Clarivate plc 2022 Form 10-K Summary
Business Context and Reporting Period
Clarivate is a global information, analytics and workflow-solutions provider serving Academia and Government, Life Sciences and Healthcare, and Intellectual Property markets. The filing covers the fiscal year ended December 31, 2022; it is an annual report rather than a standalone fourth-quarter filing. Clarivate served more than 50,000 customers in approximately 180 countries, with 77.5% of revenue from subscription and re-occurring arrangements.
- A&G: $1,280.1 million of revenue, approximately 48% of total revenue.
- LS&H: $452.6 million, approximately 17%.
- IP: approximately $927 million, approximately 35%.
Financial Performance and Key Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $2,659.8 million | $1,876.9 million | +41.7% |
| Net loss | $3,960.2 million | $270.5 million | Higher loss |
| Net loss attributable to ordinary shares | $4,035.6 million | $312.0 million | Higher loss |
| Basic EPS | $(5.97) | $(0.49) | Lower |
| Adjusted EBITDA | $1,112.7 million | $800.4 million | +39.0% |
| Adjusted EBITDA margin | 41.8% | 42.6% | Down 0.8 points |
| Net cash from operating activities | $509.3 million | $323.8 million | +57.3% |
| Free cash flow | $306.4 million | $205.2 million | +49.3% |
| Adjusted free cash flow | $521.8 million | $459.4 million | +13.6% |
Subscription revenue increased 56.6% to $1,619.8 million, while re-occurring revenue declined 2.5% to $441.9 million and transactional and other revenue increased 52.3% to $599.1 million. Organic revenue growth was 2.6%; acquisitions contributed 45.0% of reported growth, foreign exchange reduced growth by 5.2%, and disposals reduced growth by 0.7%.
Annual renewal rates were 91.3%, compared with 90.6% in 2021. Annualized Contract Value declined 1.9% to $1,581.9 million, primarily reflecting the ProQuest acquisition, the MarkMonitor disposition and currency effects, partially offset by 2.6% organic ACV growth.
Liquidity, Debt and Capital Resources
- Cash and cash equivalents were $348.8 million; total liquidity, including unused revolving capacity, was $1,089.3 million.
- The $750.0 million revolving credit facility had no outstanding balance at year-end, with approximately $740.5 million of availability after letters of credit.
- Total debt outstanding was $5,071.3 million, consisting primarily of a $2,497.4 million term loan due 2026, $700.0 million of secured notes due 2026, $921.2 million of secured notes due 2028 and $921.4 million of unsecured notes due 2029.
- During the fourth quarter, Clarivate prepaid $300.0 million of term-loan principal and repaid $175.0 million drawn under the revolving facility.
- Debt carrying value was $5,005.0 million. The company reported a consolidated coverage ratio of 4.6x and consolidated leverage ratio of 4.1x and stated that it was in compliance with debt covenants.
- Capital expenditures were $202.9 million, and 2023 capital expenditures associated with product and content development were estimated at approximately $240 million.
Material Changes Versus the Prior Comparable Period
- Revenue growth was primarily acquisition-driven, reflecting a full year of ProQuest contribution after its December 2021 acquisition. ProQuest drove substantial A&G growth.
- MarkMonitor Domain Management was sold on October 31, 2022, for $296.1 million of consideration, generating a $278.5 million gain and reducing IP revenue.
- Clarivate recorded a $4,449.1 million goodwill impairment charge, principally related to the ProQuest reporting unit and former IP Management and Patent reporting units. Goodwill declined from $7,904.9 million to $2,876.5 million.
- Reported operating results benefited from a $278.5 million divestiture gain and a $206.8 million gain from mark-to-market changes in private-placement warrants.
- Restructuring and impairment expense declined to $66.7 million from $129.5 million, although the company incurred $49.4 million under the ProQuest integration program and $16.7 million under the One Clarivate program.
- Interest expense increased to $270.3 million from $252.5 million, reflecting higher interest rates and the company’s leveraged capital structure.
- The company repurchased 10.7 million ordinary shares for $175.0 million and had approximately $825.0 million remaining under its repurchase authorization.
Outlook, Management Commentary and Risks
Management is focused on customer-centric selling, integrated data and workflow solutions, predictive analytics, cross-selling, pricing and packaging, operational simplification, best-cost sourcing and disciplined acquisitions. The filing does not provide a clear numerical 2023 revenue or earnings guidance figure.
- Management expects cash from operations, cash on hand and revolving-credit availability to fund operations, debt service and required capital expenditures for at least the next 12 months, subject to forecasts and business conditions.
- The business is exposed to cybersecurity incidents, system outages, data privacy regulation, reliance on third-party data and cloud providers, competition, free or lower-cost information sources, customer budget pressure, foreign exchange, inflation, rising interest rates and geopolitical disruption.
- The company ceased commercial operations in Russia in March 2022, which slightly affected revenue growth. It stated that the direct impact of the Russia-Ukraine conflict was not expected to be material but that indirect effects remain uncertain.
- Goodwill and other intangible assets remain significant and subject to impairment risk. The IP reporting unit had $590.3 million of goodwill at year-end and was approximately at carrying value under certain sensitivity scenarios.
- Legal proceedings include securities class actions alleging disclosure and internal-control deficiencies, as well as other ordinary-course claims. Management estimated potential liability for larger legal claims at approximately $56 million but could not estimate reasonably possible losses for the securities matters.
- The company has approximately $637.3 million of unconditional purchase obligations, including $278.7 million due in 2023, and cumulative 5.25% mandatory-convertible preferred-share dividends that may continue to accrue through the conversion period.
- A tax benefits preservation plan was adopted in December 2022 to protect significant tax assets, including U.S. federal net operating losses and interest carryforwards. The plan may limit certain shareholder acquisitions and could have anti-takeover effects.
Most Important Facts for Investors to Verify
- Reconcile the strong reported revenue and adjusted EBITDA growth with only 2.6% organic revenue growth and the 1.9% decline in ACV.
- Assess recurring cash generation after capital expenditures, restructuring payments, preferred dividends, interest and other adjustments to adjusted free cash flow.
- Review debt maturities, floating-rate exposure, interest-rate hedges and the approximately $3.2 billion of debt obligations scheduled for 2026.
- Evaluate the sustainability of the 41.8% adjusted EBITDA margin and the extent to which cost savings offset integration, restructuring and product-investment costs.
- Monitor further goodwill or intangible-asset impairment risk, particularly in the IP reporting unit and following changes in interest rates or operating performance.
- Track the outcome and potential financial impact of the securities litigation, tax matters and other legal proceedings.
- Confirm the potential dilution from 14.4 million mandatory-convertible preferred shares and approximately 17.8 million private-placement warrants.
- Note that the financial statements and internal control over financial reporting received unqualified audit opinions, and management reported remediation of previously identified material weaknesses.