreased by $1,920 during the year ended December 31, 2020, due to an decrease in the estimated fair value of this contingent stock consideration, which resulted in a liability $44,565 as of December 31, 2020. The outstanding balance was included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets as of December 31, 2020.
The Company is engaged in various legal proceedings and has been notified of certain purportedclaims that have arisen in the ordinary course of business.April 17, 2023. Clarivate does not believe any of these legal proceedings andthat the claims alleged in the complaints have merit and will vigorously defend against suchthem. Given the early stage of the proceedings, we are unable to estimate the reasonably possible loss or range of loss, if any, arising from these matters.
Note 18: Related Party Transactions
Certain of our directors are affiliated with customers and claims. Clarivate has taken what it believes to be adequate reservesa vendor of ours. During the years ended December 31, 2023, 2022, and 2021, we recognized revenues of $1.4, $2.4 and $1.0, respectively, related to its litigationthese customers, and threatened claims.
Tax Indemnity
In connection with the 2016 Transaction, the Company recorded certain tax indemnification assets pursuantincurred expenses of $4.9, $4.5, and $0.0, respectively, related to the termsvendor. We had $0.3 and $0.2 of total receivables outstanding and had no payables outstanding related to these customers and vendor as of December 31, 2023 and 2022, respectively.
On May 15, 2021, we entered into an agreement with Capri Acquisition Topco Limited (“Capri”) and Solaro ExchangeCo Limited (“NewCo”), and for certain limited purposes, Leonard Green & Partners, L.P. (“LGP”). Capri and NewCo are controlled by LGP and held our ordinary shares beneficially owned by LGP and certain other existing shareholders. Under the agreement, Capri contributed 177.2 million of its Clarivate ordinary shares to NewCo. We then acquired NewCo in exchange for the issuance of the separationsame number of Clarivate ordinary shares to Capri. This transaction did not involve any change in beneficial ownership of our ordinary shares and indemnified liabilities identified therein. As a result of counterparty dispute related to certainthe issuance of the indemnification claims,new ordinary shares to Capri were exempt from the Company wrote off $33,819 during the 4th quarter of 2018, which represented a portionregistration requirements of the amount originally recorded, plus accumulated foreign currency impacts. Management continuesSecurities Act under Section 4(a)(2) thereof. Pursuant to interpretauthority granted to us by shareholders at the contractual obligation due from Former Parent2021 Annual General Meeting, following the acquisition of Newco, we purchased the ordinary shares held by Newco for a nominal price and its controlled entities (“Thomson Reuters”) as due in full. The asset write downthen canceled such shares. This was recorded within Other operating income (expense),a non-cash financing transaction that had a net withinimmaterial impact on the Consolidated StatementFinancial Statements.
On December 1, 2021, we acquired ProQuest from CIG, Atairos, and certain other equity holders. As part of Operations.
Legal Settlement
In September 2019, the Company settledacquisition, we assumed a confidential claim that resultedfinance lease in a gain. The net gain was recorded in Legal settlement withinwhich CIG is the Consolidated Statements of Operations duringlessor. For the year ended December 31, 2019.
Commitments
Unconditional purchase obligations
Purchase obligations are defined as agreements to purchase goods or services that are enforceable2023, $2.1 of interest expense and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable pricing provisions and$0.5 of amortization associated with the approximate timing of the transactions. The Company has various purchase obligations for materials, supplies, outsourcing and other services contractedfinance lease asset is reflected in the ordinary courseConsolidated Statements of business. These items are not recognized as liabilities in our Consolidated Financial Statements but are required to be disclosed. The contractual terms of these purchase obligations extend through 2025. The Company paid $39,779 towards these purchase obligations during the year ended December 31, 2020.
The future unconditional purchase obligations asOperations. As of December 31, 2020 are2023, the finance lease asset was $8.0 and is included within Property and equipment, net (see Note 5 - Property and Equipment, Net) and the corresponding lease liability was $30.3 and is treated as follows:an item of indebtedness within the Consolidated Balance Sheets (see Note 9 - Debt).
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratiosmillions or as noted)
| | | | | |
| Year ending December 31, | |
| 2021 | 58,061 | |
| 2022 | 36,018 | |
| 2023 | 26,144 | |
| 2024 | 24,367 | |
| Thereafter | 14,093 | |
| Total | $ | 158,683 | |
Note 24: Related Party and Former Parent Transactions
Onex Partners Advisor LP (“Onex”), an affiliate of the Company, is considered a related party. Concurrent with the 2016 Transaction, the Company entered into a Consulting Services Agreement with Onex, pursuant to which the Company is provided certain ongoing strategic and financing consulting services in exchange for a quarterly management fee. In connection with this agreement, the Company recognized $0, $470 and $920 in operating expenses related to this agreement for the year ended December 31, 2020, 2019, and 2018, respectively. The Company pays 0.1% interest per annum to Onex for the Credit Agreement. For the year ended December 31, 2020, 2019 and 2018, the Company recognized interest expense, for Onex related interest, of $0, $327 and $905, respectively. The Company had an outstanding liability of $4, $3 and $450 to Onex as of December 31, 2020, 2019 and 2018, respectively. In addition, the Company paid Onex a management fee of $5,400 in connection with the 2019 Transaction in the second quarter of 2019. See Note 4 - Business Combinations for additional information.
BPEA, an affiliate of the Company, is considered a related party. Concurrently with the 2016 Transaction, the Company entered into a Management Services Agreement with Baring, pursuant to which the Company is provided certain ongoing strategic and financing consulting services. In connection with this agreement, the Company recognized $0, $246 and $669, in operating expenses related to this agreement for the years ended December 31, 2020, 2019 and 2018, respectively. The Company had an outstanding liability of $0 and $0 to Baring as of December 31, 2020, and 2019, respectively. In addition, the Company paid BPEA a management fee of $2,100 in connection with the 2019 Transaction in the second quarter of 2019. See Note 4 - Business Combinations for additional information.
In connection with the 2016 Transaction, Bidco and a subsidiary of the Former Parent entered into the Transition Service Agreement, which became effective on October 3, 2016, pursuant to which such subsidiary of the Former Parent will, or will cause its affiliates and/or third-party service providers to, provide Bidco, its affiliates and/or third-party service providers with certain technology, facilities management, human resources, sourcing, financial, accounting, data management, marketing and other services to support the operation of the IP&S business as an independent company. Such services are provided by such subsidiary of the Former Parent or its affiliates and/or third-party service providers for various time periods and at various costs based upon the terms set forth in the Transition Service Agreement.
Two controlled affiliate of Baring are vendors of ours. Total payments to these vendors were $830, $765 and $691 for the years ended December 31, 2020, 2019 and 2018, respectively. The Company had an outstanding liability of $237, $160 and $158 as of December 31, 2020, 2019 and 2018, respectively.
Three controlled affiliate of Leonard Green & Partners, L.P. are customers of ours. Total revenue with this customer during the period they were a related party was $129, $10,857 and $136 for the year ended December 31, 2020. The Company had an outstanding receivable of $31, $54,656 and $264 as of December 31, 2020. These customers were not a related party in 2019 and 2018.
Three controlled affiliate of Leonard Green is a vendor of ours. Total payments to this vendor were $295, $6,934 and $1,817 for the year ended December 31, 2020. The Company had an outstanding liability of $0, $0 and $1,995 as of December 31, 2020. These vendors were not a related party in 2019 and 2018.
Jerre Stead, Chief Executive Officer of the Company, is the Co-founder of a vendor of ours. Total payments to this vendor were $0 and $756 for the year ended December 31, 2020 and 2019 the Company had an outstanding liability of $0 and $10 as of December 31, 2020 and 2019. This vendor was not a related party in 2018 or 2020.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
A former member of our key management is the co-founder of a vendor of ours. Total payments to this vendor were $0, $278 and $865 for the year ended December 31, 2020, 2019 and 2018, respectively. The Company had an outstanding liability of $0, $0 and $332 as of December 31, 2020, and 2019 and 2018, respectively.
One of our independent directors has an immediate family member who is a member of management within one of Clarivate’s customers. Total revenue from the Customer was $1,497 and $33 for the years ended December 31, 2020 and 2019, respectively. The Company had $100 and $4 outstanding receivables as of December 31, 2020 and 2019, respectively. This vendor was not a related party in 2018.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or asotherwise noted)
Note 25: Restructuring19: Subsequent Events
In January 2024, we refinanced our existing Term Loan Facility and Impairment
During both 2020 and 2019,extended the maturity date of our Revolving Credit Facility. We refinanced all of our existing term loans with a new $2,150 tranche of term loans maturing in 2031, with an interest rate margin of 275 basis points per annum in the case of loans bearing interest by reference to term SOFR. The new term loan facility effectively extended the maturity of our existing term loans by approximately 5 years. The new term loans amortize in equal quarterly installments equivalent to 1.00% per annum, with the balance due at maturity. Concurrently, we engagedrefinanced our Revolving Credit Facility with a strategic consulting firm to assist us in optimizing our structure and cost base. As a result, we have implemented several cost-saving and margin improvement programs designed to generate substantial incremental cash flow includingreplacement $700 million facility, which effectively extends the Operation, Simplification and Optimization Program, the DRG Acquisition Integration Program and the CPA Global Acquisition, Integration and Optimization Program.
Operation Simplification and Optimization Program
During the fourth quarter of 2019, the Company approved restructuring actions designed to streamline our operations by simplifying our organization and focusing on two segments in planned phases. The following table summarizes the activity related to the restructuring reserves for the Operation, Simplification and Optimization Program:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Operation Simplification and Optimization Program | | Severance and Related Benefit Costs | | Costs Associated with Exit and Disposal Costs (1) | | Total |
| Reserve Balance as of December 31, 2019 | | $ | 9,506 | | | $ | — | | | $ | 9,506 | |
| Expenses recorded | | 16,069 | | | 10,578 | | | 26,647 | |
| Payments made | | (20,435) | | | (4,241) | | | (24,676) | |
Noncash items and other adjustments (2) | | 228 | | | (5,744) | | | (5,516) | |
| Reserve Balance as of December 31, 2020 | | $ | 5,368 | | | $ | 593 | | | $ | 5,961 | |
(1) Relates primary to lease exit costs and legal and advisory fees. |
(2) Includes $5,025 of impairment charges, $326 of other noncash lease-exit charges, and $393 of other immaterial noncash items relating to contract exits, offset by noncash severance and related benefit costs of $228. |
Restructuring charges incurred during 2019 included actions to reduce operational costs. Componentsmaturity of the pre-tax charges include $15,424 in severance costsrevolving credit facility from 2027 to 2029. The strategic refinancing provides improved financial flexibility, including extending our debt maturities and $246 in other costs incurred during the year ended December 31, 2019. The Science and IP segments incurred $6,924 and $8,746 of the 2019 expense, respectively.lowering our annual cash interest costs.
The following table is a summary of charges incurred related to the Operation, Simplification and Optimization Program in the year ended December 31, 2020.
| | | | | | | | | | | | | |
| Year ended December 31, | | |
| 2020 | | 2019 | | |
| Severance and related benefit costs | $ | 16,069 | | | $ | 15,424 | | | |
Costs associated with exit and disposal activities (1) | 4,567 | | | 246 | | | |
Costs associated with lease exit costs including impairment (2) | 6,011 | | | — | | | |
| Total | $ | 26,647 | | | $ | 15,670 | | | |
(1) Relates primarily to contract exit costs, legal and advisory fees. | | |
(2) Includes $5,025 of charges related to impairment of leases and $986 of lease exit costs. | | |
| | | | | |
The Science and IP segments incurred $13,559 and $13,087 of the 2020 expense, respectively. The Company does not expect to incur any material expenses after December 31, 2020 with these restructuring efforts.
DRG Acquisition Integration Program
During the second quarter of 2020, the Company approved restructuring actions designed to eliminate duplicative costs following the acquisition of DRG in planned phases. The following table summarizes the activity related to the restructuring reserves for the DRG Acquisition Integration:
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | |
| DRG Acquisition Integration | | Severance and Related Benefit Costs | | Costs Associated with Exit and Disposal Costs (1) | | Total |
| Reserve Balance as of December 31, 2019 | | $ | — | | | $ | — | | | $ | — | |
| Expenses recorded | | 5,133 | | | 1,464 | | | 6,597 | |
| Payments made | | (4,392) | | | (850) | | | (5,242) | |
Noncash items and other adjustments (2) | | $ | — | | | $ | (374) | | | $ | (374) | |
| Reserve Balance as of December 31, 2020 | | $ | 741 | | | $ | 240 | | | $ | 981 | |
(1) Relates primary to lease exit costs and legal and advisory fees. |
(2) Relates to a write-off of prepaid rent resulting from restructuring activities. |
The following table is a summary of charges incurred related to the DRG Acquisition Integration in the year ended December 31, 2020.
| | | | | | | | |
| Year ended December 31, 2020 | |
Severance and related benefit costs | $ | 5,133 | | | | |
Costs associated with exit and disposal activities (1)
| 487 | | | | |
Costs associated with lease exit costs including impairment (2)
| 977 | | | | |
Total | $ | 6,597 | | | | |
(1) Relates primary to lease exit costs and legal and advisory fees.
| | | |
(2) Includes $977 of lease exit costs.
| | | |
The Science and IP segments incurred $3,286 and $3,311 of the 2020 expense, respectively. The Company does not expect to incur any material expenses after December 31, 2020 with these restructuring efforts.
CPA Global Acquisition Integration and Optimization Program
During the fourth quarter of 2020, the Company approved restructuring actions designed to eliminate duplicative costs following the acquisition of CPA Global and to streamline our operations simplifying our organization and reducing our leasing portfolio. The following table summarizes the activity related to the restructuring reserves for the CPA Global Acquisition, Integration and Optimization Program:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| CPA Global Acquisition Integration and Optimization Program | | Severance and Related Benefit Costs
(As Restated) | | Costs Associated with Exit and Disposal Costs (1) | | Total
(As Restated) |
| Reserve Balance as of December 31, 2019 | | $ | — | | | $ | — | | | $ | — | |
Expenses recorded (2) | | 18,716 | | | 4,179 | | | 22,895 | |
| Payments made | | (591) | | | (251) | | | (842) | |
Noncash items and other adjustments (3) | | 1,478 | | | (286) | | | 1,192 | |
| Reserve Balance as of December 31, 2020 | | $ | 19,603 | | | $ | 3,642 | | | $ | 23,245 | |
(1) Relates primary to lease exit costs and legal and advisory fees. |
(2) Expenses include the acceleration of equity based awards for severed individuals under the CPA Global Equity Plan. These expenses will be paid in cash and is accounted for as a liability award. |
(3) Includes a $1,200 bonus accrual for severed employees and $278 immaterial noncash items, offset by a $286 lease impairment charge. |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The following table is a summary of charges incurred related to the CPA Global Acquisition Integration in the year ended December 31, 2020.
| | | | | | | | |
| Year ended December 31, 2020 | |
Severance and related benefit costs | $ | 18,716 | | | | |
Costs associated with exit and disposal activities (1)
| 3,472 | | | | |
Costs associated with lease exit costs including impairment (2)
| 707 | | | | |
Total | $ | 22,895 | | | | |
(1) Relates primary to lease exit costs and legal and advisory fees.
| | | |
(2) Includes $286 of charges related to impairment of leases and $421 of lease exit costs.
| | | |
| | | | |
| | | | |
The Science and IP segments incurred $7,414 and $6,938 of the December 31, 2020 expense, respectively. The Company expects to incur $82,415 of expense after December 31, 2020 with these restructuring efforts expected to conclude in 2022.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 26: Quarterly Financial Data (Unaudited)
The following table summarizes certain quarterly results of operations (in thousands except per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| (As Restated) |
| 2020 |
| First
Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter (1) |
| Revenues | $ | 240,592 | | | $ | 273,500 | | | $ | 284,360 | | | $ | 455,595 | |
| Income (loss) from operations - (As Restated) | $ | (28,308) | | | $ | 14,246 | | | $ | (12,664) | | | $ | (9,621) | |
| Net income (loss) - (As Restated) | $ | (129,633) | | | $ | (25,281) | | | $ | (181,986) | | | $ | (13,725) | |
| | | | | | | |
| Earnings per share: | | | | | | | |
| Basic - (As Restated) | $ | (0.38) | | | $ | (0.07) | | | $ | (0.47) | | | $ | (0.02) | |
| Diluted - (As Restated) | $ | (0.38) | | | $ | (0.07) | | | $ | (0.47) | | | $ | (0.02) | |
| | | | | | | |
| | | | | | | |
(1)Includes adjustments as part of this Amendment No. 2 relating to errors in the equity plan of CPA Global that were incorrectly included as part of the purchase accounting. Adjustments reflect the impact of share-based compensation charges to Income (loss from operations) and Basic and Diluted Earnings per share.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| (As Restated) |
| 2019 |
| First Quarter (2) | | Second Quarter | | Third Quarter (1) | | Fourth Quarter |
| Revenues | $ | 234,025 | | | $ | 242,309 | | | $ | 242,998 | | | $ | 255,013 | |
| Loss from operations | $ | (25,920) | | | $ | (36,581) | | | $ | (3,555) | | | $ | (16,431) | |
| Net loss - (As Restated) | $ | (59,260) | | | $ | (103,948) | | | $ | (11,005) | | | $ | (84,421) | |
| | | | | | | |
| Earnings per share: | | | | | | | |
| Basic - (As Restated) | $ | (0.27) | | | $ | (0.39) | | | $ | (0.04) | | | $ | (0.28) | |
| Diluted - (As Restated) | $ | (0.27) | | | $ | (0.39) | | | $ | (0.04) | | | $ | (0.28) | |
(1) In September 2019, the Company settled a confidential claim that resulted in a gain of $39,399. The net gain was recorded in Legal settlement within the Interim Condensed Consolidated Statement of Operations during the three months ended September 30, 2019 and the year ended December 31, 2019. (2) The first quarter of 2019 is as reported without any changes as a result of the restatement given the consummation of the Churchill transaction in May of 2019. |
| | | | | | | |
| | | | | | | |
Restatement of Previously Issued Unaudited Condensed Consolidated Financial Statements
We have restated herein our previously issued unaudited condensed consolidated financial statements for each interim period within the fiscal years ended December 31, 2020 and 2019, see Note 28 - Restatement of Previously Issued Financial Statements for additional information.
The following tables represent our restated unaudited condensed consolidated financial statements for each quarter-to-date and year-to-date interim period within the fiscal years ended December 31, 2020 and 2019. The 2020 quarterly restatements will be effective with the filing of our future 2021 unaudited interim condensed consolidated financial statement filings in Quarterly Reports on Form 10-Q.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
The values as previously reported for the fiscal quarters ended September 30, 2020, June 30, 2020, and March 31, 2020 were derived from our Quarterly Reports on Form 10-Q filed on October 29, 2020, July 30, 2020 and May 4, 2020, respectively. The values as previously reported for the fiscal quarters ended September 30, 2019 and June 30, 2019 were derived from our Quarterly Reports on Form F-1 filed on December 2, 2019 and September 3, 2019, respectively. The values as previously reported for the fiscal quarter ended March 31, 2019 were derived from our Quarterly Report on Form 6-K filed on May 15, 2019. See Note 28 - Restatement of Previously Issued Financial Statements, for a description of the misstatements in each category of restatements referenced by (1) and (2).
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Balance Sheets (unaudited) |
| | As Restated |
| | As of September 30, 2020 | | As of June 30, 2020 | | As of March 31, 2020 | | As of September 30, 2019 | | As of June 30, 2019 |
| Assets | | | | | | | | | | |
| Current assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 601,075 | | | $ | 608,522 | | | $ | 308,021 | | | $ | 88,812 | | | $ | 43,063 | |
| Restricted cash | | 567 | | | 2,010 | | | 2,850 | | | 9 | | | 9 | |
| Accounts receivable, net of allowance for doubtful accounts of $9,744, $11,074, $15,072, $16,392, $17,192 at September 30, 2020, June 30, 2020, March 31, 2020, September 30, 2019 and June 30, 2019, respectively | | 238,638 | | | 279,160 | | | 343,177 | | | 226,997 | | | 270,584 | |
| Prepaid expenses | | 49,240 | | | 51,440 | | | 52,101 | | | 34,927 | | | 39,238 | |
| Other current assets | | 18,672 | | | 18,960 | | | 22,099 | | | 10,528 | | | 12,577 | |
| Assets held for sale | | 36,059 | | | — | | | — | | | — | | | — | |
| Total current assets | | 944,251 | | | 960,092 | | | 728,248 | | | 361,273 | | | 365,471 | |
| Computer hardware and other property, net | | 23,618 | | | 24,324 | | | 22,953 | | | 20,185 | | | 18,490 | |
| Other intangible assets, net | | 2,217,227 | | | 2,261,549 | | | 2,282,348 | | | 1,856,346 | | | 1,884,521 | |
| Goodwill | | 1,818,354 | | | 1,824,258 | | | 1,823,084 | | | 1,281,504 | | | 1,282,842 | |
| Other non-current assets | | 21,836 | | | 22,178 | | | 22,818 | | | 19,368 | | | 23,890 | |
| Deferred income taxes | | 25,520 | | | 17,161 | | | 15,646 | | | 19,808 | | | 18,072 | |
| Operating lease right-of-use assets | | 99,908 | | | 100,622 | | | 103,995 | | | 91,809 | | | 94,950 | |
| Total Assets | | $ | 5,150,714 | | | $ | 5,210,184 | | | $ | 4,999,092 | | | $ | 3,650,293 | | | $ | 3,688,236 | |
| | | | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | |
| Accounts payable | | $ | 19,898 | | | $ | 22,068 | | | $ | 28,583 | | | $ | 27,908 | | | $ | 30,396 | |
| Accrued expenses and other current liabilities | | 253,341 | | | 228,474 | | | 239,661 | | | 162,303 | | | 126,843 | |
| Current portion of deferred revenues | | 326,098 | | | 424,187 | | | 472,101 | | | 330,786 | | | 404,753 | |
| Current portion of operating lease liabilities | | 25,691 | | | 24,067 | | | 25,375 | | | 23,953 | | | 24,980 | |
| Current portion of long-term debt | | 12,600 | | | 12,600 | | | 12,600 | | | 15,345 | | | 15,345 | |
| Liabilities held for sale | | 25,048 | | | — | | | — | | | — | | | — | |
| Total current liabilities | | 662,676 | | | 711,396 | | | 778,320 | | | 560,295 | | | 602,317 | |
| Long-term debt | | 1,910,993 | | | 1,913,214 | | | 1,915,452 | | | 1,305,364 | | | 1,307,919 | |
| Warrant liabilities | | 335,988 | | | 191,235 | | | 167,445 | | | 112,179 | | | 90,343 | |
| Tax receivable agreement | | — | | | — | | | — | | | 264,000 | | | 264,000 | |
| Non-current portion of deferred revenues | | 24,080 | | | 19,116 | | | 18,774 | | | 21,299 | | | 22,236 | |
| Other non-current liabilities | | 19,990 | | | 16,959 | | | 18,553 | | | 17,278 | | | 19,719 | |
| Deferred income taxes | | 95,527 | | | 86,247 | | | 94,638 | | | 39,256 | | | 42,582 | |
| Operating lease liabilities | | 79,147 | | | 80,663 | | | 80,229 | | | 69,694 | | | 72,171 | |
| Total liabilities | | 3,128,401 | | | 3,018,830 | | | 3,073,411 | | | 2,389,365 | | | 2,421,287 | |
| Commitments and contingencies | | | | | | | | | | |
| Shareholders' equity: | | | | | | | | | | |
| Ordinary Shares, no par value; unlimited shares authorized at September 30, 2020, June 30, 2020, March 31, 2020, September 30, 2019 and June 30, 2019; 389,220,967, 387,335,119, 364,938,052, 306,050,763 and 305,268,497 shares issued and outstanding at September 30, 2020, June 30, 2020, March 31, 2020, September 30, 2019 and June 30, 2019, respectively | | 3,264,619 | | | 3,262,110 | | | 2,968,876 | | | 2,074,360 | | | 2,064,652 | |
| Accumulated other comprehensive income (loss) | | (5,193) | | | (15,629) | | | (13,349) | | | (6,959) | | | (2,235) | |
| Accumulated deficit | | (1,237,113) | | | (1,055,127) | | | (1,029,846) | | | (806,473) | | | (795,469) | |
| Total shareholders' equity | | 2,022,313 | | | 2,191,354 | | | 1,925,681 | | | 1,260,928 | | | 1,266,949 | |
| Total Liabilities and Shareholders' Equity | | $ | 5,150,714 | | | $ | 5,210,184 | | | $ | 4,999,092 | | | $ | 3,650,293 | | | $ | 3,688,236 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Operations (unaudited) |
| As Restated | | As Restated | | As Restated |
| September 30, 2020 | | June 30, 2020 | | March 31, 2020 |
| Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
| Revenues, net | $ | 284,360 | | | $ | 798,452 | | | $ | 273,500 | | | $ | 514,092 | | | $ | 240,592 | |
| Operating expenses: | | | | | | | | | |
| Cost of revenues, excluding depreciation and amortization | (93,554) | | | (268,614) | | | (92,379) | | | (175,060) | | | (82,682) | |
| Selling, general and administrative costs, excluding depreciation and amortization | (131,526) | | | (368,247) | | | (103,665) | | | (236,721) | | | (133,055) | |
| Depreciation | (2,918) | | | (8,151) | | | (2,904) | | | (5,233) | | | (2,329) | |
| Amortization | (65,696) | | | (168,049) | | | (53,241) | | | (102,353) | | | (49,112) | |
| Restructuring and impairment | (3,192) | | | (26,792) | | | (15,846) | | | (23,600) | | | (7,754) | |
| | | | | | | | | |
| Other operating income, net | (138) | | | 14,675 | | | 8,781 | | | 14,813 | | | 6,032 | |
| Total operating expenses | (297,024) | | | (825,178) | | | (259,254) | | | (528,154) | | | (268,900) | |
| Loss from operations | (12,664) | | | (26,726) | | | 14,246 | | | (14,062) | | | (28,308) | |
| Mark to market on financial instruments | (144,753) | | | (224,175) | | | (23,790) | | | (79,422) | | | (55,632) | |
| Interest expense, net | (20,244) | | | (72,306) | | | (21,122) | | | (52,062) | | | (30,940) | |
| Loss before income tax | (177,661) | | | (323,207) | | | (30,666) | | | (145,546) | | | (114,880) | |
| Provision for income taxes | (4,325) | | | (13,693) | | | 5,385 | | | (9,368) | | | (14,753) | |
| Net loss | $ | (181,986) | | | $ | (336,900) | | | $ | (25,281) | | | $ | (154,914) | | | $ | (129,633) | |
| | | | | | | | | |
| Per share: | | | | | | | | | |
| Basic and diluted | $ | (0.47) | | | $ | (0.91) | | | $ | (0.07) | | | $ | (0.43) | | | $ | (0.38) | |
| | | | | | | | | |
| Weighted average shares used to compute earnings per share: | | | | | | | | | |
| Basic and diluted | 387,845,438 | | | 369,019,802 | | | 375,877,260 | | | 359,503,556 | | | 343,129,833 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Operations (unaudited) |
| As Restated | | As Restated |
| September 30, 2019 | | June 30, 2019 |
| Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| Revenues, net | $ | 242,998 | | | $ | 719,332 | | | $ | 242,309 | | | $ | 476,334 | |
| Operating expenses: | | | | | | | |
| Cost of revenues, excluding depreciation and amortization | (89,158) | | | (266,666) | | | (88,287) | | | (177,508) | |
| Selling, general and administrative costs, excluding depreciation and amortization | (115,515) | | | (376,611) | | | (154,147) | | | (261,096) | |
| Depreciation | (2,281) | | | (6,463) | | | (2,131) | | | (4,182) | |
| Amortization | (41,656) | | | (138,694) | | | (40,932) | | | (97,038) | |
| | | | | | | |
| Other operating income, net | 2,057 | | | 3,047 | | | 6,607 | | | 990 | |
| Total operating expenses | (246,553) | | | (785,387) | | | (278,890) | | | (538,834) | |
| Income (loss) from operations | (3,555) | | | (66,055) | | | (36,581) | | | (62,500) | |
| Mark to market on financial instruments | (21,836) | | | (48,022) | | | (26,187) | | | (26,187) | |
| Legal settlement | 39,399 | | | 39,399 | | | — | | | — | |
| Interest expense, net | (23,369) | | | (93,938) | | | (37,468) | | | (70,569) | |
| Loss before income tax | (9,361) | | | (168,616) | | | (100,236) | | | (159,256) | |
| Provision for income taxes | (1,644) | | | (5,596) | | | (3,712) | | | (3,952) | |
| Net loss | $ | (11,005) | | | $ | (174,212) | | | $ | (103,948) | | | $ | (163,208) | |
| | | | | | | |
| Per share: | | | | | | | |
| Basic | $ | (0.04) | | | $ | (0.66) | | | $ | (0.39) | | | $ | (0.68) | |
| Diluted | $ | (0.04) | | | $ | (0.66) | | | $ | (0.39) | | | $ | (0.68) | |
| | | | | | | |
| Weighted average shares used to compute earnings per share: | | | | | | | |
| Basic | 305,428,062 | | | 262,894,388 | | | 264,762,720 | | | 241,275,061 | |
| Diluted | 328,854,063 | | | 262,894,388 | | | 264,762,720 | | | 241,275,061 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) |
| As Restated | | As Restated | | As Restated |
| September 30, 2020 | | June 30, 2020 | | March 31, 2020 |
| Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
| Net loss | $ | (181,986) | | | $ | (336,900) | | | $ | (25,281) | | | $ | (154,914) | | | $ | (129,633) | |
| Other comprehensive income (loss), net of tax: | | | | | | | | | |
| Interest rate swaps | 1,092 | | | (2,052) | | | (254) | | | (3,144) | | | (2,890) | |
| Actuarial gain (loss) | (15) | | | (57) | | | 25 | | | (42) | | | (67) | |
| Foreign currency translation adjustments | 9,359 | | | 1,795 | | | (2,051) | | | (7,564) | | | (5,513) | |
| Total other comprehensive income (loss), net of tax | 10,436 | | | (314) | | | (2,280) | | | (10,750) | | | (8,470) | |
| Comprehensive loss | $ | (171,550) | | | $ | (337,214) | | | $ | (27,561) | | | $ | (165,664) | | | $ | (138,103) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| As Restated | | As Restated |
| September 30, 2019 | | June 30, 2019 |
| Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| Net loss | $ | (11,005) | | | $ | (174,212) | | | $ | (103,948) | | | $ | (163,208) | |
| Other comprehensive income (loss), net of tax: | | | | | | | |
| Interest rate swaps | (1,061) | | | (6,852) | | | (3,845) | | | (5,791) | |
| Actuarial gain | 19 | | | 49 | | | 11 | | | 30 | |
| Foreign currency translation adjustments | (3,682) | | | (5,514) | | | (8) | | | (1,832) | |
| Total other comprehensive loss, net of tax | (4,724) | | | (12,317) | | | (3,842) | | | (7,593) | |
| Comprehensive loss | $ | (15,729) | | | $ | (186,529) | | | $ | (107,790) | | | $ | (170,801) | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Cash Flows (unaudited) |
| As Restated | | As Restated | | As Restated |
| Nine Months Ended September 30, 2020 | | Six Months Ended June 30, 2020 | | Three Months Ended March 31, 2020 |
| Cash Flows From Operating Activities | | | | | |
| Net Loss | $ | (336,900) | | | $ | (154,914) | | | $ | (129,633) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 176,200 | | | 107,586 | | | 51,441 | |
| Bad debt expense | 1,830 | | | 787 | | | — | |
| Gain on sale of line of business | — | | | (395) | | | — | |
| Deferred income tax benefit | (7,420) | | | (6,641) | | | 4,214 | |
| Share-based compensation | 26,344 | | | 20,824 | | | 16,502 | |
| Restructuring and impairment | 4,880 | | | 4,771 | | | — | |
| Gain on foreign currency forward contracts | (2,903) | | | — | | | — | |
Mark to market adjustment on contingent and phantom shares (1) | 30,839 | | | 5,763 | | | 1,187 | |
| Mark to market adjustment on warrant shares (As Restated) | 224,175 | | | 79,422 | | | 55,632 | |
| Gain on disposal of business | (1,052) | | | — | | | — | |
| Deferred finance charges | 3,140 | | | 2,072 | | | 1,008 | |
| Other operating activities | (3,902) | | | (8,568) | | | (7,015) | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable | 129,398 | | | 93,036 | | | 29,279 | |
| Prepaid expenses | (13,335) | | | (6,693) | | | (7,349) | |
| Other assets | 62,818 | | | 58,218 | | | 54,644 | |
| Accounts payable | (8,394) | | | (5,851) | | | 758 | |
Accrued expenses and other current liabilities (1) | (65,062) | | | (21,142) | | | (13,222) | |
| Deferred revenues | (93,926) | | | (6,073) | | | 40,726 | |
| Operating lease right of use assets | 5,826 | | | 4,698 | | | 5,919 | |
| Operating lease liabilities | (6,611) | | | (5,439) | | | (5,876) | |
| Other liabilities | 2,077 | | | (53,899) | | | (52,109) | |
| Net cash provided by operating activities | 128,022 | | | 107,562 | | | 46,106 | |
| | | | | |
| Cash Flows From Investing Activities | | | | | |
| Capital expenditures | (78,597) | | | (52,651) | | | (19,395) | |
| Acquisitions, net of cash acquired | (885,323) | | | (885,323) | | | (885,323) | |
| Acquisition of intangible assets | (5,982) | | | (5,982) | | | — | |
| Proceeds from sale of product line, net of restricted cash | 3,751 | | | 3,751 | | | 3,751 | |
| Net cash used in investing activities | (966,151) | | | (940,205) | | | (900,967) | |
| | | | | |
| Cash Flows From Financing Activities | | | | | |
| Principal payments on term loan | (9,450) | | | (6,300) | | | (3,150) | |
| Repayments of revolving credit facility | (65,000) | | | (65,000) | | | (65,000) | |
| Payment of debt issuance costs | (5,267) | | | (5,267) | | | (5,014) | |
| Contingent purchase price payment | (4,115) | | | (4,115) | | | (4,115) | |
| Proceeds from issuance of debt | 360,000 | | | 360,000 | | | 360,000 | |
| Proceeds from issuance of ordinary shares | 843,752 | | | 843,766 | | | 540,597 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Cash Flows (unaudited) |
| As Restated | | As Restated | | As Restated |
| Nine Months Ended September 30, 2020 | | Six Months Ended June 30, 2020 | | Three Months Ended March 31, 2020 |
| Proceeds from warrant exercises (As Restated) | 277,526 | | | 277,526 | | | 277,526 | |
| Proceeds from stock options exercised | 1,307 | | | 1,182 | | | 1,182 | |
| Payments related to tax withholding for stock-based compensation | (28,674) | | | (25,538) | | | (10,420) | |
| Net cash provided by (used in) financing activities | 1,370,079 | | | 1,376,254 | | | 1,091,606 | |
| | | | | |
| Effects of exchange rates | (6,447) | | | (9,218) | | | (2,013) | |
| Net increase in cash and cash equivalents, and restricted cash | 525,503 | | | 534,393 | | | 234,732 | |
| | | | | |
| Beginning of period: | | | | | |
| Cash and cash equivalents | 76,130 | | | 76,130 | | | 76,130 | |
| Restricted cash | 9 | | | 9 | | | 9 | |
| Total cash and cash equivalents, and restricted cash, beginning of period | 76,139 | | | 76,139 | | | 76,139 | |
| Cash and cash equivalents, and restricted cash, end of period | 601,642 | | | 610,532 | | | 310,871 | |
| | | | | |
| End of period: | | | | | |
| Cash and cash equivalents | 601,075 | | | 608,522 | | | 308,021 | |
| Restricted cash | 567 | | | 2,010 | | | 2,850 | |
| Total cash and cash equivalents, and restricted cash, end of period | $ | 601,642 | | | $ | 610,532 | | | $ | 310,871 | |
| | | | | |
| Supplemental Cash Flow Information | | | | | |
| Cash paid for interest | $ | 61,796 | | | $ | 42,187 | | | $ | 11,405 | |
| Cash paid for income tax | $ | 20,147 | | | $ | 8,028 | | | $ | 4,797 | |
| Capital expenditures included in accounts payable | $ | 922 | | | $ | 1,819 | | | $ | 9,528 | |
(1) Includes change in the presentation of DRG contingent stock of $5,763 for the six months ended June 30, 2020, and $1,187 for the three months ended March 31, 2020.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | |
| Condensed Consolidated Statements of Cash Flows (unaudited) |
| As Restated | | As Restated |
| Nine Months Ended September 30, 2019 | | Six Months Ended June 30, 2019 |
| Cash Flows From Operating Activities | | | |
| Net Loss | $ | (174,212) | | | $ | (163,208) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
| Depreciation and amortization | 145,157 | | | 101,220 | |
| Bad debt expense | 1,869 | | | 2,478 | |
| Deferred income tax benefit | (8,222) | | | (4,603) | |
| Share-based compensation | 46,675 | | | 37,108 | |
| Mark to market adjustment on warrant shares (As Restated) | 48,022 | | | 26,187 | |
| Deferred finance charges | 14,678 | | | 13,144 | |
| Other operating activities | (1,708) | | | (1,492) | |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable | 99,470 | | | 57,607 | |
| Prepaid expenses | (3,010) | | | (7,125) | |
| Other assets | 7,977 | | | 3,919 | |
| Accounts payable | (9,662) | | | (8,018) | |
| Accrued expenses and other current liabilities | 3,388 | | | (28,827) | |
| Deferred revenues | (51,100) | | | 19,404 | |
| Operating lease right of use assets | 9,438 | | | 6,297 | |
| Operating lease liabilities | (9,934) | | | (6,434) | |
| Other liabilities | (6,338) | | | (4,770) | |
| Net cash provided by operating activities | 112,488 | | | 42,887 | |
| | | |
| Cash Flows From Investing Activities | | | |
| Capital expenditures | (43,681) | | | (24,871) | |
| Acquisition of intangible assets | (2,625) | | | — | |
| Net cash used in investing activities | (46,306) | | | (24,871) | |
| | | |
| Cash Flows From Financing Activities | | | |
| Proceeds from revolving credit facility | 5,000 | | | 5,000 | |
| Principal payments on term loan | (641,508) | | | (637,672) | |
| Repayments of revolving credit facility | (50,000) | | | (50,000) | |
| Proceeds from reverse recapitalization | 682,087 | | | 682,087 | |
| 278 | | | 137 | |
| Net cash used in financing activities | (4,143) | | | (448) | |
| | | |
| Effects of exchange rates | 1,198 | | | (80) | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | |
| Condensed Consolidated Statements of Cash Flows (unaudited) |
| As Restated | | As Restated |
| Nine Months Ended September 30, 2019 | | Six Months Ended June 30, 2019 |
| Net increase in cash and cash equivalents, and restricted cash | 63,237 | | | 17,488 | |
| | | |
| Beginning of period: | | | |
| Cash and cash equivalents | 25,575 | | | 25,575 | |
| Restricted cash | 9 | | | 9 | |
| Total cash and cash equivalents, and restricted cash, beginning of period | 25,584 | | | 25,584 | |
| Cash and cash equivalents, and restricted cash, end of period | 88,821 | | | 43,072 | |
| | | |
| End of period: | | | |
| Cash and cash equivalents | 88,812 | | | 43,063 | |
| Restricted cash | 9 | | | 9 | |
| Total cash and cash equivalents, and restricted cash, end of period | $ | 88,821 | | | $ | 43,072 | |
| | | |
| Supplemental Cash Flow Information | | | |
| Cash paid for interest | $ | 69,711 | | | $ | 57,551 | |
| Cash paid for income tax | $ | 21,128 | | | $ | 14,573 | |
| Capital expenditures included in accounts payable | $ | 9,759 | | | $ | 7,697 | |
| Tax receivable agreement included in liabilities | $ | 264,000 | | | $ | 264,000 | |
| Assets received as reverse recapitalization capital | $ | 1,877 | | | $ | 1,877 | |
| Liabilities assumed as reduction of reverse recapitalization capital | $ | 5,910 | | | $ | 5,910 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Balance Sheets (unaudited) |
| | As of September 30, 2020 |
| | As Originally Reported | | Restatement Impacts | | Restatement Reference | | As Restated |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 601,075 | | | $ | — | | | | | $ | 601,075 | |
| Restricted cash | | 567 | | | — | | | | | 567 | |
| Accounts receivable, net of allowance for doubtful accounts of $9,744 at September 30, 2020 | | 238,638 | | | — | | | | | 238,638 | |
| Prepaid expenses | | 49,240 | | | — | | | | | 49,240 | |
| Other current assets | | 18,672 | | | — | | | | | 18,672 | |
| Assets held for sale | | 36,059 | | | — | | | | | 36,059 | |
| Total current assets | | 944,251 | | | — | | | | | 944,251 | |
| Computer hardware and other property, net | | 23,618 | | | — | | | | | 23,618 | |
| Other intangible assets, net | | 2,217,227 | | | — | | | | | 2,217,227 | |
| Goodwill | | 1,818,354 | | | — | | | | | 1,818,354 | |
| Other non-current assets | | 21,836 | | | — | | | | | 21,836 | |
| Deferred income taxes | | 25,520 | | | — | | | | | 25,520 | |
| Operating lease right-of-use assets | | 99,908 | | | — | | | | | 99,908 | |
| Total Assets | | $ | 5,150,714 | | | $ | — | | | | | $ | 5,150,714 | |
| | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 19,898 | | | $ | — | | | | | $ | 19,898 | |
| Accrued expenses and other current liabilities | | 253,341 | | | — | | | | | 253,341 | |
| Current portion of deferred revenues | | 326,098 | | | — | | | | | 326,098 | |
| Current portion of operating lease liabilities | | 25,691 | | | — | | | | | 25,691 | |
| Current portion of long-term debt | | 12,600 | | | — | | | | | 12,600 | |
| Liabilities held for sale | | 25,048 | | | — | | | | | 25,048 | |
| Total current liabilities | | 662,676 | | | — | | | | | 662,676 | |
| Long-term debt | | 1,910,993 | | | — | | | | | 1,910,993 | |
| Warrant liabilities | | — | | | 335,988 | | | (a) | | 335,988 | |
| Non-current portion of deferred revenues | | 24,080 | | | — | | | | | 24,080 | |
| Other non-current liabilities | | 19,990 | | | — | | | | | 19,990 | |
| Deferred income taxes | | 95,527 | | | — | | | | | 95,527 | |
| Operating lease liabilities | | 79,147 | | | — | | | | | 79,147 | |
| Total liabilities | | 2,792,413 | | | 335,988 | | | | | 3,128,401 | |
| Commitments and contingencies | | | | | | | | |
| Shareholders' equity: | | | | | | | | |
| Ordinary Shares, no par value; unlimited shares authorized at September 30, 2020; 389,220,967 shares issued and outstanding at September 30, 2020 | | 3,328,776 | | | (64,157) | | | (a) | | 3,264,619 | |
| Accumulated other comprehensive income (loss) | | (5,193) | | | — | | | | | (5,193) | |
| Accumulated deficit | | (965,282) | | | (271,831) | | | (a) | | (1,237,113) | |
| Total shareholders' equity | | 2,358,301 | | | (335,988) | | | | | 2,022,313 | |
| Total Liabilities and Shareholders' Equity | | $ | 5,150,714 | | | $ | — | | | | | $ | 5,150,714 | |
(a) Warrant liabilities—The correction of the misstatements resulted in an increase to warrant share liabilities in the amount of $335,988, a decrease to ordinary shares of $64,157, and an increase to accumulated deficit of $271,831.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Balance Sheets (unaudited) |
| | As of June 30, 2020 |
| | As Originally Reported | | Restatement Impacts | | Restatement Reference | | As Restated |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 608,522 | | | $ | — | | | | | $ | 608,522 | |
| Restricted cash | | 2,010 | | | — | | | | | 2,010 | |
| Accounts receivable, net of allowance for doubtful accounts of $11,074 at June 30, 2020 | | 279,160 | | | — | | | | | 279,160 | |
| Prepaid expenses | | 51,440 | | | — | | | | | 51,440 | |
| Other current assets | | 18,960 | | | — | | | | | 18,960 | |
| Assets held for sale | | — | | | — | | | | | — | |
| Total current assets | | 960,092 | | | — | | | | | 960,092 | |
| Computer hardware and other property, net | | 24,324 | | | — | | | | | 24,324 | |
| Other intangible assets, net | | 2,261,549 | | | — | | | | | 2,261,549 | |
| Goodwill | | 1,824,258 | | | — | | | | | 1,824,258 | |
| Other non-current assets | | 22,178 | | | — | | | | | 22,178 | |
| Deferred income taxes | | 17,161 | | | — | | | | | 17,161 | |
| Operating lease right-of-use assets | | 100,622 | | | — | | | | | 100,622 | |
| Total Assets | | $ | 5,210,184 | | | $ | — | | | | | $ | 5,210,184 | |
| | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 22,068 | | | $ | — | | | | | $ | 22,068 | |
| Accrued expenses and other current liabilities | | 228,474 | | | — | | | | | 228,474 | |
| Current portion of deferred revenues | | 424,187 | | | — | | | | | 424,187 | |
| Current portion of operating lease liabilities | | 24,067 | | | — | | | | | 24,067 | |
| Current portion of long-term debt | | 12,600 | | | — | | | | | 12,600 | |
| Liabilities held for sale | | — | | | — | | | | | — | |
| Total current liabilities | | 711,396 | | | — | | | | | 711,396 | |
| Long-term debt | | 1,913,214 | | | — | | | | | 1,913,214 | |
| Warrant liabilities | | — | | | 191,235 | | | (a) | | 191,235 | |
| Non-current portion of deferred revenues | | 19,116 | | | — | | | | | 19,116 | |
| Other non-current liabilities | | 16,959 | | | — | | | | | 16,959 | |
| Deferred income taxes | | 86,247 | | | — | | | | | 86,247 | |
| Operating lease liabilities | | 80,663 | | | — | | | | | 80,663 | |
| Total liabilities | | 2,827,595 | | | 191,235 | | | | | 3,018,830 | |
| Commitments and contingencies | | | | | | | | |
| Shareholders' equity: | | | | | | | | |
| Ordinary Shares, no par value; unlimited shares authorized at June 30, 2020; 387,335,119 shares issued and outstanding at June 30, 2020, respectively; | | 3,326,267 | | | (64,157) | | | (a) | | 3,262,110 | |
| Accumulated other comprehensive income (loss) | | (15,629) | | | — | | | | | (15,629) | |
| Accumulated deficit | | (928,049) | | | (127,078) | | | (a) | | (1,055,127) | |
| Total shareholders' equity | | 2,382,589 | | | (191,235) | | | | | 2,191,354 | |
| Total Liabilities and Shareholders' Equity | | $ | 5,210,184 | | | $ | — | | | | | $ | 5,210,184 | |
(a) Warrant liabilities—The correction of these misstatements resulted in an increase to warrant share liabilities in the amount of $191,235, a decrease to ordinary shares of $64,157, and an increase to accumulated deficit of $127,078.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Balance Sheets (unaudited) |
| | As of March 31, 2020 |
| | As Originally Reported | | Restatement Impacts | | Restatement Reference | | As Restated |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 308,021 | | | $ | — | | | | | $ | 308,021 | |
| Restricted cash | | 2,850 | | | — | | | | | 2,850 | |
| Accounts receivable, net of allowance for doubtful accounts of $15,072 at March 31, 2020 | | 343,177 | | | — | | | | | 343,177 | |
| Prepaid expenses | | 52,101 | | | — | | | | | 52,101 | |
| Other current assets | | 22,099 | | | — | | | | | 22,099 | |
| Assets held for sale | | — | | | — | | | | | — | |
| Total current assets | | 728,248 | | | — | | | | | 728,248 | |
| Computer hardware and other property, net | | 22,953 | | | — | | | | | 22,953 | |
| Other intangible assets, net | | 2,282,348 | | | — | | | | | 2,282,348 | |
| Goodwill | | 1,823,084 | | | — | | | | | 1,823,084 | |
| Other non-current assets | | 22,818 | | | — | | | | | 22,818 | |
| Deferred income taxes | | 15,646 | | | — | | | | | 15,646 | |
| Operating lease right-of-use assets | | 103,995 | | | — | | | | | 103,995 | |
| Total Assets | | $ | 4,999,092 | | | $ | — | | | | | $ | 4,999,092 | |
| | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 28,583 | | | $ | — | | | | | $ | 28,583 | |
| Accrued expenses and other current liabilities | | 239,661 | | | — | | | | | 239,661 | |
| Current portion of deferred revenues | | 472,101 | | | — | | | | | 472,101 | |
| Current portion of operating lease liabilities | | 25,375 | | | — | | | | | 25,375 | |
| Current portion of long-term debt | | 12,600 | | | — | | | | | 12,600 | |
| Liabilities held for sale | | — | | | — | | | | | — | |
| Total current liabilities | | 778,320 | | | — | | | | | 778,320 | |
| Long-term debt | | 1,915,452 | | | — | | | | | 1,915,452 | |
| Warrant liabilities | | — | | | 167,445 | | | (a) | | 167,445 | |
| Non-current portion of deferred revenues | | 18,774 | | | — | | | | | 18,774 | |
| Other non-current liabilities | | 18,553 | | | — | | | | | 18,553 | |
| Deferred income taxes | | 94,638 | | | — | | | | | 94,638 | |
| Operating lease liabilities | | 80,229 | | | — | | | | | 80,229 | |
| Total liabilities | | 2,905,966 | | | 167,445 | | | | | 3,073,411 | |
| Commitments and contingencies | | | | | | | | |
| Shareholders' equity: | | | | | | | | |
| Ordinary Shares, no par value; unlimited shares authorized at March 31, 2020; 364,938,052 shares issued and outstanding at March 31, 2020 | | 3,033,033 | | | (64,157) | | | (a) | | 2,968,876 | |
| Accumulated other comprehensive income (loss) | | (13,349) | | | — | | | | | (13,349) | |
| Accumulated deficit | | (926,558) | | | (103,288) | | | (a) | | (1,029,846) | |
| Total shareholders' equity | | 2,093,126 | | | (167,445) | | | | | 1,925,681 | |
| Total Liabilities and Shareholders' Equity | | $ | 4,999,092 | | | $ | — | | | | | $ | 4,999,092 | |
(a) Warrant liabilities—The correction of these misstatements resulted in an increase to warrant share liabilities in the amount of $167,445, a decrease to ordinary shares of $64,157, and an increase to accumulated deficit of $103,288.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Balance Sheets (unaudited) |
| | As of September 30, 2019 |
| | As Originally Reported | | Restatement Impacts | | Restatement Reference | | As Restated |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 88,812 | | | $ | — | | | | | $ | 88,812 | |
| Restricted cash | | 9 | | | — | | | | | 9 | |
| Accounts receivable, less allowance for doubtful accounts of $16,392 at September 30, 2019 | | 226,997 | | | — | | | | | 226,997 | |
| Prepaid expenses | | 34,927 | | | — | | | | | 34,927 | |
| Other current assets | | 10,528 | | | — | | | | | 10,528 | |
| Total current assets | | 361,273 | | | — | | | | | 361,273 | |
| Computer hardware and other property, net | | 20,185 | | | — | | | | | 20,185 | |
| Other intangible assets, net | | 1,856,346 | | | — | | | | | 1,856,346 | |
| Goodwill | | 1,281,504 | | | — | | | | | 1,281,504 | |
| Other non-current assets | | 19,368 | | | — | | | | | 19,368 | |
| Deferred income taxes | | 19,808 | | | — | | | | | 19,808 | |
| Operating lease right-of-use assets | | 91,809 | | | — | | | | | 91,809 | |
| Total Assets | | $ | 3,650,293 | | | $ | — | | | | | $ | 3,650,293 | |
| | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 27,908 | | | $ | — | | | | | $ | 27,908 | |
| Accrued expenses and other current liabilities | | 162,303 | | | — | | | | | 162,303 | |
| Current portion of deferred revenues | | 330,786 | | | — | | | | | 330,786 | |
| Current portion of operating lease liabilities | | 23,953 | | | — | | | | | 23,953 | |
| Current portion of long-term debt | | 15,345 | | | — | | | | | 15,345 | |
| Total current liabilities | | 560,295 | | | — | | | | | 560,295 | |
| Long-term debt | | 1,305,364 | | | — | | | | | 1,305,364 | |
| Tax receivable agreement | | 264,000 | | | — | | | | | 264,000 | |
| Warrant liabilities | | — | | | 112,179 | | | (a) | | 112,179 | |
| Non-current portion of deferred revenues | | 21,299 | | | — | | | | | 21,299 | |
| Other non-current liabilities | | 17,278 | | | — | | | | | 17,278 | |
| Deferred income taxes | | 39,256 | | | — | | | | | 39,256 | |
| Operating lease liabilities | | 69,694 | | | — | | | | | 69,694 | |
| Total liabilities | | 2,277,186 | | | 112,179 | | | | | 2,389,365 | |
| Commitments and contingencies | | | | | | | | |
| Shareholders' equity: | | | | | | | | |
| Ordinary Shares, no par value; unlimited shares authorized at September 30, 2019; 306,050,763 shares issued and outstanding at September 30, 2019 | | 2,138,517 | | | (64,157) | | | (a) | | 2,074,360 | |
| Accumulated other comprehensive income (loss) | | (6,959) | | | — | | | | | (6,959) | |
| Accumulated deficit | | (758,451) | | | (48,022) | | | (a) | | (806,473) | |
| Total shareholders' equity | | 1,373,107 | | | (112,179) | | | | | 1,260,928 | |
| Total Liabilities and Shareholders' Equity | | $ | 3,650,293 | | | $ | — | | | | | $ | 3,650,293 | |
(a) Warrant liabilities—The correction of these misstatements resulted in an increase to warrant share liabilities in the amount of $112,179, a decrease to ordinary shares of $64,157, and an increase to accumulated deficit of $48,022.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Balance Sheets (unaudited) |
| | As of June 30, 2019 |
| | As Originally Reported | | Restatement Impacts | | Restatement Reference | | As Restated |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 43,063 | | | $ | — | | | | | $ | 43,063 | |
| Restricted cash | | 9 | | | — | | | | | 9 | |
| Accounts receivable, less allowance for doubtful accounts of $17,192 at June 30, 2019 | | 270,584 | | | — | | | | | 270,584 | |
| Prepaid expenses | | 39,238 | | | — | | | | | 39,238 | |
| Other current assets | | 12,577 | | | — | | | | | 12,577 | |
| Total current assets | | 365,471 | | | — | | | | | 365,471 | |
| Computer hardware and other property, net | | 18,490 | | | — | | | | | 18,490 | |
| Other intangible assets, net | | 1,884,521 | | | — | | | | | 1,884,521 | |
| Goodwill | | 1,282,842 | | | — | | | | | 1,282,842 | |
| Other non-current assets | | 23,890 | | | — | | | | | 23,890 | |
| Deferred income taxes | | 18,072 | | | — | | | | | 18,072 | |
| Operating lease right-of-use assets | | 94,950 | | | — | | | | | 94,950 | |
| Total Assets | | $ | 3,688,236 | | | $ | — | | | | | $ | 3,688,236 | |
| | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 30,396 | | | $ | — | | | | | $ | 30,396 | |
| Accrued expenses and other current liabilities | | 126,843 | | | — | | | | | 126,843 | |
| Current portion of deferred revenues | | 404,753 | | | — | | | | | 404,753 | |
| Current portion of operating lease liabilities | | 24,980 | | | — | | | | | 24,980 | |
| Current portion of long-term debt | | 15,345 | | | — | | | | | 15,345 | |
| Total current liabilities | | 602,317 | | | — | | | | | 602,317 | |
| Long-term debt | | 1,307,919 | | | — | | | | | 1,307,919 | |
| Tax receivable agreement | | 264,000 | | | — | | | | | 264,000 | |
| Warrant liabilities | | — | | | 90,343 | | | (a) | | 90,343 | |
| Non-current portion of deferred revenues | | 22,236 | | | — | | | | | 22,236 | |
| Other non-current liabilities | | 19,719 | | | — | | | | | 19,719 | |
| Deferred income taxes | | 42,582 | | | — | | | | | 42,582 | |
| Operating lease liabilities | | 72,171 | | | — | | | | | 72,171 | |
| Total liabilities | | 2,330,944 | | | 90,343 | | | | | 2,421,287 | |
| Commitments and contingencies | | | | | | | | |
| Shareholders' equity: | | | | | | | | |
| Ordinary Shares, no par value; unlimited shares authorized at June 30, 2019; 305,268,497 shares issued and outstanding at June 30, 2019 | | 2,128,809 | | | (64,157) | | | (a) | | 2,064,652 | |
| Accumulated other comprehensive income (loss) | | (2,235) | | | — | | | | | (2,235) | |
| Accumulated deficit | | (769,282) | | | (26,187) | | | (a) | | (795,469) | |
| Total shareholders' equity | | 1,357,292 | | | (90,343) | | | | | 1,266,949 | |
| Total Liabilities and Shareholders' Equity | | $ | 3,688,236 | | | $ | — | | | | | $ | 3,688,236 | |
(a) Warrant liabilities—The correction of these misstatements resulted in an increase to warrant share liabilities in the amount of $90,343, a decrease to ordinary shares of $64,157, and an increase to accumulated deficit of $26,187.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Operations (unaudited) |
| Nine Months Ended September 30, 2020 |
| As Originally Reported | | Reclassification (a) | | Restatement Impacts | | Restatement Reference | | As Reclassified and Restated |
| Revenues, net | $ | 798,452 | | | $ | — | | | $ | — | | | | | $ | 798,452 | |
| Operating expenses: | | | | | | | | | |
| Cost of revenues, excluding depreciation and amortization | (265,063) | | | (3,551) | | | — | | | | | (268,614) | |
| Selling, general and administrative costs, excluding depreciation and amortization | (266,749) | | | (101,498) | | | — | | | | | (368,247) | |
| Share-based compensation expense | (31,121) | | | 31,121 | | | — | | | | | — | |
| Depreciation | (8,151) | | | — | | | — | | | | | (8,151) | |
| Amortization | (168,049) | | | — | | | — | | | | | (168,049) | |
| Transaction expenses | (70,154) | | | 70,154 | | | — | | | | | — | |
| Transition, integration and other related expenses | (3,774) | | | 3,774 | | | — | | | | | — | |
| Restructuring and impairment | (26,792) | | | — | | | — | | | | | (26,792) | |
| Other operating income, net | 14,675 | | | — | | | — | | | | | 14,675 | |
| Total operating expenses | (825,178) | | | — | | | — | | | | | (825,178) | |
| Loss from operations | (26,726) | | | — | | | — | | | | | (26,726) | |
| Mark to market adjustment on financial instruments | — | | | — | | | (224,175) | | | (b) | | (224,175) | |
| Interest expense, net | (72,306) | | | — | | | — | | | | | (72,306) | |
| Loss before income tax | (99,032) | | | — | | | (224,175) | | | (b) | | (323,207) | |
| Provision for income taxes | (13,693) | | | — | | | — | | | | | (13,693) | |
| Net (loss) | $ | (112,725) | | | $ | — | | | $ | (224,175) | | | (b) | | $ | (336,900) | |
| | | | | | | | | |
| Per share: | | | | | | | | | |
| Basic and diluted | $ | (0.31) | | | | | $ | (0.61) | | | | | $ | (0.91) | |
| | | | | | | | | |
| Weighted average shares used to compute earnings per share: | | | | | | | | | |
| Basic and diluted | 369,019,802 | | | | | 369,019,802 | | | | | 369,019,802 |
(a) Reclassifications - The reclassifications are needed to conform to the current financial statement line items on the Condensed Consolidated Statements of Operations. (b) Mark to market adjustment on financial instruments - The correction of these misstatements resulted in an adjustment of $224,175 that was recorded through the Statement of Operations, increasing the Net (loss). |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Operations (unaudited) |
| Three Months Ended September 30, 2020 |
| As Originally Reported | | Reclassification (a) | | Restatement Impacts | | Restatement Reference | | As Reclassified and Restated |
| Revenues, net | $ | 284,360 | | | $ | — | | | $ | — | | | | | $ | 284,360 | |
| Operating expenses: | | | | | | | | | |
| Cost of revenues, excluding depreciation and amortization | (91,805) | | | (1,749) | | | — | | | | | (93,554) | |
| Selling, general and administrative costs, excluding depreciation and amortization | (91,319) | | | (40,207) | | | — | | | | | (131,526) | |
| Share-based compensation expense | (6,796) | | | 6,796 | | | — | | | | | — | |
| Depreciation | (2,918) | | | — | | | — | | | | | (2,918) | |
| Amortization | (65,696) | | | — | | | — | | | | | (65,696) | |
| Transaction expenses | (34,938) | | | 34,938 | | | — | | | | | — | |
| Transition, integration and other related expenses | (222) | | | 222 | | | — | | | | | — | |
| Restructuring and impairment | (3,192) | | | — | | | — | | | | | (3,192) | |
| Other operating income, net | (138) | | | — | | | — | | | | | (138) | |
| Total operating expenses | (297,024) | | | — | | | — | | | | | (297,024) | |
| Loss from operations | (12,664) | | | — | | | — | | | | | (12,664) | |
| Mark to market adjustment on financial instruments | — | | | — | | | (144,753) | | | (b) | | (144,753) | |
| Interest expense, net | (20,244) | | | — | | | — | | | | | (20,244) | |
| Loss before income tax | (32,908) | | | — | | | (144,753) | | | (b) | | (177,661) | |
| Provision for income taxes | (4,325) | | | — | | | — | | | | | (4,325) | |
| Net (loss) | $ | (37,233) | | | $ | — | | | $ | (144,753) | | | (b) | | $ | (181,986) | |
| | | | | | | | | |
| Per share: | | | | | | | | | |
| Basic and diluted | $ | (0.10) | | | | | $ | (0.37) | | | | | $ | (0.47) | |
| | | | | | | | | |
| Weighted average shares used to compute earnings per share: | | | | | | | | | |
| Basic and diluted | 387,845,438 | | | | | 387,845,438 | | | | | 387,845,438 |
(a) Reclassifications - The reclassifications are needed to conform to the current financial statement line items on the Condensed Consolidated Statements of Operations. (b) Mark to market adjustment on financial instruments - The correction of these misstatements resulted in an adjustment of $144,753 that was recorded through the Statement of Operations, increasing the Net loss. |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Operations (unaudited) |
| Six Months Ended June 30, 2020 |
| As Originally Reported | | Reclassification (a) | | Restatement Impacts | | Restatement Reference | | As Reclassified and Restated |
| Revenues, net | $ | 514,092 | | | $ | — | | | $ | — | | | | | $ | 514,092 | |
| Operating expenses: | | | | | | | | | |
| Cost of revenues, excluding depreciation and amortization | (173,258) | | | (1,802) | | | — | | | | | (175,060) | |
| Selling, general and administrative costs, excluding depreciation and amortization | (175,430) | | | (61,291) | | | — | | | | | (236,721) | |
| Share-based compensation expense | (24,325) | | | 24,325 | | | — | | | | | — | |
| Depreciation | (5,233) | | | — | | | — | | | | | (5,233) | |
| Amortization | (102,353) | | | — | | | — | | | | | (102,353) | |
| Transaction expenses | (35,216) | | | 35,216 | | | — | | | | | — | |
| Transition, integration and other related expenses | (3,552) | | | 3,552 | | | — | | | | | — | |
| Restructuring and impairment | (23,600) | | | — | | | — | | | | | (23,600) | |
| Other operating income, net | 14,813 | | | — | | | — | | | | | 14,813 | |
| Total operating expenses | (528,154) | | | — | | | — | | | | | (528,154) | |
| Loss from operations | (14,062) | | | — | | | — | | | | | (14,062) | |
| Mark to market on financial instruments | — | | | | | (79,422) | | | (b) | | (79,422) | |
| Interest expense, net | (52,062) | | | — | | | — | | | | | (52,062) | |
| Loss before income tax | (66,124) | | | — | | | (79,422) | | | (b) | | (145,546) | |
| Provision for income taxes | (9,368) | | | — | | | — | | | | | (9,368) | |
| Net loss | $ | (75,492) | | | $ | — | | | $ | (79,422) | | | (b) | | $ | (154,914) | |
| | | | | | | | | |
| Per share: | | | | | | | | | |
| Basic and diluted | $ | (0.21) | | | | | $ | (0.22) | | | | | $ | (0.43) | |
| | | | | | | | | |
| Weighted average shares used to compute earnings per share: | | | | | | | | | |
| Basic and diluted | 359,503,556 | | | | | 359,503,556 | | | | | 359,503,556 | |
(a) Reclassifications - The reclassifications are needed to conform to the current financial statement line items on the Condensed Consolidated Statements of Operations.
(b) Mark to market adjustment on financial instruments - The correction of these misstatements resulted in an adjustment of $79,422 that was recorded through the Statement of Operations, increasing the Net loss.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Operations (unaudited) |
| Three Months Ended June 30, 2020 |
| As Originally Reported | | Reclassification (a) | | Restatement Impacts | | Restatement Reference | | As Reclassified and Restated |
| Revenues, net | $ | 273,500 | | | $ | — | | | $ | — | | | | | $ | 273,500 | |
| Operating expenses: | | | | | | | | | |
| Cost of revenues, excluding depreciation and amortization | (90,859) | | | (1,520) | | | — | | | | | (92,379) | |
| Selling, general and administrative costs, excluding depreciation and amortization | (88,482) | | | (15,183) | | | — | | | | | (103,665) | |
| Share-based compensation expense | (6,856) | | | 6,856 | | | — | | | | | — | |
| Depreciation | (2,904) | | | — | | | — | | | | | (2,904) | |
| Amortization | (53,241) | | | — | | | — | | | | | (53,241) | |
| Transaction expenses | (8,527) | | | 8,527 | | | — | | | | | — | |
| Transition, integration and other related expenses | (1,320) | | | 1,320 | | | — | | | | | — | |
| Restructuring and impairment | (15,846) | | | — | | | — | | | | | (15,846) | |
| Other operating income, net | 8,781 | | | — | | | — | | | | | 8,781 | |
| Total operating expenses | (259,254) | | | — | | | — | | | | | (259,254) | |
| Income (loss) from operations | 14,246 | | | — | | | — | | | | | 14,246 | |
| Mark to market on financial instruments | — | | | — | | | (23,790) | | | (b) | | (23,790) | |
| Interest expense, net | (21,122) | | | — | | | — | | | | | (21,122) | |
| Loss before income tax | (6,876) | | | — | | | (23,790) | | | (b) | | (30,666) | |
| Benefit for income taxes | 5,385 | | | — | | | — | | | | | 5,385 | |
| Net loss | $ | (1,491) | | | $ | — | | | $ | (23,790) | | | (b) | | $ | (25,281) | |
| | | | | | | | | |
| Per share: | | | | | | | | | |
| Basic and diluted | $ | — | | | | | $ | (0.06) | | | | | $ | (0.07) | |
| | | | | | | | | |
| Weighted average shares used to compute earnings per share: | | | | | | | | | |
| Basic and diluted | 375,877,260 | | | | | 375,877,260 | | | | | 375,877,260 | |
(a) Reclassifications - The reclassifications are needed to conform to the current financial statement line items on the Condensed Consolidated Statements of Operations.
(b) Mark to market adjustment on financial instruments - The correction of these misstatements resulted in an adjustment of $23,790 that was recorded through the Statement of Operations, increasing the Net loss.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Operations (unaudited) |
| Three Months Ended March 31, 2020 |
| As Originally Reported | | Reclassification (a) | | Restatement Impacts | | Restatement Reference | | As Reclassified and Restated |
| Revenues, net | $ | 240,592 | | | $ | — | | | $ | — | | | | | $ | 240,592 | |
| Operating expenses: | | | | | | | | | |
| Cost of revenues, excluding depreciation and amortization | (82,399) | | | (283) | | | — | | | | | (82,682) | |
| Selling, general and administrative costs, excluding depreciation and amortization | (86,948) | | | (46,107) | | | — | | | | | (133,055) | |
| Share-based compensation expense | (17,469) | | | 17,469 | | | — | | | | | — | |
| Depreciation | (2,329) | | | | | — | | | | | (2,329) | |
| Amortization | (49,112) | | | | | — | | | | | (49,112) | |
| Transaction expenses | (26,689) | | | 26,689 | | | — | | | | | — | |
| Transition, integration and other related expenses | (2,232) | | | 2,232 | | | — | | | | | — | |
| Restructuring and impairment | (7,754) | | | | | — | | | | | (7,754) | |
| Other operating income, net | 6,032 | | | | | — | | | | | 6,032 | |
| Total operating expenses | (268,900) | | | — | | | — | | | | | (268,900) | |
| Loss from operations | (28,308) | | | — | | | — | | | | | (28,308) | |
| Mark to market on financial instruments | — | | | — | | | (55,632) | | | (b) | | (55,632) | |
| Interest expense, net | (30,940) | | | — | | | — | | | | | (30,940) | |
| Loss before income tax | (59,248) | | | — | | | (55,632) | | | (b) | | (114,880) | |
| Provision for income taxes | (14,753) | | | — | | | — | | | | | (14,753) | |
| Net loss | $ | (74,001) | | | $ | — | | | $ | (55,632) | | | (b) | | $ | (129,633) | |
| | | | | | | | | |
| Per share: | | | | | | | | | |
| Basic and diluted | $ | (0.22) | | | | | $ | (0.16) | | | | | $ | (0.38) | |
| | | | | | | | | |
| Weighted average shares used to compute earnings per share: | | | | | | | | | |
| Basic and diluted | 343,129,833 | | | | | 343,129,833 | | | | | 343,129,833 | |
(a) Reclassifications - The reclassifications are needed to conform to the current financial statement line items on the Condensed Consolidated Statements of Operations.
(b) Mark to market adjustment on financial instruments - The correction of these misstatements resulted in an adjustment of $55,632 that was recorded through the Statement of Operations, increasing the Net (loss).
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Operations (unaudited) |
| Nine Months Ended September 30, 2019 |
| As Originally Reported | | Reclassification (a) | | Restatement Impacts | | Restatement Reference | | As Reclassified and Restated |
| Revenues, net | $ | 719,332 | | | $ | — | | | $ | — | | | | | $ | 719,332 | |
| Operating expenses: | | | | | | | | | |
| Cost of revenues, excluding depreciation and amortization | (264,013) | | | (2,653) | | | — | | | | | (266,666) | |
| Selling, general and administrative costs, excluding depreciation and amortization | (280,766) | | | (95,845) | | | — | | | | | (376,611) | |
| Share-based compensation expense | (46,675) | | | 46,675 | | | — | | | | | — | |
| Depreciation | (6,463) | | | — | | | — | | | | | (6,463) | |
| Amortization | (138,694) | | | — | | | — | | | | | (138,694) | |
| Transaction expenses | (42,073) | | | 42,073 | | | — | | | | | — | |
| Transition, integration and other related expenses | (9,750) | | | 9,750 | | | — | | | | | — | |
| Legal settlement | 39,399 | | | (39,399) | | | — | | | | | — | |
| Other operating income, net | 3,047 | | | — | | | — | | | | | 3,047 | |
| Total operating expenses | (745,988) | | | (39,399) | | | — | | | | | (785,387) | |
| Loss from operations | (26,656) | | | (39,399) | | | — | | | | | (66,055) | |
| Mark to market on financial instruments | — | | | — | | | (48,022) | | | (b) | | (48,022) | |
| Legal settlement | — | | | 39,399 | | | — | | | | | 39,399 | |
| Interest expense, net | (93,938) | | | — | | | — | | | | | (93,938) | |
| Loss before income tax | (120,594) | | | — | | | (48,022) | | | (b) | | (168,616) | |
| Provision for income taxes | (5,596) | | | — | | | — | | | | | (5,596) | |
| Net (loss) | $ | (126,190) | | | $ | — | | | $ | (48,022) | | | (b) | | $ | (174,212) | |
| | | | | | | | | |
| Per share: | | | | | | | | | |
| Basic and diluted | $ | (0.48) | | | | | $ | (0.18) | | | | | $ | (0.66) | |
| | | | | | | | | |
| Weighted average shares used to compute earnings per share: | | | | | | | | | |
| Basic and diluted | 262,894,388 | | | | | 262,894,388 | | | | | 262,894,388 | |
(a) Reclassifications - The reclassifications are needed to conform to the current financial statement line items on the Condensed Consolidated Statements of Operations.
(b) Mark to market adjustment on financial instruments - The correction of these misstatements resulted in an adjustment of $48,022 that was recorded through the Statement of Operations, increasing the Net (loss).
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Operations (unaudited) |
| Three Months Ended September 30, 2019 |
| As Originally Reported | | Reclassification (a) | | Restatement Impacts | | Restatement Reference | | As Reclassified and Restated |
| Revenues, net | $ | 242,998 | | | $ | — | | | $ | — | | | | | $ | 242,998 | |
| Operating expenses: | | | | | | | | | |
| Cost of revenues, excluding depreciation and amortization | (87,117) | | | (2,041) | | | — | | | | | (89,158) | |
| Selling, general and administrative costs, excluding depreciation and amortization | (96,017) | | | (19,498) | | | — | | | | | (115,515) | |
| Share-based compensation expense | (9,567) | | | 9,567 | | | — | | | | | — | |
| Depreciation | (2,281) | | | — | | | — | | | | | (2,281) | |
| Amortization | (41,656) | | | — | | | — | | | | | (41,656) | |
| Transaction expenses | (8,645) | | | 8,645 | | | — | | | | | — | |
| Transition, integration and other related expenses | (3,327) | | | 3,327 | | | — | | | | | — | |
| Legal settlement | 39,399 | | | (39,399) | | | — | | | | | — | |
| Other operating income (expense), net | 2,057 | | | — | | | — | | | | | 2,057 | |
| Total operating expenses | (207,154) | | | (39,399) | | | — | | | | | (246,553) | |
| Income (loss) from operations | 35,844 | | | (39,399) | | | — | | | | | (3,555) | |
| Mark to market adjustment on financial instruments | — | | | — | | | (21,836) | | | (b) | | (21,836) | |
| Legal settlement | — | | | 39,399 | | | — | | | | | 39,399 | |
| Interest expense, net | (23,369) | | | — | | | — | | | | | (23,369) | |
| Income (loss) before income tax | 12,475 | | | — | | | (21,836) | | | (b) | | (9,361) | |
| Provision for income taxes | (1,644) | | | — | | | — | | | | | (1,644) | |
| Net income (loss) | $ | 10,831 | | | $ | — | | | $ | (21,836) | | | (b) | | $ | (11,005) | |
| | | | | | | | | |
| Per share: | | | | | | | | | |
| Basic | $ | 0.04 | | | | | $ | (0.07) | | | | | $ | (0.04) | |
| Diluted | $ | 0.03 | | | | | $ | (0.07) | | | | | $ | (0.04) | |
| | | | | | | | | |
| Weighted average shares used to compute earnings per share: | | | | | | | | | |
| Basic | 305,428,062 | | | | | 305,428,062 | | | | | 305,428,062 | |
| Diluted | 328,854,063 | | | | | 328,854,063 | | | | | 328,854,063 | |
(a) Reclassifications - The reclassifications are needed to conform to the current financial statement line items on the Condensed Consolidated Statements of Operations.
(b) Mark to market adjustment on financial instruments - The correction of these misstatements resulted in an adjustment of $21,836 that was recorded through the Statement of Operations, resulting in a Net (loss).
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Operations (unaudited) |
| Six Months Ended June 30, 2019 |
| As Originally Reported | | Reclassification (a) | | Restatement Impacts | | Restatement Reference | | As Reclassified and Restated |
| Revenues, net | $ | 476,334 | | | $ | — | | | $ | — | | | | | $ | 476,334 | |
| Operating expenses: | | | | | | | | | |
| Cost of revenues, excluding depreciation and amortization | (176,896) | | | (612) | | | — | | | | | (177,508) | |
| Selling, general and administrative costs, excluding depreciation and amortization | (184,749) | | | (76,347) | | | — | | | | | (261,096) | |
| Share-based compensation expense | (37,108) | | | 37,108 | | | — | | | | | — | |
| Depreciation | (4,182) | | | — | | | — | | | | | (4,182) | |
| Amortization | (97,038) | | | — | | | — | | | | | (97,038) | |
| Transaction expenses | (33,428) | | | 33,428 | | | — | | | | | — | |
| Transition, integration and other related expenses | (6,423) | | | 6,423 | | | — | | | | | — | |
| Other operating income, net | 990 | | | — | | | — | | | | | 990 | |
| Total operating expenses | (538,834) | | | — | | | — | | | | | (538,834) | |
| Loss from operations | (62,500) | | | — | | | — | | | | | (62,500) | |
| Mark to market adjustment on financial instruments | — | | | — | | | (26,187) | | | (b) | | (26,187) | |
| Interest expense, net | (70,569) | | | — | | | — | | | | | (70,569) | |
| Loss before income tax | (133,069) | | | — | | | (26,187) | | | (b) | | (159,256) | |
| Provision for income taxes | (3,952) | | | — | | | — | | | | | (3,952) | |
| Net loss | $ | (137,021) | | | $ | — | | | $ | (26,187) | | | (b) | | $ | (163,208) | |
| | | | | | | | | |
| Per share: | | | | | | | | | |
| Basic and diluted | $ | (0.57) | | | | | $ | (0.11) | | | | | $ | (0.68) | |
| | | | | | | | | |
| Weighted average shares used to compute earnings per share: | | | | | | | | | |
| Basic and diluted | 241,275,061 | | | | | 241,275,061 | | | | | 241,275,061 | |
(a) Reclassifications - The reclassifications are needed to conform to the current financial statement line items on the Condensed Consolidated Statements of Operations.
(b) Mark to market adjustment on financial instruments - The correction of these misstatements resulted in an adjustment of $26,187 that was recorded through the Statement of Operations, increasing the Net (loss).
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Operations (unaudited) |
| Three Months Ended June 30, 2019 |
| As Originally Reported | | Reclassification (a) | | Restatement Impacts | | Restatement Reference | | As Reclassified and Restated |
| Revenues, net | $ | 242,309 | | | $ | — | | | $ | — | | | | | $ | 242,309 | |
| Operating expenses: | | | | | | | | | |
| Cost of revenues, excluding depreciation and amortization | (87,629) | | | (658) | | | — | | | | | (88,287) | |
| Selling, general and administrative costs, excluding depreciation and amortization | (92,453) | | | (61,694) | | | — | | | | | (154,147) | |
| Share-based compensation expense | (33,932) | | | 33,932 | | | — | | | | | — | |
| Depreciation | (2,131) | | | — | | | — | | | | | (2,131) | |
| Amortization | (40,932) | | | — | | | — | | | | | (40,932) | |
| Transaction expenses | (23,158) | | | 23,158 | | | — | | | | | — | |
| Transition, integration, and other related expenses | (5,262) | | | 5,262 | | | — | | | | | — | |
| Other operating income, net | 6,607 | | | — | | | — | | | | | 6,607 | |
| Total operating expenses | (278,890) | | | — | | | — | | | | | (278,890) | |
| Income (loss) from operations | (36,581) | | | — | | | — | | | | | (36,581) | |
| Mark to market adjustment on financial instruments | — | | | — | | | (26,187) | | | (b) | | (26,187) | |
| Interest expense, net | (37,468) | | | — | | | — | | | | | (37,468) | |
| Loss before income tax | (74,049) | | | — | | | (26,187) | | | (b) | | (100,236) | |
| Provision for income taxes | (3,712) | | | — | | | — | | | | | (3,712) | |
| Net loss | $ | (77,761) | | | $ | — | | | $ | (26,187) | | | (b) | | $ | (103,948) | |
| | | | | | | | | |
| Per share: | | | | | | | | | |
| Basic and diluted | $ | (0.29) | | | | | $ | (0.10) | | | | | $ | (0.39) | |
| | | | | | | | | |
| Weighted average shares used to compute earnings per share: | | | | | | | | | |
| Basic and diluted | 264,762,720 | | | | | 264,762,720 | | | | | 264,762,720 | |
(a) Reclassifications - The reclassifications are needed to conform to the current financial statement line items on the Condensed Consolidated Statements of Operations.
(b) Mark to market adjustment on financial instruments - The correction of these misstatements resulted in an adjustment of $26,187 that was recorded through the Statement of Operations, increasing the Net loss.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Changes in Equity | | | | | | | | | | | |
| | | | | | As Restated | | | | | | | | | | | | | | | | | |
| | Ordinary Shares | | Treasury Shares | | Accumulated
Other
Comprehensive
Income (Loss) | | Accumulated
Deficit | | Total
Shareholders’
Equity | | | | | | | | | | | |
| Restatement Reference | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | | | |
| Balance at December 31, 2018, as originally reported | | 1,646,223 | | | $ | 1,677,510 | | | — | | | $ | — | | | $ | 5,358 | | | $ | (632,261) | | | $ | 1,050,607 | | | | | | | | | | | | |
| Conversion of units of share capital | | 215,880,202 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | |
| Balance at December 31, 2018, as recasted | | 217,526,425 | | | 1,677,510 | | | — | | | — | | | 5,358 | | | (632,261) | | | 1,050,607 | | | | | | | | | | | | |
| Issuance of ordinary shares, net | | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | |
| Share-based award activity | | — | | | 3,176 | | | — | | | — | | | — | | | — | | | 3,176 | | | | | | | | | | | | |
| Net loss | | — | | | — | | | — | | | — | | | — | | | (59,260) | | | (59,260) | | | | | | | | | | | | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (3,751) | | | — | | | (3,751) | | | | | | | | | | | | |
| Balance at March 31, 2019 | | 217,526,427 | | | 1,680,686 | | | — | | | — | | | 1,607 | | | (691,521) | | | 990,772 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares subject to redemption (As Restated) | (a) | — | | | (64,157) | | | — | | | — | | | — | | | — | | | (64,157) | | | | | | | | | | | | |
| Tax Receivable Agreement | | — | | | (264,000) | | | — | | | — | | | — | | | — | | | (264,000) | | | | | | | | | | | | |
| Issuance of ordinary stock, net | | (7,929) | | | 137 | | | — | | | — | | | — | | | — | | | 137 | | | | | | | | | | | | |
| Merger recapitalization | | 87,749,999 | | | 678,054 | | | — | | | — | | | — | | | — | | | 678,054 | | | | | | | | | | | | |
| Share-based award activity | | — | | | 33,932 | | | — | | | — | | | — | | | — | | | 33,932 | | | | | | | | | | | | |
| Net loss (As Restated) | (b) | — | | | — | | | — | | | — | | | — | | | (103,948) | | | (103,948) | | | | | | | | | | | | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (3,842) | | | — | | | (3,842) | | | | | | | | | | | | |
| Balance at June 30, 2019 (As Restated) | (a) (b) | 305,268,497 | | | 2,064,652 | | | — | | | — | | | (2,235) | | | (795,469) | | | 1,266,949 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Exercise of stock options | | 1,254,662 | | | 141 | | | — | | | — | | | — | | | — | | | 141 | | | | | | | | | | | | |
| Shares returned to the Company for net share settlements | | (472,396) | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | |
| Share-based award activity | | — | | | 9,567 | | | — | | | — | | | — | | | — | | | 9,567 | | | | | | | | | | | | |
| Net income (As Restated) | (b) | — | | | — | | | — | | | — | | | — | | | (11,005) | | | (11,005) | | | | | | | | | | | | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (4,724) | | | — | | | (4,724) | | | | | | | | | | | | |
| Balance at September 30, 2019 (As Restated) | (a) (b) | 306,050,763 | | | 2,074,360 | | | — | | | — | | | (6,959) | | | (806,473) | | | 1,260,928 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Settlement of Tax Receivable Agreement | | — | | | 64,000 | | | — | | | — | | | — | | | — | | | 64,000 | | | | | | | | | | | | |
| Issuance of ordinary stock, net | | 823,352 | | | 1,304 | | | — | | | — | | | — | | | — | | | 1,304 | | | | | | | | | | | | |
| Share-based award activity | | — | | | 4,708 | | | — | | | — | | | — | | | — | | | 4,708 | | | | | | | | | | | | |
| Net loss (As Restated) | (b) | — | | | — | | | — | | | — | | | — | | | (84,421) | | | (84,421) | | | | | | | | | | | | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 2,080 | | | — | | | 2,080 | | | | | | | | | | | | |
| Balance at December 31, 2019 (As Restated) | (a) (b) | 306,874,115 | | | $ | 2,144,372 | | | — | | | $ | — | | | $ | (4,879) | | | $ | (890,894) | | | $ | 1,248,599 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2019 (As Restated) | (b) | 306,874,115 | | | $ | 2,144,372 | | | — | | | $ | — | | | $ | (4,879) | | | $ | (890,894) | | | $ | 1,248,599 | | | | | | | | | | | | |
| Adjustment to opening Accumulated deficit related to adoption of ASC Topic 326 | | — | | | — | | | — | | | — | | | — | | | (9,319) | | | (9,319) | | | | | | | | | | | | |
| Exercise of public warrants | | 28,880,098 | | | 277,526 | | | — | | | — | | | — | | | — | | | 277,526 | | | | | | | | | | | | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Changes in Equity | | | | | | | | | | | |
| | | | | | As Restated | | | | | | | | | | | | | | | | | |
| | Ordinary Shares | | Treasury Shares | | Accumulated
Other
Comprehensive
Income (Loss) | | Accumulated
Deficit | | Total
Shareholders’
Equity | | | | | | | | | | | |
| Restatement Reference | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | | | |
| Exercise of stock options | | 3,715,455 | | | 1,182 | | | — | | | — | | | — | | | — | | | 1,182 | | | | | | | | | | | | |
| Vesting of restricted stock units | | 169,842 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | |
| Shares returned to the Company for net share settlements | | (2,301,458) | | | (10,302) | | | — | | | — | | | — | | | — | | | (10,302) | | | | | | | | | | | | |
| Issuance of ordinary shares, net | | 27,600,000 | | | 539,714 | | | — | | | — | | | — | | | — | | | 539,714 | | | | | | | | | | | | |
| Share-based award activity | | — | | | 16,384 | | | — | | | — | | | — | | | — | | | 16,384 | | | | | | | | | | | | |
| Net loss (As Restated) | (b) | — | | | — | | | — | | | — | | | — | | | (129,633) | | | (129,633) | | | | | | | | | | | | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (8,470) | | | — | | | (8,470) | | | | | | | | | | | | |
| Balance at March 31, 2020 (As Restated) | (a) (b) | 364,938,052 | | | 2,968,876 | | | — | | | — | | | (13,349) | | | (1,029,846) | | | 1,925,681 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Exercise of stock options | | 3,723,332 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | |
| Vesting of restricted stock units | | 2,528 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | |
| Shares returned to the Company for net share settlements | | (2,311,293) | | | (15,118) | | | — | | | — | | | — | | | — | | | (15,118) | | | | | | | | | | | | |
| Issuance of ordinary shares, net | | 20,982,500 | | | 304,030 | | | — | | | — | | | — | | | — | | | 304,030 | | | | | | | | | | | | |
| Share-based award activity | | — | | | 4,322 | | | — | | | — | | | — | | | — | | | 4,322 | | | | | | | | | | | | |
| Net loss (As Restated) | (b) | — | | | — | | | — | | | — | | | — | | | (25,281) | | | (25,281) | | | | | | | | | | | | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (2,280) | | | — | | | (2,280) | | | | | | | | | | | | |
| Balance at June 30, 2020 (As Restated) | (a) (b) | 387,335,119 | | | 3,262,110 | | | — | | | — | | | (15,629) | | | (1,055,127) | | | 2,191,354 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Exercise of stock options | | 4,068,307 | | | 125 | | | — | | | — | | | — | | | — | | | 125 | | | | | | | | | | | | |
| Vesting of restricted stock units | | 2,459 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | |
| Shares returned to the Company for net share settlements | | (2,184,918) | | | (3,136) | | | — | | | — | | | — | | | — | | | (3,136) | | | | | | | | | | | | |
| Share-based award activity | | — | | | 5,520 | | | — | | | — | | | — | | | — | | | 5,520 | | | | | | | | | | | | |
| Net loss (As Restated) | (b) | — | | | — | | | — | | | — | | | — | | | (181,986) | | | (181,986) | | | | | | | | | | | | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 10,436 | | | — | | | 10,436 | | | | | | | | | | | | |
| Balance at September 30, 2020 (As Restated) | (a) (b) | 389,220,967 | | | 3,264,619 | | | — | | | — | | | (5,193) | | | (1,237,113) | | | 2,022,313 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Exercise of Private Placement Warrants (As Restated) | (a) | 274,000 | | | 4,124 | | | — | | | — | | | — | | | — | | | 4,124 | | | | | | | | | | | | |
| Exercise of stock options | | 535,768 | | | 815 | | | — | | | — | | | — | | | — | | | 815 | | | | | | | | | | | | |
| Vesting of restricted stock units | | 114,812 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | | | | |
| Shares returned to the Company for net share settlements | | (499,727) | | | (4,500) | | | — | | | — | | | — | | | — | | | (4,500) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of ordinary shares, net | (c) | 216,683,778 | | | 6,715,030 | | | — | | | — | | | — | | | — | | | 6,715,030 | | | | | | | | | | | | |
| Treasury shares (as restated) | (c) | — | | | — | | | 6,325,860 | | | (196,038) | | | — | | | — | | | (196,038) | | | | | | | | | | | | |
| Share-based award activity | | — | | | 9,196 | | | — | | | — | | | — | | | — | | | 9,196 | | | | | | | | | | | | |
| Net loss (As Restated) | (b) (c) | — | | | — | | | — | | | — | | | — | | | (13,725) | | | (13,725) | | | | | | | | | | | | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Condensed Consolidated Statements of Changes in Equity | | | | | | | | | | | |
| | | | | | As Restated | | | | | | | | | | | | | | | | | |
| | Ordinary Shares | | Treasury Shares | | Accumulated
Other
Comprehensive
Income (Loss) | | Accumulated
Deficit | | Total
Shareholders’
Equity | | | | | | | | | | | |
| Restatement Reference | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | | | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 497,575 | | | — | | | 497,575 | | | | | | | | | | | | |
| Balance at December 31, 2020 (As Restated) | (a) (b) (c) | 606,329,598 | | | $ | 9,989,284 | | | 6,325,860 | | | $ | (196,038) | | | $ | 492,382 | | | $ | (1,250,838) | | | $ | 9,034,790 | | | | | | | | | | | | |
| a) Warrant liabilities - The correction of the misstatements reflected in Amendment No. 1 resulted in an increase to warrant share liabilities, a decrease to ordinary shares, an increase to ordinary shares upon exercise, and an increase to accumulated deficit. | | | | | | | | | | | |
| b) Mark to market adjustment on financial instruments - The correction of the misstatements reflected in Amendment No. 1 resulted in an adjustment that was recorded through the Statement of Operations. The change reflects a mark to market adjustment as a result of the restatement. | | | | | | | | | | | |
| c) CPA Global Equity Plan - Ordinary shares that were transferred from Leonard Green & Partners, L. P. to an Employee Benefit Trust established for the CPA Global Equity Plan that should have been excluded from the purchase price consideration in the amount of $196,038 or 6,325,860 ordinary shares. The correction of this Amendment No. 2 also included share-based compensation charge adjustments recorded through the Statement of Operations. | | | | | | | | | | | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
Note 27: Subsequent Events
Management has evaluated the impact of events that have occurred subsequent to December 31, 2020.
During January 2021, the Company issued 1,500,000 shares as per the purchase agreement for the acquisition of CPA Global related to a hold-back clause for a total of $43,890 which was satisfied.
The Company exited multiple leased sites on January 31, 2021, resulting in impairment charges of $7,180 to the respective right-of-use assets upon the cease-use date of each site.
Except as discussed above and as further described in Note 28 to the consolidated financial statements, the Company has not modified or updated disclosures presented in this Amendment No. 2. Accordingly, Amendment No. 2 does not reflect events occurring after the Original Form 10-K and Amendment No. 1 or modify or update those disclosures affected by subsequent events. Information not affected by the restatements is unchanged and reflects disclosures made at the time of the filing of the Original Form 10-K.
Note 28: Restatements of Previously Issued Financial Statements
Subsequent to the original issuance of its Consolidated Financial Statements, the Company identified certain errors in its historical annual Consolidated Financial Statements, related to the accounting treatment of Private Placement Warrants and the accounting treatment of certain awards made by CPA Global under its equity plan were incorrectly included as part of the acquisition accountingfor the CPA Global Transaction.
The restatement reflected in Amendment No. 1 is the result of our application of the guidance on accounting for certain Private Placement Warrants. We evaluated the impact to us and the Company concluded that certain of its Private Placement Warrants, issued to the founders of Churchill Capital Corp, a special purpose acquisition company or “SPAC” with which the Company consummated a business combination transaction in May 2019, should be classified as liabilities with mark to market accounting through earnings. Under Accounting Standards Codification 815, Derivatives and Hedging, ("ASC 815"), warrant instruments that do not meet the criteria to be considered indexed to an entity's own stock shall be initially classified as a liability at their estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash. In periods subsequent to issuance, changes in the estimated fair value of the liabilities are reported through earnings.
The restatement reflected in Amendment No. 2 relates to certain errors identified by the Company in its historical annual Consolidated Financial Statements, related to the accounting treatment of certain awards made by CPA Global under its equity plan that were incorrectly included as part of the acquisition accountingfor the CPA Global Transaction. In addition, ordinary shares that were transferred from Leonard Green & Partners, L. P. to an Employee Benefit Trust established for the CPA Global Equity Plan that should have been excluded from the purchase price consideration in the amount of $196,038 or 6,325,860 ordinary shares. Clarivate will consolidate the substance of the CPA Global Equity Plan trust asset, comprised of cash that already existed in the trust as of the acquisition date, and the ordinary shares classified as treasury shares, to fund the payout. The Company concluded that the financial statements previously issued as of and for the year ended December 31, 2020 were misstated.
In addition, and separate from the CPA Global Equity Plan restatement in Amendment No 2, the Company has corrected for the understatement of deferred tax liabilities of $3,238 with an offset to goodwill relating to the CPA Global acquisition opening balance sheet on October 1, 2020. The Company has also corrected for the understatement of deferred tax liabilities of $1,936 with an offset to goodwill relating to the DRG acquisition opening balance sheet on February 28, 2020.
We also concluded that the impacts were material to the Company’s financial statements prepared according to U.S. generally accepted accounting principles ("U.S. GAAP"). As such the restated audited Consolidated Financial Statements for the years ended December 31, 2020 and 2019 are defined as the “Restated Periods."
This Note 28 to the Company’s Consolidated Financial Statements discloses the restatement impacts on the originally reported financial statements for the years ended December 31, 2020 and 2019 and the nature of the
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
associated adjustments. The corrections included in the Consolidated Financial Statements contained herein are further described below.
The Restatement included in these Consolidated Financial Statements were prepared following an independent review by the Audit Committee of the Company’s Board of Directors.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Balance Sheets |
| As of December 31, |
| 2020 | | 2019 |
| As Originally Reported | | Amendment No. 1 Restatement Impact | | Amendment No. 2 Restatement Impact | | As Restated | | As Originally Reported | | Amendment No. 1 Restatement Impact | | As Restated |
| Assets | | | | | | | | | | | | | |
| Current assets: | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 257,730 | | | $ | — | | | $ | — | | | $ | 257,730 | | | $ | 76,130 | | | $ | — | | | $ | 76,130 | |
Restricted cash(4) | 11,278 | | | — | | | 3,400 | | | 14,678 | | | 9 | | | — | | | 9 | |
Accounts receivable, net of allowance of $8,745 and $16,511 at December 31, 2020 and December 31, 2019, respectively(1) | 751,446 | | | (13,713) | | | — | | | 737,733 | | | 333,858 | | | — | | | 333,858 | |
Prepaid expenses(2) | 58,770 | | | (497) | | | — | | | 58,273 | | | 40,710 | | | — | | | 40,710 | |
Other current assets(1)(3)(5) | 248,781 | | | 13,713 | | | (183,344) | | | 79,150 | | | 11,750 | | | — | | | 11,750 | |
| Assets held for sale | — | | | — | | | — | | | — | | | 30,619 | | | — | | | 30,619 | |
| Total current assets | 1,328,005 | | | (497) | | | (179,944) | | | 1,147,564 | | | 493,076 | | | — | | | 493,076 | |
| Property and equipment, net | 36,267 | | | — | | | — | | | 36,267 | | | 18,042 | | | — | | | 18,042 | |
| Other intangible assets, net | 7,370,350 | | | — | | | — | | | 7,370,350 | | | 1,828,640 | | | — | | | 1,828,640 | |
Goodwill(3) | 6,252,636 | | | — | | | (209,672) | | | 6,042,964 | | | 1,328,045 | | | — | | | 1,328,045 | |
Other non-current assets(3) | 47,944 | | | — | | | (16,610) | | | 31,334 | | | 18,632 | | | — | | | 18,632 | |
| Deferred income taxes | 29,786 | | | — | | | 77 | | | 29,863 | | | 19,488 | | | — | | | 19,488 | |
| Operating lease right-of-use assets | 132,356 | | | — | | | — | | | 132,356 | | | 85,448 | | | — | | | 85,448 | |
| Total Assets | $ | 15,197,344 | | | $ | (497) | | | $ | (406,149) | | | $ | 14,790,698 | | | $ | 3,791,371 | | | $ | — | | | $ | 3,791,371 | |
| | | | | | | | | | | | | |
| Liabilities and Shareholders’ Equity | | | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | | | |
| Accounts payable | $ | 82,038 | | | $ | — | | | $ | — | | | $ | 82,038 | | | $ | 26,458 | | | $ | — | | | $ | 26,458 | |
Accrued expenses and other current liabilities(3) | 716,356 | | | — | | | (146,674) | | | 569,682 | | | 159,217 | | | — | | | 159,217 | |
| Current portion of deferred revenues | 707,318 | | | — | | | — | | | 707,318 | | | 407,325 | | | — | | | 407,325 | |
| Current portion of long-term debt | 28,600 | | | — | | | — | | | 28,600 | | | 9,000 | | | — | | | 9,000 | |
| Current portion of operating lease liability | 35,455 | | | — | | | — | | | 35,455 | | | 22,130 | | | — | | | 22,130 | |
| Liabilities held for sale | — | | | — | | | — | | | — | | | 26,868 | | | — | | | 26,868 | |
| Total current liabilities | 1,569,767 | | | — | | | (146,674) | | | 1,423,093 | | | 650,998 | | | — | | | 650,998 | |
| Long-term debt | 3,457,900 | | | — | | | — | | | 3,457,900 | | | 1,628,611 | | | — | | | 1,628,611 | |
Warrant liabilities(2) | — | | | 312,751 | | | — | | | 312,751 | | | — | | | 111,813 | | | 111,813 | |
| Non-current portion of deferred revenues | 41,399 | | | — | | | — | | | 41,399 | | | 19,723 | | | — | | | 19,723 | |
Other non-current liabilities(3) | 67,722 | | | — | | | (18,277) | | | 49,445 | | | 18,891 | | | — | | | 18,891 | |
Deferred income taxes(3) | 362,261 | | | — | | | 4,735 | | | 366,996 | | | 48,547 | | | — | | | 48,547 | |
| Operating lease liabilities | 104,324 | | | — | | | — | | | 104,324 | | | 64,189 | | | — | | | 64,189 | |
| Total liabilities | 5,603,373 | | | 312,751 | | | (160,216) | | | 5,755,908 | | | 2,430,959 | | | 111,813 | | | 2,542,772 | |
| Commitments and contingencies | | | | | | | | | | | | | |
| Shareholders’ equity: | | | | | | | | | | | | | |
Ordinary Shares, no par value; unlimited shares authorized at December 31, 2020 and December 31, 2019; 606,329,598 and 306,874,115 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively(2) | 10,049,317 | | | (60,033) | | | — | | | 9,989,284 | | | 2,208,529 | | | (64,157) | | | 2,144,372 | |
Treasury Shares, at cost; 6,325,860 and 0 shares at December 31, 2020 and December 31, 2019, respectively(5) | — | | | — | | | (196,038) | | | (196,038) | | | — | | | — | | | — | |
| Accumulated other comprehensive income (loss) | 503,521 | | | — | | | (11,139) | | | 492,382 | | | (4,879) | | | — | | | (4,879) | |
Accumulated deficit(2)(3) | (958,867) | | | (253,215) | | | (38,756) | | | (1,250,838) | | | (843,238) | | | (47,656) | | | (890,894) | |
| Total shareholders’ equity | 9,593,971 | | | (313,248) | | | (245,933) | | | 9,034,790 | | | 1,360,412 | | | (111,813) | | | 1,248,599 | |
| Total Liabilities and Shareholders’ Equity | $ | 15,197,344 | | | $ | (497) | | | $ | (406,149) | | | $ | 14,790,698 | | | $ | 3,791,371 | | | $ | — | | | $ | 3,791,371 | |
| | | | | | | | | | | | | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
(1) Includes correction of the classification of certain current assets on the Consolidated Balance Sheet as of December 31, 2020 as described in Note 2 - Basis of Presentation.
(2)Warrant liabilities—The correction of these misstatements resulted in 1) the recording of a warrant liability from ordinary shares, 2) increase to ordinary shares for exercises and redemptions, and 3) accumulated deficit and warrant liability adjusted for the mark to market change in fair value.
(3) Includes correction of only a portion of the phantom equity compensation plan as part of acquisition accounting on the Consolidated Balance Sheet as of December 31, 2020 as described in Note 2 - Basis of Presentation. Additionally,and separate from the CPA Global Equity Plan restatement in Amendment No 2, the Company has corrected the acquisition accounting understatement of deferred tax liabilities of $3,328 with an offset to goodwill relating to the CPA Global acquisition opening balance sheet on October 1, 2020, as well as an understatement of deferred tax liabilities of $1,936 with an offset to goodwill relating to the DRG acquisition opening balance sheet on February 28, 2020.
(4) Represents restricted cash acquired to fund fixed cash awards and certain taxes related to the phantom equity compensation plan as part of CPA Global acquisition accounting.
(5)Includes correction of 6,325,860 shares that were transferred from Leonard Green & Partners, L. P. to an Employee Benefit Trust established for the CPA Global Equity Plan that should have been excluded from the purchase price consideration in the amount of $196,038.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Statements of Operations |
| Year ended December 31, |
| 2020 | | 2019 |
| As Originally Reported | | Amendment No. 1 Restatement Impact | | Amendment No. 2 Restatement Impact | | As Restated | | As Originally Reported | | Amendment No. 1 Restatement Impact | | As Restated |
| Revenues, net | $ | 1,254,047 | | | $ | — | | | $ | — | | | $ | 1,254,047 | | | $ | 974,345 | | | $ | — | | | $ | 974,345 | |
| Operating expenses: | | | | | | | | | | | | | |
Cost of revenues(1)(3) | (399,122) | | | (30,175) | | | (9,490) | | | (438,787) | | | (352,000) | | | — | | | (352,000) | |
Selling, general and administrative costs(1)(3) | (553,756) | | | 30,175 | | | (21,119) | | | (544,700) | | | (475,014) | | | — | | | (475,014) | |
| Depreciation | (12,709) | | | — | | | — | | | (12,709) | | | (9,181) | | | — | | | (9,181) | |
| Amortization | (290,441) | | | — | | | — | | | (290,441) | | | (191,361) | | | — | | | (191,361) | |
| Impairment on assets held for sale | — | | | — | | | — | | | — | | | (18,431) | | | — | | | (18,431) | |
Restructuring and impairment(3) | (47,595) | | | — | | | (8,543) | | | (56,138) | | | (15,670) | | | — | | | (15,670) | |
| Other operating income, net | 52,381 | | | — | | | — | | | 52,381 | | | 4,826 | | | — | | | 4,826 | |
| Total operating expenses | (1,251,242) | | | — | | | (39,152) | | | (1,290,394) | | | (1,056,831) | | | — | | | (1,056,831) | |
| Income (loss) from operations | 2,805 | | | — | | | (39,152) | | | (36,347) | | | (82,486) | | | — | | | (82,486) | |
Mark to market adjustment on financial instruments(2) | — | | | (205,062) | | | — | | | (205,062) | | | — | | | (47,656) | | | (47,656) | |
| Legal settlement | — | | | — | | | — | | | — | | | 39,399 | | | — | | | 39,399 | |
| Income (loss) before interest expense and income tax | 2,805 | | | (205,062) | | | (39,152) | | | (241,409) | | | (43,087) | | | (47,656) | | | (90,743) | |
| Interest expense and amortization of debt discount, net | (111,914) | | | — | | | — | | | (111,914) | | | (157,689) | | | — | | | (157,689) | |
| Loss before income tax | (109,109) | | | (205,062) | | | (39,152) | | | (353,323) | | | (200,776) | | | (47,656) | | | (248,432) | |
Benefit (provision) for income taxes(2)(3) | 2,799 | | | (497) | | | 396 | | | 2,698 | | | (10,201) | | | — | | | (10,201) | |
| Net loss | $ | (106,310) | | | $ | (205,559) | | | $ | (38,756) | | | $ | (350,625) | | | $ | (210,977) | | | $ | (47,656) | | | $ | (258,633) | |
| | | | | | | | | | | | | |
| Per share: | | | | | | | | | | | | | |
| Basic and diluted | $ | (0.25) | | | $ | (0.48) | | | $ | (0.09) | | | $ | (0.82) | | | $ | (0.77) | | | $ | (0.17) | | | $ | (0.94) | |
| | | | | | | | | | | | | |
| Weighted average shares used to compute earnings per share: | | | | | | | | | | | | | |
| Basic and diluted | 428,600,690 | | | 428,600,690 | | | 427,023,558 | | | 427,023,558 | | 273,883,342 | | | 273,883,342 | | | 273,883,342 | |
(1)Includes correction of the classification of certain expenses from the Selling, general and administrative to Cost of revenues as described in Note 2 - Basis of Presentation.
(2) Mark to market adjustment on financial instruments - The correction of the misstatements reflected in Amendment No. 1 resulted in the recording of a mark to market adjustment, impacting Income (loss) before interest expense and income tax, Loss before income tax, and Net loss.
(3)Includes correction and recording of share-based compensation charges over the vesting period within the Selling, general and administrative and Cost of revenues line items as well as accelerated charges for involuntarily terminated participants within the Restructuring and impairment line item as described in Note 2 - Basis of Presentation.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Statements of Comprehensive Income (Loss) |
| Year ended December 31, |
| 2020 | | 2019 |
| As Originally Reported | | First Restatement Adjustments | | Second Restatement Adjustments | | As Restated | | As Originally Reported | | First Restatement Adjustments | | As Restated |
Net loss(1)(2) | $ | (106,310) | | | $ | (205,559) | | | $ | (38,756) | | | $ | (350,625) | | | $ | (210,977) | | | $ | (47,656) | | | $ | (258,633) | |
| Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | |
| Interest rate swaps, net of $0 tax in all periods | (978) | | | — | | | — | | | (978) | | | (6,422) | | | — | | | (6,422) | |
| Defined benefit pension plans, net of tax (benefit) provision of $(65), $683 and $(91), respectively | (659) | | | — | | | — | | | (659) | | | (1,041) | | | — | | | (1,041) | |
| Foreign currency translation adjustment | 510,037 | | | — | | | (11,139) | | | 498,898 | | | (2,774) | | | — | | | (2,774) | |
| Total other comprehensive income (loss), net of tax | 508,400 | | | — | | | (11,139) | | | 497,261 | | | (10,237) | | | — | | | (10,237) | |
| Comprehensive income (loss) | $ | 402,090 | | | $ | (205,559) | | | $ | (49,895) | | | $ | 146,636 | | | $ | (221,214) | | | $ | (47,656) | | | $ | (268,870) | |
(1) Mark to market adjustment on financial instruments - The correction of these misstatements resulted in the recording of a mark to market adjustment, impacting Net loss.
(2)The correction of these misstatements resulted in the recording of a share-based compensation charges, impacting Net loss.
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Statements of Changes in Equity |
| | | | | | As Restated | | | | | | |
| | Ordinary Shares | | Treasury Shares | | Accumulated
Other
Comprehensive
Income (Loss) | | Accumulated
Deficit | | Total
Shareholders’
Equity |
| Restatement Reference | Shares | | Amount | | Shares | | Amount | | | |
| Balance at December 31, 2017 as originally reported | | 1,644,720 | | | $ | 1,662,221 | | | — | | | $ | — | | | $ | 13,984 | | | $ | (390,099) | | | $ | 1,286,106 | |
| Conversion of units of share capital | | 215,683,103 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Balance at December 31, 2017, as recasted | | 217,327,823 | | | 1,662,221 | | | — | | | — | | | 13,984 | | | (390,099) | | | 1,286,106 | |
| Issuance of ordinary shares, net | | 198,602 | | | 1,574 | | | — | | | — | | | — | | | — | | | 1,574 | |
| Share-based award activity | | — | | | 13,715 | | | — | | | — | | | — | | | — | | | 13,715 | |
| Net loss | | — | | | — | | | — | | | — | | | — | | | (242,162) | | | (242,162) | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (8,626) | | | — | | | (8,626) | |
| Balance at December 31, 2018 | | 217,526,425 | | | $ | 1,677,510 | | | — | | | $ | — | | | $ | 5,358 | | | $ | (632,261) | | | $ | 1,050,607 | |
| | | | | | | | | | | | | | |
| Balance at December 31, 2018, as originally reported | | 1,646,223 | | | $ | 1,677,510 | | | — | | | $ | — | | | $ | 5,358 | | | $ | (632,261) | | | $ | 1,050,607 | |
| Conversion of units of share capital | | 215,880,202 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Balance at December 31, 2018, as recasted | | 217,526,425 | | | 1,677,510 | | | — | | | — | | | 5,358 | | | (632,261) | | | 1,050,607 | |
| Tax Receivable Agreement | | — | | | (264,000) | | | | | — | | | — | | | — | | | (264,000) | |
| Settlement of Tax Receivable Agreement | | — | | | 64,000 | | | | | — | | | — | | | — | | | 64,000 | |
| Shares subject to redemption (As Restated) | (1) | — | | | (64,157) | | | — | | | — | | | — | | | — | | | (64,157) | |
| Issuance of ordinary shares, net | | 1,597,691 | | | 1,582 | | | — | | | — | | | — | | | — | | | 1,582 | |
| Merger recapitalization | | 87,749,999 | | | 678,054 | | | — | | | — | | | — | | | — | | | 678,054 | |
| Share-based award activity | | — | | | 51,383 | | | — | | | — | | | — | | | — | | | 51,383 | |
| Net loss (As Restated) | (2) | — | | | — | | | — | | | — | | | — | | | (258,633) | | | (258,633) | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (10,237) | | | — | | | (10,237) | |
| Balance at December 31, 2019 (As Restated) | (1)(2) | 306,874,115 | | | $ | 2,144,372 | | | — | | | $ | — | | | $ | (4,879) | | | $ | (890,894) | | | $ | 1,248,599 | |
| | | | | | | | | | | | | | |
| Balance at December 31, 2019 (As Restated) | | 306,874,115 | | | $ | 2,144,372 | | | — | | | $ | — | | | $ | (4,879) | | | $ | (890,894) | | | $ | 1,248,599 | |
| Adjustment to opening Accumulated deficit related to adoption of ASC Topic 326 | | — | | | — | | | — | | | — | | | — | | | (9,319) | | | (9,319) | |
| Exercise of public warrants | | 28,880,098 | | | 277,526 | | | — | | | — | | | — | | | — | | | 277,526 | |
| Exercise of Private Placement Warrants (As Restated) | (1) | 274,000 | | | 4,124 | | | — | | | — | | | — | | | — | | | 4,124 | |
| Exercise of stock options | | 12,042,862 | | | 2,122 | | | — | | | — | | | — | | | — | | | 2,122 | |
| Vesting of restricted stock units | | 289,641 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Shares returned to the Company for net share settlements | | (7,297,396) | | | (33,056) | | | — | | | — | | | — | | | — | | | (33,056) | |
| Issuance of ordinary shares, net | | 265,266,278 | | | 7,558,774 | | | — | | | — | | | — | | | — | | | 7,558,774 | |
| Treasury shares (as restated) | (3) | — | | | — | | | 6,325,860 | | | (196,038) | | | — | | | — | | | (196,038) | |
| Share-based award activity | | — | | | 35,422 | | | — | | | — | | | — | | | — | | | 35,422 | |
| | | | | | | | | | | | | | |
| Net loss (As Restated) | (2)(3) | — | | | — | | | — | | | — | | | — | | | (350,625) | | | (350,625) | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 497,261 | | | — | | | 497,261 | |
| Balance at December 31, 2020 (As Restated) | (1)(2)(3) | 606,329,598 | | | $ | 9,989,284 | | | 6,325,860 | | $ | — | | $ | (196,038) | | | $ | 492,382 | | | $ | (1,250,838) | | | $ | 9,034,790 | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) Warrant liabilities—The correction of the misstatements reflected in Amendment No. 1 resulted in an increase to warrant share liabilities, a decrease to ordinary shares, an increase to ordinary shares upon exercise, and a decrease to accumulated deficit.
|
(2) Mark to market adjustment on financial instruments - The correction of the misstatements reflected in Amendment No. 1 resulted in an adjustment that was recorded through the Statement of Operations. The change reflects a mark to market adjustment as a result of the restatement.
|
(3)CPA Global Equity Plan - Ordinary shares that were transferred from Leonard Green & Partners, L. P. to a trust established to fund the equity plan, should have been excluded from the purchase price consideration. The correction of this Amendment No. 2 also included share-based compensation charge adjustments recorded through the Statement of Operations.
|
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Statements of Cash Flows |
| Year Ended December 31, |
| 2020 | | 2019 |
| As Originally Reported | | Amendment No. 1 Restatement Impact | | Amendment No. 2 Restatement Impact | | As Restated | | As Originally Reported | | Amendment No. 1 Restatement Impact | | As Restated |
| Cash Flows From Operating Activities | | | | | | | | | | | | | |
Net loss(2)(3) | $ | (106,310) | | | $ | (205,559) | | | $ | (38,756) | | | $ | (350,625) | | | $ | (210,977) | | | $ | (47,656) | | | $ | (258,633) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | | | | |
| Depreciation and amortization | 303,150 | | | — | | | — | | | 303,150 | | | 200,542 | | | — | | | 200,542 | |
| Bad debt expense | 3,332 | | | — | | | — | | | 3,332 | | | 1,331 | | | — | | | 1,331 | |
| Deferred income tax benefit | (45,105) | | | — | | | (404) | | | (45,509) | | | 357 | | | — | | | 357 | |
| Share-based compensation | 35,422 | | | — | | | (1,264) | | | 34,158 | | | 51,383 | | | — | | | 51,383 | |
| Restructuring and impairment | 5,288 | | | — | | | (76) | | | 5,212 | | | — | | | — | | | — | |
| Gain on foreign currency forward contracts | (2,903) | | | — | | | — | | | (2,903) | | | — | | | — | | | — | |
Mark to market adjustment on contingent and phantom shares(3) | 24,218 | | | — | | | 994 | | | 25,212 | | | — | | | — | | | — | |
Mark to market adjustment on financial instruments (As Restated)(2) | — | | | 205,062 | | | — | | | 205,062 | | | — | | | 47,656 | | | 47,656 | |
| Loss on extinguishment of debt | — | | | — | | | — | | | — | | | 50,676 | | | — | | | 50,676 | |
| Gain on disposal of business | (29,192) | | | — | | | — | | | (29,192) | | | — | | | — | | | — | |
| Impairment on assets held for sale | — | | | — | | | — | | | — | | | 18,431 | | | — | | | 18,431 | |
| Deferred finance charges | 5,752 | | | — | | | — | | | 5,752 | | | 2,496 | | | — | | | 2,496 | |
| Tax indemnity write-off | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other operating activities | 2,611 | | | — | | | — | | | 2,611 | | | (374) | | | — | | | (374) | |
| | | | | | | | | | | | | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | | |
Accounts receivable(1) | 16,234 | | | 13,713 | | | — | | | 29,947 | | | (593) | | | — | | | (593) | |
| Prepaid expenses | 5,245 | | | 497 | | | — | | | 5,742 | | | (10,224) | | | — | | | (10,224) | |
Other assets(1) | 56,771 | | | (13,713) | | | 2,620 | | | 45,678 | | | (975) | | | — | | | (975) | |
| Accounts payable | (2,851) | | | — | | | — | | | (2,851) | | | (13,838) | | | — | | | (13,838) | |
Accrued expenses and other current liabilities(3) | (90,568) | | | — | | | 35,774 | | | (54,794) | | | 1,095 | | | — | | | 1,095 | |
| Deferred revenues | 80,683 | | | — | | | — | | | 80,683 | | | 33,480 | | | — | | | 33,480 | |
| Operating lease right of use assets | 5,329 | | | — | | | — | | | 5,329 | | | 11,365 | | | — | | | 11,365 | |
| Operating lease liabilities | (6,064) | | | — | | | — | | | (6,064) | | | (11,251) | | | — | | | (11,251) | |
| Other liabilities | 2,458 | | | — | | | 1,112 | | | 3,570 | | | (5,344) | | | — | | | (5,344) | |
| Net cash provided by operating activities | 263,500 | | | — | | | — | | | 263,500 | | | 117,580 | | | — | | | 117,580 | |
| | | | | | | | | | | | | |
| Cash Flows From Investing Activities | | | | | | | | | | | | | |
| Capital expenditures | (107,713) | | | — | | | — | | | (107,713) | | | (69,836) | | | — | | | (69,836) | |
Acquisitions, net of cash acquired(4) | (2,919,871) | | | — | | | 3,400 | | | (2,916,471) | | | (68,424) | | | — | | | (68,424) | |
| Acquisition of intangible assets | (5,982) | | | — | | | — | | | (5,982) | | | (2,625) | | | — | | | (2,625) | |
| Proceeds from sale of product line, net of restricted cash | 41,398 | | | — | | | — | | | 41,398 | | | — | | | — | | | — | |
| Net cash used in investing activities | (2,992,168) | | | — | | | 3,400 | | | (2,988,768) | | | (140,885) | | | — | | | (140,885) | |
| | | | | | | | | | | | | |
| Cash Flows From Financing Activities | | | | | | | | | | | | | |
| Proceeds from revolving credit facility | 60,000 | | | — | | | — | | | 60,000 | | | 70,000 | | | — | | | 70,000 | |
| Principal payments on term loan | (12,600) | | | — | | | — | | | (12,600) | | | (641,509) | | | — | | | (641,509) | |
| Repayments of revolving credit facility | (125,000) | | | — | | | — | | | (125,000) | | | (50,000) | | | — | | | (50,000) | |
| Payment of debt issuance costs | (38,340) | | | — | | | — | | | (38,340) | | | (41,923) | | | — | | | (41,923) | |
| Contingent purchase price payment | (7,816) | | | — | | | — | | | (7,816) | | | (2,371) | | | — | | | (2,371) | |
CLARIVATE PLC
Notes to the Consolidated Financial Statements
(In thousands, except share and per share data, option prices, ratios or as noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Statements of Cash Flows |
| Year Ended December 31, |
| 2020 | | 2019 |
| As Originally Reported | | Amendment No. 1 Restatement Impact | | Amendment No. 2 Restatement Impact | | As Restated | | As Originally Reported | | Amendment No. 1 Restatement Impact | | As Restated |
| Proceeds from reverse recapitalization | — | | | — | | | — | | | — | | | 682,087 | | | — | | | 682,087 | |
| Proceeds from issuance of debt | 1,960,000 | | | — | | | — | | | 1,960,000 | | | 1,600,000 | | | — | | | 1,600,000 | |
| Extinguishment of debt | — | | | — | | | — | | | — | | | (1,342,651) | | | — | | | (1,342,651) | |
| Tax receivable agreement payout | — | | | — | | | — | | | — | | | (200,000) | | | — | | | (200,000) | |
| Proceeds from issuance of ordinary shares | 843,744 | | | — | | | — | | | 843,744 | | | — | | | — | | | — | |
| Proceeds from warrant exercises | 277,526 | | | — | | | — | | | 277,526 | | | — | | | — | | | — | |
| Proceeds from stock options exercised | 2,122 | | | — | | | — | | | 2,122 | | | 1,582 | | | — | | | 1,582 | |
| Payments related to tax withholding for stock-based compensation | (33,056) | | | — | | | — | | | (33,056) | | | — | | | — | | | — | |
| Net cash provided by financing activities | 2,926,580 | | | — | | | — | | | 2,926,580 | | | 75,215 | | | — | | | 75,215 | |
| | | | | | | | | | | | | |
| Effects of exchange rates | (5,043) | | | — | | | — | | | (5,043) | | | (971) | | | — | | | (971) | |
| Net increase in cash and cash equivalents, and restricted cash | 192,869 | | | — | | | 3,400 | | | 196,269 | | | 50,939 | | | — | | | 50,939 | |
| | | | | | | | | | | | | |
| Beginning of period: | | | | | | | | | | | | | |
| Cash and cash equivalents | 76,130 | | | — | | | — | | | 76,130 | | | 25,575 | | | — | | | 25,575 | |
| Restricted cash | 9 | | | — | | | — | | | 9 | | | 9 | | | — | | | 9 | |
| Total cash and cash equivalents, and restricted cash, beginning of period | 76,139 | | | — | | | — | | | 76,139 | | | 25,584 | | | — | | | 25,584 | |
| Less: Cash included in assets held for sale, end of period | — | | | — | | | — | | | — | | | (384) | | | — | | | (384) | |
| Cash and cash equivalents, and restricted cash, end of period | 269,008 | | | — | | | 3,400 | | | 272,408 | | | 76,139 | | | — | | | 76,139 | |
| | | | | | | | | | | | | |
| End of period: | | | | | | | | | | | | | |
| Cash and cash equivalents | 257,730 | | | — | | | — | | | 257,730 | | | 76,130 | | | — | | | 76,130 | |
| Restricted cash | 11,278 | | | — | | | 3,400 | | | 14,678 | | | 9 | | | — | | | 9 | |
| Total cash and cash equivalents, and restricted cash, end of period | $ | 269,008 | | | $ | — | | | $ | 3,400 | | | $ | 272,408 | | | $ | 76,139 | | | $ | — | | | $ | 76,139 | |
| | | | | | | | | | | | | |
| Supplemental Cash Flow Information | | | | | | | | | | | | | |
| Cash paid for interest | $ | 97,510 | | | $ | — | | | $ | — | | | $ | 97,510 | | | $ | 101,164 | | | $ | — | | | $ | 101,164 | |
| Cash paid for income tax | $ | 27,621 | | | $ | — | | | $ | — | | | $ | 27,621 | | | $ | 29,204 | | | $ | — | | | $ | 29,204 | |
| Capital expenditures included in accounts payable | $ | 7,783 | | | $ | — | | | $ | — | | | $ | 7,783 | | | $ | 8,762 | | | $ | — | | | $ | 8,762 | |
| Assets received as reverse recapitalization capital | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,877 | | | $ | — | | | $ | 1,877 | |
| Liabilities assumed as reduction of reverse recapitalization capital | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 5,910 | | | $ | — | | | $ | 5,910 | |
| | | | | | | | | | | | | |
| Non-cash investing activities: | | | | | | | | | | | | | |
| Shares issued and returned for funding of CPA Global Equity Plan | $ | — | | | $ | — | | | $ | (196,038) | | | $ | (196,038) | | | $ | — | | | $ | — | | | $ | — | |
(1)Includes restatement of the classification of certain current assets on the Consolidated Balance Sheet as of December 31, 2020 as described in Note 2 - Basis of Presentation.
(2) Mark to market adjustment on financial instruments - The correction of these misstatements resulted in the recording of a mark to market adjustment, impacting Net loss.
(3) Share-based compensation charges - The correction of these misstatements resulted in the recording of share-based compensation charges, impacting Net loss.
(4) Represents restricted cash acquired to fund fixed cash awards and certain taxes related to the phantom equity compensation plan as part of CPA Global acquisition accounting.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureDisclosure.
None.
Item 9A. Controls and ProceduresProcedures.
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer had(“CFO”), have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2020. On February 26, 2021, we filed our original Annual Report on Form 10-K for the year ended December 31, 2020 (the "Original Report").2023. Based on thethat evaluation, at that time, our Chief Executive OfficerCEO and Chief Financial OfficerCFO concluded that, our disclosure controls and procedures were effective as of December 31, 2020. Subsequently, and as a result ofsuch date, due to the material weaknessesweakness in our internal control over financial reporting as described below, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective at theto provide reasonable assurance levelthat the information required to be disclosed in the reports required to be filed or submitted under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our CEO and CFO, as of December 31, 2020.
Notwithstanding the material weaknesses, management hasweakness, our CEO and CFO have concluded that our auditedconsolidated financial statements included in this Amendment No. 2annual report are fairly stated in all material respects in accordance with GAAP for each of the periods presented herein.
Management’s Report on Internal Control Over Financial Reporting (Restated)
TheOur management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company'sOur internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S generally accepted accounting principles. The Company'sGAAP. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles,GAAP, and that our receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors of the Company;directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company'sour assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Clarivate'sClarivate’s management, under the supervision and with the participation of the CEO and CFO, assessed the effectiveness of Clarivate'sour internal control over financial reporting as of December 31, 20202023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"(“COSO”) in Internal Control — Integrated Framework (2013).
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company'sa company’s annual or interim financial statements will not
be prevented or detected on a timely basis.
On February 26, 2021, we filed the Original Report. At that time, our management, including our Chief Executive Officer and our Chief Financial Officer, had performed an evaluation and concluded that our internal control over financial reporting was effective as of December 31, 2020. Subsequent to that evaluation, (1) in connection with Amendment No. 1, our management concluded that we We did not design and maintain effective internal control over financial reporting as of December 31, 2020, due to a material weakness
controls related to the lack of an effectively designed control over the evaluation of settlement features used to determine the classification of warrant instrumentspreparation and (2) in connection with Amendment No. 2, our management concluded that
material weaknesses in internal control over financial reporting existed as of December 31, 2020 related to (a) the lack of an effectively designed control over the communication of modifications to pre-existing compensation agreements in an acquisition transaction between the legal function and the accounting function to ensure the accounting impact of the modifications could be evaluated, and (b) the lack of an effectively designed control with a sufficient level of precision to allow for an appropriate review of the tax balances associated with the opening balance sheet of acquired entities. Accordingly, management has restated its report on internal control overfootnote disclosures included in our consolidated financial reporting. The material weaknessstatements, including controls related to the classificationcompleteness and accuracy of warrant liabilitiesthe underlying information used in the preparation of the footnote disclosures. The control deficiency resulted in the restatementimmaterial misstatements of the Company’s consolidated financial statementsour footnote disclosures for the yearsthree-month period ended DecemberMarch 31, 20202023, the three- and 2019, each of the quarters of 2020, and the quarterssix-month periods ended June 30, 2023, and September 30, 2019 related to warrant liabilities and related accounts and disclosures. The material weakness related to the communication of modifications to pre-existing compensation agreements in an acquisition transaction resulted in the restatement of the Company’s consolidated financial statements for the year ended December 31, 2020 and the quarter ended December 31, 2020 related to restricted cash, prepaid expenses, goodwill, accrued expenses, other current liabilities, other non-current liabilities, treasury shares, and accumulated other comprehensive income (loss) and accumulated deficit. The material weakness related to the review of the tax balances associated with the opening balance sheet of acquired entities resulted in immaterial adjustments of the Company’s consolidated financial statements for the year ended December 31, 2020 and each of the quarters of 2020 related to goodwill, deferred income tax asset, and deferred income tax liability.2022. Additionally, these material weaknessesif left unremediated, this control deficiency could result in additional misstatements of the aforementioned account balances orfootnote disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Therefore, management has concluded that this control deficiency constitutes a material weakness.
In the year ended December 31, 2020, the Company acquired Decision Resources Group ("DRG"), CPA Global, Beijing IncoPat Technology Co., Ltd. ("IncoPat"), and Hanlim IPS. Co., Ltd. ("Hanlim") in purchase business combinations. Management excluded DRG, CPA Global, IncoPat, and Hanlim from our assessment of theThe effectiveness of the Company'sour internal control over financial reporting as of December 31, 2020. DRG, CPA Global, IncoPat, and Hanlim represented 1%, 5%, 0%, and 0% of the total assets, respectively, and 15%, 13%, 0%,
and 0% of total revenue, respectively, of the Company as of and for the year ended December 31, 2020.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 20202023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
under
Remediation Plan for the Material Weakness
Our remediation planTo address the material weakness, during the fourth quarter of 2023, we designed and implemented new control activities to enhance the procedures performed related to the classificationpreparation and review of warrant instruments includes management designing afootnote disclosures, including control at a sufficient level of precision over the evaluation of settlement features used to determine the classification of warrant instruments. Our remediation plan related to modification of pre-existing compensation agreements in acquisition transactions includes management designing a control to identify and communicate the inventory of pre-existing compensation agreements in acquisition transactions to the accounting department, including bring down procedures to the transaction close date to ensure the inventory includes the current version of the agreements. Our remediation plan also includes bring down procedures each quarter through the measurement period. Our remediation planactivities related to the tax opening balance sheetcompleteness and accuracy of acquired entitiessource data utilized in the preparation of footnote disclosures. The material weakness will includenot be considered remediated until these control activities operate for a sufficient period of time and our management designing an enhancedhas concluded, through testing, that these controls are operating effectively.
We believe the measures described above will remediate the control deficiencies we have identified and strengthen our internal control over financial reporting. We are committed to operate periodically during the measurement periodcontinuing to allow for an appropriateimprove our internal control processes and will continue to review, of the tax balances associated with the opening balance sheet of acquired entities.
Changes in Internal Control Over Financial Reporting
DuringRemediation Plan for the fourth quarter of 2020, excluding theMaterial Weakness, there were changes in our internal control over financial reporting at DRG, CPA Global, IncoPat and Hanlim as we will disclose all such changes in our December 31, 2021 Annual report, there was no change in Clarivate’s internal control over financial reportingduring the fourth quarter of 2023 that materially affected, or isare reasonably likely to materially affect, internal control over financial reporting.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
Item 9B. Other Information
Iran Threat Reduction And Syria Human Rights Act Disclosure
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which amended the Securities Exchange Act of 1934, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether, during the reporting period, it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable laws and regulations.
During the reporting period, the Company sold access to information and informational materials, which are generally exempt from U.S. economic sanctions, to 3 entities that are part of, or may be owned or controlled by, the Government of Iran. We were advised by counsel that these transactions were permissible under U.S. sanctions pursuant to certain statutory and regulatory exemptions for the exportation of information and informational materials. The Company terminated this activity in October 2019 and does not intend to resume it.
Revenue in the reporting period attributable to the transactions or dealings by the Company described above was approximately $700 and the company incurred no expenses related to these transactions. As such, the net profit of these transactions is approximately $700.
PART III
Item 10. Directors, Executive Officers, and Corporate GovernanceGovernance.
We incorporate by reference the information responsive to this Item appearing in our definitive Proxy Statement on Schedule 14A for our 20212024 Annual General Meeting of Shareholders (“Proxy Statement”), which will be filed no later than 120 days after December 31, 2020.2023.
Code of Ethics
Clarivate has adopted a Code of Ethics that applies to all of its employees, officers, and directors. This includes Clarivate’s principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions. The full text of Clarivate’s Code of Ethics is posted on its website at ir.clarivate.com/governance/governance-documents/default.aspx. Clarivate intends to disclose on its website any future amendments of the Code of Ethics or waivers that exempt any principal executive officer, principal financial officer, principal accounting officer or controller, persons performing similar functions, or Clarivate’s directors from provisions in the Code of Ethics.
Statement of Significant Differences Between our Corporate Governance Practices and NYSE Corporate Governance Standards for U.S. Issuers
Pursuant to exceptions for foreign private issuers, we are not required to comply with certain of the corporate governance practices followed by U.S. companies under NYSE listing standards. However, Section 303A.11 of the NYSE Listed Company Manual requires that we state any significant differences between our corporate governance practices and the practices required by the NYSE. In this regard, if we believe that circumstances warrant, we may elect to comply with provisions of Companies (Jersey) Law 1991 in lieu of the NYSE shareholder approval requirements applicable to certain dilutive events, such as the establishment or material amendment of certain equity-based compensation plans. In addition, our compensation committee and nominating and corporate governance committee are not subject to annual performance evaluations.
Item 11. Executive CompensationCompensation.
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, which will be filed no later than 120 days after December 31, 2020.2023.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersMatters.
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, which will be filed no later than 120 days after December 31, 2020.
Item 13. Certain Relationships and Related Transactions, and Director IndependenceIndependence.
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, which will be filed no later than 120 days after December 31, 2020.2023.
Item 14. Principal Accounting Fees and ServicesServices.
We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, which will be filed no later than 120 days after December 31, 2020.2023.
PART IV
Item 15. Exhibits and Financial Statement SchedulesSchedules.
EXHIBIT INDEX(a) Index of Financial Statements
The financial statements listed in the Index to Consolidated Financial Statements are filed as part of this annual report (see Part II, Item 8).
(b) Index of Exhibits
The following exhibits are filed as part of this report:
| | | | | | | | |
2.1Exhibit Number | | Share Purchase Agreement, dated January 17, 2020 by and among PEL-DRG Dutch Holdco B.V., Piramal Enterprises Limited, Clarivate Analytics (US) Holdings Inc., Clarivate Analytics (Canada) Holdings Corp., Camelot UK Bidco Limited, Clarivate Analytics (Singapore) Pte. Ltd., and, for certain limited purposes, Clarivate Analytics Plc, (incorporated by reference to Exhibit 2.4 to Clarivate's Form F-1, filed on February 3, 2020)
2.2 | Description |
| 3.1 | | |
| 3.2 | | |
| 3.3 | | |
| 3.4 | | |
| 4.1 | | |
| 4.2 | | |
| 4.3 | | |
| 4.4 | | |
| 4.5 | | |
| 4.6 | | Second Supplemental Indenture, dated as of March 2, 2020)30, 2021, to the indenture dated as of October 31, 2019 among Camelot Finance S.A., as Issuer, the guarantors party thereto and Wilmington Trust, National Association, as trustee governing the 4.50% Senior Secured Notes due 2026 (incorporated by reference to Exhibit 4.2 to Clarivate’s Quarterly Report on Form 10-Q filed May 10, 2021) |
| 4.7 | | |
| 4.8 | | |
| 4.9 | | |
| 4.10 | | |
| 4.11 | | |
| 4.12 | | |
| | | | | | | | |
| 4.13 | | |
| 10.1 | | |
| 10.2 | |
10.3 | |
10.410.3 | | |
| 10.4 | | |
| 10.5 | | |
| 10.6 | |
10.7 | Amendment No. 6 dated as of January 31, 2024 to the Credit Agreement dated as of October 31, 2019 among Camelot UK Holdco Limited, Camelot UK Bidco Limited, the US Borrowers party thereto, Camelot Finance S.A., certain Restricted Subsidiaries from time to time designated thereunder as Additional Revolving Borrowers, the Subsidiary Guarantors from time to time party thereto, the several banks, financial institutions, institutional lenders and other entities from time to time party thereto as lenders, the Issuing Lenders from time to time party thereto and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to Clarivate’s Form 6-K,8-K filed on November 5, 2019)February 1, 2024) |
10.810.7+ | | Incremental Facility Amendment, dated February 28, 2020, by and among Camelot UK Holdco Limited, Camelot UK Bidco Limited, Camelot Finance S.A., the other borrowers party thereto, the other subsidiaries of the Company party thereto, Bank of America, N.A., as administrative agent, and Citibank, N.A., as lender
10.9 | |
10.10+ | |
10.11+10.8+ | | |
| 10.9+ | | | | | |
10.12+ | |
10.13+10.10+ | | |
| 10.11+ | | |
| 10.12+ | | |
10.14+10.13+ | | |
10.15+10.14+ | | |
10.16+10.15+ | | |
21.1** | | |
| 23.1* | | |
24.1** | | |
| 31* | | |
| 32* | | |
| 97* | | |
| 101* | | The following financial information from our Form 10-K for the fiscal year ended December 31, 2020, formatted in Inline eXtensible Business Reporting Language: (i) Consolidated Statement of Comprehensive Income, (ii) Consolidated Balance Sheet, (iii) Consolidated Statement of Changes in Equity, (iv) Consolidated Statement of Cash Flows, and (v) the Notes to the Consolidated Financial Statements. |
104* | The cover page from the Company'sClarivate’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020,2023, formatted in Inline Extensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements. |
| 104* | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** Previously Filed.
† Schedules and exhibits omitted pursuant to Item 601(a)(5) of Regulation S-K. Copies of any omitted schedule or exhibit will be furnished to the SEC upon request.
+ Compensatory plan or arrangementarrangement.
Item 16. Form 10-K SummarySummary.
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 2 to the annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized in the City of London, United Kingdom on February 3, 2022.27, 2024.
| | | | | |
| CLARIVATE PLC |
| By: | /s/ Jerre SteadJonathan Gear |
| Name: Jerre SteadJonathan Gear |
| Title: Executive Chairman and Chief Executive Officer and Director |
| | | | | | | | |
| Name | | Title |
| /s/ Jonathan Gear | | Chief Executive Officer and Director |
| Jonathan Gear | | (Principal Executive Officer) |
| /s/ Jonathan M. Collins | | Executive Vice President and Chief Financial Officer |
| Jonathan M. Collins | | (Principal Financial Officer) |
| /s/ Michael Easton | | Senior Vice President and Chief Accounting Officer |
| Michael Easton | | (Principal Accounting Officer) |
| /s/ Andrew M. Snyder | | Chairman of the Board of the Directors |
| Andrew M. Snyder | | |
| /s/ Valeria Alberola | | Director |
| Valeria Alberola | | |
| /s/ Michael J. Angelakis | | Director |
| Michael J. Angelakis | | |
| /s/ Jane Okun Bomba | | Director |
| Jane Okun Bomba | | |
| /s/ Usama N. Cortas | | Director |
| Usama N. Cortas | | |
| /s/ Adam T. Levyn | | Director |
| Adam T. Levyn | | |
| /s/ Anthony Munk | | Director |
| Anthony Munk | | |
| /s/ Dr. Wendell E. Pritchett | | Director |
| Dr. Wendell E. Pritchett | | |
| /s/ Richard W. Roedel | | Director |
| Richard W. Roedel | | |
| /s/ Saurabh Saha | | Director |
| Saurabh Saha | | |
