Clarivate plc — Fiscal 2020 Form 10-K Summary
Business context and reporting period
Clarivate is a Jersey-based global information services and analytics company serving scientific research, life sciences and intellectual property markets. Its two reportable segments are Science and Intellectual Property. The filing covers the fiscal year ended December 31, 2020; the request references 2020 Q4, for which selected quarterly figures are also provided. Financial amounts are in thousands of U.S. dollars unless otherwise stated.
- More than 30,000 customers in over 170 countries.
- Science represented 58.2% of 2020 revenue and Intellectual Property represented 41.8%.
- Subscription and re-occurring revenue represented 76.9% of total revenue; annual revenue renewal rate was 91.2%.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue, net | $1,254,047 | $974,345 | 28.7% |
| Adjusted revenue | $1,277,148 | $974,783 | 31.0% |
| Operating income (loss) | $2,805 | $(82,486) | Improved |
| Net loss | $(106,310) | $(210,977) | Loss reduced 49.6% |
| Basic and diluted loss per share | $(0.25) | $(0.77) | Improved |
| Adjusted EBITDA | $486,600 | $294,066 | 65.5% |
| Adjusted EBITDA margin | 38.1% | 30.2% | Up 793 basis points |
| Operating cash flow | $263,500 | $117,580 | Improved |
| Free cash flow | $155,787 | $47,744 | Improved |
| Capital expenditures | $107,713 | $69,836 | Up 54.2% |
Revenue growth was primarily acquisition-driven: acquisitions contributed $353,195, while organic revenue increased $10,459. Subscription revenue increased 7.7% to $867,731, transactional revenue increased 74.2% to $294,889, and re-occurring revenue was $114,528 following the CPA Global acquisition. Annualized contract value increased 14.2% to $906,554.
Science revenue increased 35.8% to $743,641, while Intellectual Property revenue increased 24.9% to $533,507. COVID-19-related economic conditions reduced demand for certain transactional services and contributed to organic weakness in parts of both segments.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $257,730 at December 31, 2020, compared with $76,130 at December 31, 2019. Including restricted cash, total cash was $269,008.
- Total debt outstanding was $3,547,400, consisting primarily of $2,847,400 under the term loan facility and $700,000 of 4.50% senior secured notes due 2026. The revolving facility was undrawn at year-end.
- Long-term debt, net of current maturities and debt issuance costs, was $3,457,900.
- The company reported a consolidated coverage ratio of 7.82 to 1.00 and consolidated leverage ratio of 4.32 to 1.00, and stated that it was in compliance with its debt covenants.
- Total assets increased to $15,197,344, including $6,252,636 of goodwill and $7,370,350 of intangible assets, primarily reflecting acquisitions.
- Contractual obligations totaled $4,677,618, including debt with interest, operating leases and purchase obligations.
Material changes versus the prior comparable period
- Clarivate acquired Decision Resources Group for approximately $965 million in February 2020 and CPA Global for approximately $8.741 billion net of cash in October 2020. It also acquired Beijing IncoPat and Hanlim IPS.
- The CPA Global transaction was financed with approximately $2.078 billion of cash consideration, $1.6 billion of incremental term loans and the issuance of approximately 216.7 million shares. The transaction materially increased goodwill, intangible assets, debt and shares outstanding.
- The company completed primary equity offerings in February and June 2020, generating approximately $844 million of aggregate proceeds for Clarivate before or after applicable offering expenses as disclosed.
- Techstreet was sold for $42,832, producing a $28,140 gain. Certain MarkMonitor businesses were divested in January 2020.
- Operating cash flow increased substantially, while investing cash outflows rose to $2,992,168, primarily because of acquisitions.
- Amortization increased 51.8% to $290,441, and restructuring and impairment charges increased to $47,595 from $15,670.
- Goodwill impairment testing resulted in no goodwill impairment charge for 2020.
Fourth-quarter information, outlook and risks
Fourth-quarter 2020 revenue was $455,595, operating income was $29,531 and net income was $6,415, compared with fourth-quarter 2019 revenue of $255,013, an operating loss of $16,431 and a net loss of $84,787. The substantial year-over-year change reflects the inclusion of CPA Global and other acquisitions, as well as prior-year unusual items.
Management emphasized a transformation strategy focused on focusing, simplifying and executing; increasing pricing, new-product development, cross-selling and Asia-Pacific expansion; and improving margins through organizational simplification, automation, outsourcing to lower-cost locations and real-estate reduction. The filing does not provide a clear formal 2021 revenue or earnings guidance range.
- Management expects approximately $82,415 of additional pre-tax charges under the CPA Global integration and optimization program, with the program expected to conclude in 2022.
- Management believes operating cash flow, cash on hand and available revolver capacity will fund operations, debt service and necessary capital expenditures for at least the next 12 months.
- Key risks include substantial leverage and variable-rate exposure, LIBOR transition, integration and synergy execution, COVID-19 uncertainty, cybersecurity and cloud-provider dependence, data privacy regulation, changing technology, competition, customer renewal rates, foreign exchange and international tax risks.
- Contingent stock liabilities related to DRG and CPA Global totaled $130,594 at year-end. Certain legal claims and proceedings remain subject to uncertainty, although management does not expect them to have a material adverse effect.
- January 2021 subsequent events included issuance of 1.5 million CPA Global-related shares and $7,180 of lease impairment charges from exiting leased sites.
Most important facts for investors to verify
- How much of revenue and Adjusted EBITDA growth is organic versus acquired, particularly after the CPA Global transaction.
- Whether the 91.2% renewal rate and 14.2% ACV growth are sustained as customers experience ongoing economic pressure.
- Progress toward the stated cost savings, the remaining $82,415 of expected restructuring charges and the effect on free cash flow.
- Debt paydown capacity, floating-rate exposure, covenant headroom and refinancing requirements before 2026 maturities.
- Valuation assumptions supporting $6.253 billion of goodwill and $7.370 billion of intangible assets, including customer attrition, growth rates and discount rates.
- Integration results for CPA Global and DRG, including the impact of acquired businesses on margins, cash conversion and internal controls.
- Potential effects of COVID-19, cybersecurity incidents, privacy regulation, LIBOR replacement and foreign exchange movements.