Clarivate plc — Form 10-Q Summary
Business context and reporting period
Clarivate provides content, analytics, professional services and workflow solutions to academic, government, life sciences, research and intellectual-property customers. Reportable segments are Science and Intellectual Property. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, with prior-period amounts restated where applicable.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $445.6 million, up 62.9% | $874.1 million, up 70.0% |
| Operating loss | $11.8 million; operating margin of approximately (2.6%) | $46.0 million; operating margin of approximately (5.3%) |
| Net loss | $82.2 million, or $0.13 per share | $106.2 million, or $0.17 per share |
| Adjusted EBITDA | $189.0 million; 42.3% margin | $353.8 million; 40.3% margin |
| Net cash from operations | Not separately provided for the quarter | $261.7 million, versus $107.6 million |
| Free cash flow | Not separately provided for the quarter | $199.6 million, versus $54.9 million |
Revenue growth reflected the October 2020 CPA Global acquisition, the February 2020 DRG acquisition, other IP acquisitions and organic growth. Six-month revenue consisted of $478.7 million of subscription revenue, $173.9 million of transactional revenue and $225.9 million of re-occurring revenue. Annualized contract value was $924.4 million at June 30, 2021, up 8.4% year over year; the annual revenue renewal rate was 90.8%, compared with 92.6%.
Science revenue was $202.3 million in the second quarter and $393.6 million year to date. Intellectual Property revenue was $243.4 million in the second quarter and $480.5 million year to date. The IP segment benefited substantially from the CPA Global acquisition.
Liquidity, debt and capital structure
- Cash and cash equivalents were $2.56 billion at June 30, 2021, compared with $257.7 million at December 31, 2020.
- Restricted cash was $2.01 billion, primarily escrowed proceeds from the June 2021 notes offerings.
- Total debt outstanding was $5.53 billion, including $2.83 billion under the term loan facility, $700 million of 2026 secured notes, $1.0 billion of 2028 senior secured notes and $1.0 billion of 2029 senior notes. The revolving facility was undrawn.
- The company issued $1.0 billion of 3.875% senior secured notes due 2028 and $1.0 billion of 4.875% senior notes due 2029. The proceeds were intended to fund the ProQuest acquisition and were held in escrow pending closing conditions.
- Clarivate also issued 14.375 million 5.25% mandatory convertible preferred shares, generating approximately $1.39 billion net proceeds, and issued 28.85 million primary ordinary shares, generating approximately $728.8 million net proceeds.
- Management stated that operating cash flow, cash on hand and available revolving capacity should be adequate for at least the next 12 months.
Material changes versus the prior comparable period
- Second-quarter revenue increased 62.9%, while year-to-date revenue increased 70.0%, primarily due to acquisitions and additional re-occurring revenue from CPA Global.
- Adjusted EBITDA increased 88.8% in the second quarter and 98.4% year to date; adjusted EBITDA margins improved to 42.3% and 40.3%, respectively.
- GAAP profitability remained negative. Second-quarter net loss increased from $25.3 million to $82.2 million, principally because of higher amortization, restructuring and impairment, interest expense and taxes. Year-to-date net loss improved from the restated $154.9 million to $106.2 million, aided by a favorable warrant mark-to-market adjustment.
- Amortization increased substantially because of acquired intangible assets. Restructuring and impairment charges were $41.7 million in the quarter and $106.4 million year to date, including $70.0 million of year-to-date non-cash lease right-of-use asset impairments.
- Operating cash flow increased by $154.1 million year over year, and free cash flow increased by $144.7 million.
Guidance, outlook, risks and unusual items
The filing does not provide a clear quantitative full-year revenue or earnings guidance figure. Management expects to complete the ProQuest acquisition, announced for approximately $4.0 billion in cash plus 46.9 million ordinary shares, subject to customary conditions and regulatory approval. The Federal Trade Commission issued a second request on July 28, 2021, extending the outside date to December 31, 2021, with potential further extension to April 29, 2022.
If ProQuest does not close within the applicable escrow conditions, the 2028 and 2029 notes may be subject to mandatory redemption at par plus accrued interest. Clarivate obtained a $2.0 billion unsecured bridge facility to support the transaction.
- The company disclosed a material weakness in internal control over financial reporting related to evaluating settlement features used to classify warrant instruments. Disclosure controls were therefore ineffective as of June 30, 2021.
- Prior-period financial statements were restated for warrant-accounting errors. The restatement increased 2020 net loss by $23.8 million for the second quarter and $79.4 million for the six-month period.
- Warrant liabilities were $279.0 million at quarter end and generated a $21.0 million second-quarter loss but a $30.2 million year-to-date gain from mark-to-market adjustments.
- Key risks include substantial indebtedness, acquisition execution and integration, regulatory approval of ProQuest, cybersecurity, data privacy, competition, customer renewals, foreign currency exposure, litigation and continuing COVID-19 uncertainty.
- The One Clarivate restructuring program is expected to incur approximately $5.0 million of total charges, of which $2.0 million had been recorded by June 30, 2021. The CPA Global integration program had approximately $8.0 million of estimated future charges remaining.
Most important facts for investors to verify
- Whether ProQuest closes, the timing of regulatory approval and the related funding, note redemption and leverage consequences.
- Progress in remediating the material weakness and whether additional warrant-accounting errors or restatements arise.
- Organic revenue growth, renewal rates and the sustainability of the reported adjusted EBITDA margin after acquisition effects and non-GAAP adjustments.
- Cash available after excluding the $2.01 billion of restricted escrow cash, and the company’s ability to manage approximately $5.53 billion of debt.
- The magnitude and duration of integration, restructuring, lease impairment, litigation and other unusual costs.