Clarivate plc: FY2021 Form 10-K Summary
Business context and reporting period
Clarivate is a Jersey-incorporated global information, analytics, professional services and workflow-solutions provider serving academia and government, life sciences and healthcare, and intellectual-property markets. Its two reportable segments are Science and Intellectual Property. The filing covers the fiscal year ended December 31, 2021; the requested fourth-quarter period is included in the annual results.
- Served more than 50,000 customers in approximately 180 countries.
- Science represented approximately 48% of 2021 revenue and Intellectual Property approximately 52%.
- Recurring and re-occurring revenue represented 79.1% of total revenue; annual revenue renewal rate was 90.6%.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $1,876.9 million | $1,254.0 million | +49.7% |
| Adjusted revenue | $1,880.8 million | $1,277.1 million | +47.3% |
| Operating loss | $87.0 million | $36.3 million | Loss increased |
| Net loss | $270.4 million | $350.6 million | Loss reduced 22.9% |
| Net loss attributable to ordinary shareholders | $312.0 million | $350.6 million | Loss reduced 11.0% |
| Adjusted EBITDA | $800.4 million | $486.6 million | +64.5% |
| Adjusted EBITDA margin | 42.6% | 38.1% | +450 basis points |
| Net cash from operating activities | $323.8 million | $263.5 million | +22.9% |
| Free cash flow | $205.2 million | $155.8 million | +31.7% |
Subscription revenue increased 17.9% to $1,034.4 million, re-occurring revenue increased 304.9% to $453.2 million, and transactional and other revenue increased 36.8% to $393.2 million. Annualized contract value was $1,611.8 million at December 31, 2021, up 77.8% from 2020, although the increase was substantially affected by acquisitions.
Cost of revenues declined to 33.4% of revenue from 35.0%, while selling, general and administrative expense declined to 34.3% from 43.4%. GAAP profitability remained negative, primarily because of $523.8 million of amortization, $129.5 million of restructuring and impairment charges, $252.5 million of net interest expense, and other acquisition-related costs.
Cash, debt and liquidity
- Cash and cash equivalents were $430.9 million; restricted cash was $156.7 million.
- Total reported debt outstanding was $5.57 billion, including $2.82 billion of term loans, $921.4 million of senior notes due 2029, $921.2 million of senior secured notes due 2028, $700.0 million of senior secured notes due 2026, $175.0 million drawn on the revolving facility, and $30.8 million of finance-lease obligations.
- Revolving credit capacity was $350.0 million, with $168.9 million of additional availability after letters of credit.
- Total liquidity, defined as cash plus additional revolver availability, was $599.8 million.
- Management stated that operating cash flow, cash on hand and available revolver capacity were expected to be adequate for debt service, capital expenditures and other liquidity needs for at least the next 12 months.
- Capital expenditures were $118.5 million in 2021; 2022 product-development capital expenditures were estimated at approximately $195.0 million.
Material changes versus the prior comparable period
- Clarivate acquired ProQuest on December 1, 2021, for $4.99 billion net of cash acquired, funded with cash, debt, ordinary shares and mandatory convertible preferred shares. ProQuest contributed $80.4 million of 2021 revenue and $3.0 million of net income after acquisition.
- ProQuest added preliminary goodwill of $1.90 billion and identifiable intangible assets of approximately $3.53 billion. The purchase-price allocation remained preliminary at year-end.
- Revenue growth was primarily acquisition-driven: acquisitions contributed $579.2 million, while organic revenue growth contributed $57.2 million.
- Intellectual Property revenue increased 83.3% to $978.1 million, driven largely by the CPA Global acquisition. Science revenue increased 21.4% to $902.7 million.
- Net cash used in investing activities increased to $4.04 billion, primarily because of acquisitions. Financing activities provided $4.03 billion, including new debt, preferred-share proceeds and ordinary-share proceeds.
- Restructuring and impairment charges increased to $129.5 million from $56.1 million. Management expects approximately $20.0 million of additional One Clarivate charges and approximately $68.0 million of additional ProQuest integration charges.
- The company repurchased 6.6 million ordinary shares for $159.4 million during 2021. In February 2022, the board authorized a new repurchase program of up to $1.0 billion through December 31, 2023.
- The company issued $1.39 billion of 5.25% Series A mandatory convertible preferred shares. Preferred dividends reduced net loss attributable to ordinary shareholders by $41.5 million and are cumulative through the mandatory conversion period ending in 2024.
Guidance, outlook, commentary, risks and unusual items
Management did not provide a clear formal numerical revenue or earnings outlook in the filing. Its strategy emphasizes revenue growth through product and pricing initiatives, new products, cross-selling, Asia-Pacific expansion and acquisitions, together with margin improvement through organizational simplification, automation, best-cost locations, footprint reduction and divestitures.
- Management reported 2021 Adjusted EBITDA growth of 64.5% and margin expansion of 450 basis points, but these are non-GAAP measures and include substantial adjustments.
- Goodwill was $7.90 billion at year-end. No goodwill impairment was recorded, but the IP Management reporting unit had only 7% estimated fair-value headroom over carrying value in the latest quantitative test, making it sensitive to lower growth, margins or higher discount rates.
- The company identified material weaknesses in internal control over financial reporting related to acquisition compensation agreements and tax-balance reviews. These weaknesses resulted in restatements of 2020 and 2021 interim financial information. Disclosure controls were therefore considered ineffective at year-end.
- PricewaterhouseCoopers issued an unqualified opinion on the financial statements but concluded that internal control over financial reporting was not effective.
- A putative securities class action was filed in January 2022 concerning alleged internal-control and financial-reporting weaknesses. The company disputes the claims and could not estimate a potential loss.
- Key risks include high leverage, floating-rate exposure, acquisition integration, cybersecurity and cloud-provider dependence, privacy regulation, competition, customer renewal rates, foreign-exchange volatility, tax disputes and access to third-party data.
- Private-placement warrant liabilities were $227.8 million at year-end and produced an $81.3 million mark-to-market gain in 2021 versus a $205.1 million loss in 2020, creating significant earnings volatility unrelated to core operations.
- Legal accruals included an estimated $60.5 million liability for larger claims; management did not expect pending proceedings to have a material adverse effect, but outcomes remain uncertain.
Important facts for investors to verify
- Whether organic growth, excluding ProQuest, CPA Global and other acquisitions, can accelerate beyond the reported $57.2 million contribution.
- The sustainability of the 90.6% renewal rate and the extent to which the $1.61 billion ACV converts into recognized revenue.
- Debt repayment capacity, covenant headroom, floating-rate exposure and the concentration of maturities, including approximately $3.40 billion due in 2026.
- Progress in remediating the two material weaknesses and the effect of any further restatements or control deficiencies.
- Completion of the ProQuest purchase-price allocation and the resulting amortization, goodwill and impairment exposure.
- Whether restructuring programs deliver the projected savings after remaining severance, lease-exit and integration costs.
- Downside sensitivity of the IP Management goodwill valuation, including the 7% fair-value headroom disclosed by management.
- The potential financial impact and insurance coverage associated with the securities litigation and other legal claims.