Clarivate plc Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 10-K, not a standalone fourth-quarter filing. Amounts are in millions of U.S. dollars unless otherwise noted.
Business context
Clarivate is a global information-services provider serving Academia & Government (A&G), Intellectual Property (IP), and Life Sciences & Healthcare (LS&H). Its offerings include curated data, analytics, workflow software, subscriptions, patent and trademark maintenance services, and professional services. Approximately 79% of 2023 revenue was subscription-based or re-occurring, and annual renewal rates were 92%.
- A&G represented approximately 50% of revenue.
- IP represented approximately 33% of revenue.
- LS&H represented approximately 17% of revenue.
- The company had more than 12,000 employees in 42 countries as of December 31, 2023.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $2,628.8 | $2,659.8 | (1.2)% |
| Operating income (loss) | $(734.7) | $(3,925.6) | Improved |
| Net income (loss) | $(911.2) | $(3,960.2) | Improved |
| Net loss attributable to ordinary shareholders | $(986.6) | $(4,035.6) | Improved |
| Basic and diluted EPS | $(1.47) | $(5.97) basic; $(6.24) diluted | Improved |
| Adjusted EBITDA | $1,117.2 | $1,112.7 | 0.4% |
| Adjusted EBITDA margin | 42.5% | 41.8% | +0.7 percentage points |
| Net cash provided by operating activities | $744.2 | $509.3 | +46.1% |
| Free cash flow | $501.7 | $306.4 | +63.7% |
| Capital expenditures | $242.5 | $202.9 | +19.5% |
Adjusted EBITDA and free cash flow are non-GAAP measures and should be considered alongside GAAP results.
Revenue and segment performance
| Segment | 2023 revenue | 2022 revenue | Change |
|---|---|---|---|
| A&G | $1,323.3 | $1,280.1 | +3.4% |
| IP | $862.7 | $927.1 | (6.9)% |
| LS&H | $442.8 | $452.6 | (2.2)% |
- Subscription revenue was $1,618.1, essentially flat year over year; organic growth and pricing were offset by the MarkMonitor divestiture and currency effects.
- Re-occurring revenue increased 0.6% to $444.6.
- Transactional and other revenue declined 5.5% to $566.1, primarily due to lower LS&H real-world-data sales and lower IP trademark, patent-search, and analytics activity.
- Annualized Contract Value increased 0.6% to $1,591.9, including 2.6% organic ACV growth offset by foreign-exchange effects.
Profitability, cash flow, debt, and liquidity
- Cost of revenues declined 5.0% to $906.4, while SG&A increased 1.3% to $739.7. Depreciation and amortization was $708.3.
- Clarivate recorded $979.9 of goodwill and intangible-asset impairments, including $844.7 of goodwill impairment and $132.2 related to assets held for sale. The 2022 impairment total was $4,449.1.
- Interest expense increased 8.7% to $293.7, primarily because of higher floating interest rates, partly offset by interest-rate swaps and debt prepayments.
- Cash and cash equivalents were $370.7 at year-end, and available borrowing capacity under the revolving facility was $740.8.
- Total debt outstanding before discounts and issuance costs was $4,770.3; reported long-term debt was $4,721.1. The company was in compliance with its debt covenants at December 31, 2023.
- In January 2024, Clarivate refinanced its term loans with a new $2,150 facility maturing in 2031 and replaced its revolving facility with a $700 facility maturing in 2029. Management expects the refinancing to extend maturities and reduce annual cash interest costs.
- No ordinary-share dividends were paid, and management does not anticipate ordinary dividends in the foreseeable future.
Material changes and unusual items
- 2023 results included substantial non-cash impairment charges, although the total was materially lower than in 2022.
- A&G grew despite overall revenue contraction; IP declined following the MarkMonitor divestiture and weaker transactional activity; LS&H declined primarily because of lower real-world-data sales.
- Clarivate recorded a $49.4 gain on a legal settlement, which was covered by insurance.
- Restructuring expense declined to $40.0 from $66.7. Approximately $20 of additional restructuring costs, primarily related to the Segment Optimization Program, were expected in 2024.
- The company entered into an agreement to sell a small IP product group for approximately $34 payable over ten years. The transaction was expected to close in the second quarter of 2024 and was not expected to materially affect operations.
- The 5.25% mandatory convertible preferred shares are scheduled to convert into ordinary shares on June 1, 2024. The company expected to accrue approximately $35 of 2024 dividends before conversion.
Guidance, outlook, and management commentary
- Management expects operating cash flow, cash on hand, borrowing capacity, and access to capital markets to be adequate for debt service, liquidity needs, capital expenditures, and other business plans for the next 12 months and the foreseeable future.
- Estimated 2024 capital expenditures are approximately $265, with approximately $190 of primarily cloud-computing and software-license costs also expected.
- Management continues to emphasize organic growth, pricing, customer retention, cross-selling, technology consolidation, artificial intelligence, and cost-saving initiatives.
- Management did not expect the global minimum tax rules to have a material impact in 2024 based on currently available information, but noted that future legislation or changes in results could increase tax expense.
Principal risks and contingencies
- High leverage and exposure to floating interest rates may constrain financial flexibility and increase debt-service costs.
- Revenue depends heavily on subscription renewals, customer budgets, and continued acceptance of Clarivate’s products; universities and government agencies may face budget pressure.
- AI introduces execution, accuracy, intellectual-property, privacy, cybersecurity, regulatory, and reputational risks. AI regulation is evolving across jurisdictions.
- Cybersecurity incidents, system outages, third-party service-provider failures, and data-protection violations could disrupt operations and result in litigation, fines, or remediation costs.
- Goodwill and intangible assets remain material. Additional impairment charges are possible if macroeconomic conditions, market values, revenue growth, margins, or discount-rate assumptions deteriorate.
- Clarivate disclosed a material weakness in internal control over financial reporting related to the preparation and review of financial-statement footnote disclosures. New controls were implemented in the fourth quarter of 2023, but the weakness had not yet been remediated as of year-end.
- Pending securities class actions and related litigation remain unresolved. The company stated that it cannot estimate any reasonably possible loss or range of loss at this stage.
- Foreign-exchange risk is material: approximately 29.2% of revenue was denominated in currencies other than the U.S. dollar. A 5% change in the euro and British pound relative to the dollar would have affected 2023 revenue by approximately $31.0.
Investor verification items
- Reconcile Adjusted EBITDA and free cash flow to GAAP results and assess the effect of excluded impairments, restructuring, share compensation, and other items.
- Review debt maturities, refinancing terms, interest-rate exposure, covenant requirements, and the effect of the January 2024 refinancing.
- Monitor renewal rates, ACV, organic revenue growth, and performance trends in IP and LS&H.
- Assess the sensitivity of goodwill valuations to discount rates, growth assumptions, and macroeconomic conditions.
- Confirm remediation and auditor conclusions regarding the material weakness in internal controls.
- Evaluate potential dilution from the June 2024 mandatory preferred-share conversion, outstanding warrants, and equity awards.
- Track the pending IP divestiture, securities litigation, tax matters, and approximately $20 of expected restructuring costs.