Business Context and Reporting Period
This Form 20-F is a Shell Company Report filed by Clarivate Analytics Plc (formerly Camelot Holdings (Jersey) Limited) on May 13, 2019. The filing documents the consummation of a reverse recapitalization transaction between Camelot Holdings and Churchill Capital Corp (CCC), a special purpose acquisition company (SPAC). The transaction closed on May 13, 2019, resulting in the combined entity operating as Clarivate Analytics Plc, a provider of proprietary content, analytics, and workflow solutions for intellectual property and life sciences. The financial data presented primarily reflects the historical operations of Camelot Holdings for the fiscal years ended December 31, 2018 and 2017, and the three months ended March 31, 2019.
Key Financial Metrics
| Metric | 2018 (Year Ended Dec 31) | 2017 (Year Ended Dec 31) | Q1 2019 (Three Months Ended Mar 31) |
|---|---|---|---|
| Revenue (Net) | $968.5 million | $917.6 million | $234.0 million |
| Net Loss | $(242.2) million | $(263.9) million | $(59.3) million |
| Loss from Operations | $(105.7) million | $(147.0) million | $(25.9) million |
| Operating Cash Flow | $(26.1) million | $6.7 million | $42.5 million |
| Total Debt (Gross) | $2,029.0 million | $2,060.7 million | $1,995.2 million |
| Cash and Cash Equivalents | $25.6 million | $53.2 million | $28.0 million |
| Goodwill | $1,282.9 million | $1,311.3 million | $1,283.3 million |
Note: The company reported a net loss for all periods presented. Operating cash flow turned positive in Q1 2019 compared to a negative position in 2018.
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased by approximately 5.5% year-over-year from 2017 to 2018, driven by growth in the Science Group and Intellectual Property Group segments.
- Divestiture of IPM Product Line: In October 2018, the company sold its IP Management (IPM) Product Line to CPA Global for approximately $100.1 million. This resulted in a net gain on sale of $36.1 million and a goodwill write-off of $49.3 million. The divestiture is not classified as discontinued operations.
- Acquisitions: In 2018, the company acquired TrademarkVision USA, LLC (AI technology) and Kopernio (AI technology startup), adding to its intellectual property portfolio.
- Debt Reduction: Proceeds from the IPM divestiture were used to pay down $31.4 million of the Term Loan Facility in late 2018. In Q1 2019, an additional $30.0 million was repaid on the Revolving Credit Facility.
- Accounting Changes: The company adopted new lease accounting standards (ASC 842) effective January 1, 2019, resulting in the recognition of right-of-use assets and lease liabilities on the balance sheet.
Guidance, Outlook, and Risks
Transaction Completion: The merger with Churchill Capital Corp was completed on May 13, 2019. The combined company is listed on the New York Stock Exchange under the ticker "CLV". Existing shareholders of Camelot Holdings retain approximately 71% ownership of the combined entity.
Tax Receivable Agreement (TRA): The company entered into a TRA with its pre-transaction equity holders. The company is obligated to pay 85% of the cash tax savings realized from the utilization of certain tax attributes to these holders. A preliminary liability of approximately $259.8 million was recorded, with a potential total liability of up to $517.2 million if all covered tax assets are utilized.
Risks and Contingencies:
- Goodwill Impairment Risk: Management noted that the Derwent Product Line reporting unit is at risk of future goodwill impairment, with its estimated fair value only approximately 2% above its carrying value as of December 31, 2018.
- Tax Indemnity Dispute: The company wrote off $33.8 million related to a tax indemnification asset from Thomson Reuters due to a dispute, though it continues to pursue the claim.
- Valuation Allowance: A significant valuation allowance of $133.9 million was recorded against deferred tax assets as of December 31, 2018, due to operating losses in certain jurisdictions.
Investor Verification Checklist
- TRA Liability Impact: Verify the final calculation of the Tax Receivable Agreement liability and its impact on future cash flows and earnings.
- Goodwill Valuation: Monitor the Derwent Product Line for potential goodwill impairment charges given the narrow margin between fair value and carrying value.
- Debt Covenants: Confirm compliance with debt covenants, specifically the total first lien net leverage ratio, following the transaction and subsequent debt paydowns.
- Revenue Recognition: Review the disaggregated revenue data to understand the mix between subscription (recurring) and transactional revenue streams.
- Share Structure: Verify the final share count and ownership percentages post-merger, including the treatment of warrants and incentive shares.