Note 1: Nature of Operations and Summary of Significant Accounting Policies
Clarivate Plc (“Clarivate,” “us,” “we,” “our,” or the “Company”) is a public limited company incorporated under the laws of Jersey, Channel Islands.
We are a provider of proprietary and comprehensive information, analytics, professional services, and workflow software that enable users across government and academic institutions, life science and healthcare companies, corporations, and law firms to power the entire innovation lifecycle, from cultivating curiosity to protecting the world’s critical intellectual property assets. We have three reportable segments: Academia & Government (“A&G”), Intellectual Property (“IP”), and Life Sciences & Healthcare (“LS&H”). Our segment structure is organized based on the products we offer and the markets they serve. For additional information on our reportable segments, see Note 13 - Segment Information.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include our accounts and the accounts of our wholly owned subsidiaries. In our opinion, these interim statements reflect all adjustments necessary to a fair statement of the results for the periods presented, and such adjustments are of a normal, recurring nature. Results from interim periods should not be considered indicative of results for the full year. The financial statements included herein should be read in conjunction with the financial statements and notes included in our Form 10-K for the year ended December 31, 2023. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. All significant intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications of prior period amounts have been made to conform to the current period presentation.
Significant Accounting Policies
Our significant accounting policies are those that we believe are important to the portrayal of our financial condition and results of operations, as well as those that involve significant judgments or estimates about matters that are inherently uncertain. There have been no material changes to the significant accounting policies discussed in Note 1 - Nature of Operations and Summary of Significant Accounting Policies included in Part II, Item 8 of our annual report on Form 10-K for the year ended December 31, 2023.
Recently Issued Accounting Standards
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. We do not expect that the adoption of this ASU will have a material impact on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which is designed to provide greater income tax disclosure transparency by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The amendments in this update are effective for fiscal years beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. We are currently assessing the impact of this update on our related disclosures.
Note 2: Acquisitions and Divestitures
During the second quarter of 2023, we entered into a commercial agreement to sell a small product group within our IP segment for approximately $34, payable in annual installments over ten years. The fair value of this contingent consideration receivable is $28.2 as of September 30, 2024, of which almost all is classified as Other non-current assets in the Condensed Consolidated Balance Sheets. We will remeasure the fair value of contingent consideration on a recurring basis and record adjustments, as needed, based on the length of time remaining under the commercial agreement and changes in the amount to be realized each year based on actual financial results. Changes in fair value measurement of the contingent consideration is based on Level 3 inputs. The transaction closed on April 1, 2024 and a loss of $14.8 was recognized in connection with the sale, which is included in Other operating expense (income), net in the Condensed Consolidated Statements of Operations.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions or as otherwise noted)
Prior to the held-for-sale determination and accompanying impairment testing as of June 30, 2023, the carrying amount of the expected assets to be disposed of consisted almost entirely of purchase-related identifiable customer relationship intangible assets of approximately $158. These intangible assets were reduced to estimated fair value of $26.1 based on the estimated present value of the consideration to be paid over ten years. The related impairment charge of $132.2 is included in Goodwill and intangible asset impairments in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2023.
On October 25, 2024, in connection with streamlining our A&G portfolio and focusing our efforts around our core A&G business assets, we entered into a commercial agreement to sell our ScholarOne business for $110.0 payable in cash at the closing of the transaction and a potential earnout payable in cash that we estimate may approach $20.0 contingent on the achievement of certain financial metrics through 2030. The sale is expected to close during the fourth quarter of 2024.
Note 3: Revenue
We derive revenue through subscriptions to our product offerings, re-occurring contracts in our IP segment, and transactional sales that are typically quoted on a product, data set, or project basis.
•Subscription-based revenues are recurring revenues that we typically earn under annual contracts, pursuant to which we license the right to use our products to our customers or provide maintenance services over a contractual term. We invoice and collect the subscription fee at the beginning of the subscription period. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. Cash received or receivable in advance of completing the performance obligations is included in deferred revenue. We recognize subscription revenue ratably over the contract term as the access or service is provided.
•Re-occurring revenues are derived solely from the patent and trademark maintenance services provided by our IP segment. Patents and trademarks are renewed regularly, and our services help customers maintain and protect those patents and trademarks in multiple jurisdictions around the world. Because of the re-occurring nature of the patent and trademark lifecycle, our customer base engages us to manage the renewal process on their behalf. These contracts typically include evergreen clauses or are multi-year agreements. We invoice and recognize revenue upon delivery of the service.
•Transactional and other revenues are earned for specific deliverables that are typically quoted on a product, data set, or project basis. Transactional and other revenues include content sales (including single-document and aggregated collection sales), consulting engagements, and other professional services such as software implementation services. We typically invoice and record revenue for this revenue stream upon delivery of the product, data set, or project, although for longer software implementation projects, we will periodically invoice and recognize revenue in connection with the completion of related performance obligations.
The following table presents our revenues disaggregated by transaction type (see Note 13 - Segment Information for our revenues disaggregated by segment):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Subscription revenues
$
411.1
$
408.1
$
1,219.8
$
1,207.3
Re-occurring revenues
106.7
106.8
317.8
325.5
Transactional and other revenues
104.4
132.3
356.1
412.3
Revenues
$
622.2
$
647.2
$
1,893.7
$
1,945.1
The following table presents our contract balances:
September 30, 2024
December 31, 2023
Accounts receivable, net
771.8
908.3
Current portion of deferred revenues
890.2
983.1
Non-current portion of deferred revenues
21.6
38.7
During the nine months ended September 30, 2024, we recognized revenues of $778.1 attributable to deferred revenues recorded at the beginning of the period, primarily consisting of subscription revenues recognized ratably over the contract term.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions or as otherwise noted)
Our remaining performance obligations are included in the current or non-current portion of deferred revenues on the Condensed Consolidated Balance Sheets. The majority of these obligations relate to customer contracts where we license the right to use our products or provide maintenance services over a contractual term, generally one year or less.
Note 4: Other Intangible Assets, Net and Goodwill
Other intangible assets, net
The following table is a summary of the gross carrying amounts and accumulated amortization of our identifiable intangible assets by major class:
September 30, 2024
December 31, 2023
Gross
Accumulated Amortization
Net
Gross
Accumulated Amortization
Net
Customer relationships
$
7,850.2
$
(1,445.1)
$
6,405.1
$
7,819.9
$
(1,177.2)
$
6,642.7
Technology and content
2,858.8
(1,190.3)
1,668.5
2,798.3
(1,009.1)
1,789.2
Computer software
1,062.6
(598.5)
464.1
897.9
(516.4)
381.5
Trade names and other
89.5
(57.4)
32.1
88.9
(52.6)
36.3
Definite-lived intangible assets
$
11,861.1
$
(3,291.3)
$
8,569.8
$
11,605.0
$
(2,755.3)
$
8,849.7
Indefinite-lived trade names
156.9
—
156.9
156.9
—
156.9
Other intangible assets, net
$
12,018.0
$
(3,291.3)
$
8,726.7
$
11,761.9
$
(2,755.3)
$
9,006.6
During the three months ended September 30, 2024, and 2023, intangible assets amortization expense was $172.8 and $170.9, respectively, and during the nine months ended September 30, 2024, and 2023, intangible assets amortization expense was $527.2 and $510.3, respectively.
Goodwill
The following table is a summary of the change in the carrying amount of goodwill, both in total and as allocated to our reportable segments:
A&G
IP
LS&H
Total
Balance as of December 31, 2023
$
1,109.8
$
—
$
913.9
$
2,023.7
Acquisition
—
13.8
15.8
29.6
Goodwill impairment
—
(13.8)
(302.8)
(316.6)
Impact of foreign currency fluctuations
0.1
—
—
0.1
Balance as of September 30, 2024
$
1,109.9
$
—
$
626.9
$
1,736.8
In the second quarter of 2024, primarily due to sustained declines in our share price, we determined that it was appropriate to perform an interim quantitative goodwill impairment assessment. We performed the assessment, consistent with our goodwill impairment testing policy and procedures, by comparing the estimated fair value to the carrying value for both of our segment reporting units carrying a goodwill balance. Based on the quantitative assessment performed, we concluded that the estimated fair value of the A&G reporting unit continues to be substantially in excess of its carrying value. For the LS&H reporting unit, we determined the carrying value exceeded its fair value; consequently, we recorded a goodwill impairment charge of $302.8 in the second quarter of 2024.
In the third quarter of 2024, we recorded $13.8 of goodwill associated with a small acquisition within the IP reporting unit. We recorded an impairment to the goodwill because the IP reporting unit’s fair value was significantly below its carrying value based on the results of our most recent interim quantitative impairment assessment described above.
Note 5: Derivative Instruments
We are exposed to various market risks, including foreign currency exchange rate risk and interest rate risk. We use derivative instruments to manage these risk exposures. We enter into foreign currency contracts and cross-currency swaps to help manage our exposure to foreign currency exchange rate risk, and we use interest rate swaps to mitigate interest rate risk. We assess the fair value of these instruments by considering current and anticipated movements in future interest rates and the relevant currency spot and future rates available in the market. Accordingly, these instruments are classified within Level 2 of the fair value hierarchy.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions or as otherwise noted)
Interest Rate Swaps
We have interest rate swap arrangements with counterparties to reduce our exposure to variability in cash flows relating to interest payments on our outstanding term loan arrangements. We have designated the interest rate swaps as cash flow hedges of the risk associated with floating interest rates on designated future monthly interest payments. For additional information on our outstanding term loan facility, see Note 6 - Debt. As of September 30, 2024, our outstanding interest rate swaps have an aggregate notional value of $753.7 and mature in October 2026.
The fair value of the interest rate swaps is the estimated amount that we would receive or pay to terminate such agreements, taking into account market interest rates and the remaining time to maturities or using market inputs with mid-market pricing as a practical expedient for bid-ask spread. Changes in fair value are recorded in Accumulated other comprehensive loss (“AOCL”) in the Condensed Consolidated Balance Sheets with a related offset in derivative asset or liability, and the amounts reclassified out of AOCL are recorded to Interest expense, net in the Condensed Consolidated Statements of Operations. Any gain or loss will be subsequently reclassified into net earnings in the same period during which transactions affect earnings, or upon termination of the arrangements. For additional information on changes recorded to AOCL, see Note 7 - Shareholders' Equity. As of September 30, 2024, we estimate that approximately $6.5 of pre-tax gain related to interest rate swaps recorded in AOCL will be reclassified into earnings within the next 12 months.
Cross-Currency Swaps
In July 2023, we entered into a cross-currency swap that matures in 2026 to mitigate foreign currency exposure related to our net investment in various euro-functional-currency consolidated subsidiaries. This swap is designated and qualifies as a net investment hedge. We elected to assess the effectiveness of this net investment hedge based on changes in spot rates and are amortizing the portion of the net investment hedge that was excluded from the assessment of effectiveness over the life of the swap within Interest expense, net in the Condensed Consolidated Statements of Operations. The notional amount of the cross-currency swap associated with euro-denominated subsidiary net investments was €100.0 as of September 30, 2024.
Changes in fair value are recorded in AOCL (as a foreign currency translation adjustment) in the Condensed Consolidated Balance Sheets, with a related offset in derivative asset or liability. Any gain or loss will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated. For additional information on changes recorded to AOCL, see Note 7 - Shareholders' Equity.
Foreign Currency Forward Contracts
We periodically enter into foreign currency contracts, which generally do not exceed 180 days in duration, to help manage our exposure to foreign exchange rate risks. We have not designated these contracts as accounting hedges. We initially recognize these contracts at fair value on the execution date and subsequently remeasure the contracts to their fair value at the end of each reporting period. We assess the fair value of these instruments by considering current and anticipated movements in future interest rates and the relevant currency spot and future rates available in the market. We receive third-party valuation reports to corroborate our determination of fair value.
We recognize the associated realized and unrealized gains and losses in Other operating expense (income), net in the Condensed Consolidated Statements of Operations. We recognized a loss (gain) from the fair value adjustment of $(4.2) and $4.0, for the three months ended September 30, 2024 and 2023, respectively, and $(1.9) and $3.7, for the nine months ended September 30, 2024 and 2023, respectively. The notional amount of outstanding foreign currency contracts was $154.0 and $140.5 as of September 30, 2024 and December 31, 2023, respectively.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions or as otherwise noted)
The following table provides information on the location and fair value amounts of our derivative instruments as of September 30, 2024 and December 31, 2023:
Balance Sheet Classification
September 30, 2024
December 31, 2023
Asset Derivatives
Designated as accounting hedges:
Interest rate swaps
Other current assets
$
—
$
4.1
Interest rate swaps
Other non-current assets
7.4
17.7
Not designated as accounting hedges:
Foreign currency forwards
Other current assets
3.1
1.3
Total Asset Derivatives
$
10.5
$
23.1
Liability Derivatives
Designated as accounting hedges:
Cross-currency swaps
Other non-current liabilities
$
2.9
$
2.0
Not designated as accounting hedges:
Foreign currency forwards
Accrued expenses and other current liabilities
—
0.1
Total Liability Derivatives
$
2.9
$
2.1
Note 6: Debt
The following table summarizes our total indebtedness:
September 30, 2024
December 31, 2023
Type
Maturity
Effective Interest Rate
Carrying Value
Effective Interest Rate
Carrying Value
Senior Notes
2029
4.875%
921.4
4.875%
921.4
Senior Secured Notes
2028
3.875%
921.2
3.875%
921.2
Senior Secured Notes
2026
4.500%
700.0
4.500%
700.0
Revolving Credit Facility
2029
7.595%
—
8.206%
—
Term Loan Facility
2031
7.595%
2,139.3
8.470%
2,197.4
Finance lease
2036
6.936%
29.6
6.936%
30.3
Total debt outstanding
$
4,711.5
$
4,770.3
Debt discounts and issuance costs
(56.2)
(48.0)
Current portion of long-term debt(1)
(22.8)
(1.2)
Long-term debt
$
4,632.5
$
4,721.1
(1)Included in Accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets.
Senior Notes (2029) and Senior Secured Notes (2028)
Interest on the Senior Notes due 2029 and the Senior Secured Notes due 2028 is payable semi-annually to holders of record on June 30 and December 30 of each year. The Senior Secured Notes due 2028 are secured on a first-lien pari passu basis with borrowings under our credit facilities and Senior Secured Notes due 2026. Both of these series of Notes are guaranteed on a joint and several basis by each of our indirect subsidiaries that is an obligor or guarantor under our credit facilities and Senior Secured Notes due 2026.
Senior Secured Notes (2026)
Interest on the Senior Secured Notes due 2026 is payable semi-annually to holders of record on May 1 and November 1 of each year. The Senior Secured Notes due 2026 are secured on a first-lien pari passu basis with borrowings under our credit facilities and Senior Secured Notes due 2028. These Notes are guaranteed on a joint and several basis by each of our indirect subsidiaries that is an obligor or guarantor under our credit facilities and are secured on a first-priority basis by the collateral
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions or as otherwise noted)
now owned or hereafter acquired by Camelot Finance S.A. (the issuer) and each of the guarantors that secures the issuer’s and such guarantor’s obligations under our credit facilities (subject to permitted liens and other exceptions).
The Credit Facilities
As further discussed below, in January 2024, we refinanced our existing credit facilities to provide improved financial flexibility, including extending our debt maturities and lowering our annual cash interest costs.
Revolving Credit Facility
Our revolving credit facility provides for revolving loans, same-day borrowings, and letters of credit. Proceeds of loans made under the revolving credit facility may be borrowed, repaid, and reborrowed prior to maturity.
As part of the January 2024 refinancing, we amended our $750.0 revolving credit facility by reducing it to a $700.0 facility (with a letter of credit sublimit of $77.0) and extending the maturity date to January 31, 2029, subject to a “springing” maturity date that is 91 days prior to the maturity date of the Senior Secured Notes due 2026 and the Senior Secured Notes due 2028, but only to the extent that those notes have not been refinanced or extended prior to their original maturity dates. All other terms related to the revolving credit facility were substantively unchanged.
As of September 30, 2024, letters of credit totaling $8.1 were collateralized by the revolving credit facility.
Term Loan Facility
As part of the January 2024 refinancing, we made a prepayment of $47.4 on the existing term loans due in 2026 and then refinanced the remaining term loans with a new $2,150.0 tranche of term loans maturing in 2031. The interest rate margin for the new term loan facility decreased from 300 to 275 basis points per annum in the case of loans bearing interest by reference to term SOFR. The term loans amortize in equal quarterly installments (the first installment was paid on June 28, 2024) equivalent to a rate of 1.00% per annum, with the balance due at maturity.
The carrying value of our variable interest rate debt, excluding unamortized debt issuance costs, approximates fair value due to the short-term nature of the interest rate benchmark rates. The fair value of the fixed rate debt is estimated based on market observable data for debt with similar prepayment features. The fair value of our debt was $4,617.0 and $4,615.3 as of September 30, 2024 and December 31, 2023, respectively, and is considered Level 2 under the fair value hierarchy.
Note 7: Shareholders' Equity
Conversion of Preferred Shares into Ordinary Shares
On June 3, 2024, all 14.4 million outstanding shares of our 5.25% Series A Mandatory Convertible Preferred Shares (“MCPS”) automatically converted into 55.3 million ordinary shares at a conversion rate of 3.8462 ordinary shares per MCPS share. All accumulated preferred dividends were paid prior to the conversion.
Share Repurchase Program
In May 2023, our Board of Directors authorized the purchase of up to $500.0 of our ordinary shares through December 31, 2024. We repurchased approximately 13.8 million ordinary shares for $100.0 at an average price of $7.22 per share during the year ended December 31, 2023 and approximately 15.2 million ordinary shares for $100.0 at an average price of $6.59 per share during the three months ended September 30, 2024. All repurchased shares were immediately retired and restored as authorized but unissued ordinary shares. As of September 30, 2024, we had $300.0 of availability remaining under the share repurchase program.
Accumulated Other Comprehensive Loss (“AOCL”)
The tables below provide information about the changes inAOCL by component and the related amounts reclassified to net earnings during the periods indicated (net of tax). The foreign currency translation adjustment component of AOCL represents the impact of translating foreign subsidiary asset and liability balances from their local currency to USD. The change in both periods below was primarily related to foreign subsidiaries whose local currency is GBP.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions or as otherwise noted)
Nine Months Ended September 30, 2024
Interest rate swaps
Defined benefit pension plans
Foreign currency translation adjustment
Total
Balance as of December 31, 2023
$
16.2
$
0.4
$
(511.9)
$
(495.3)
Other comprehensive income (loss) before reclassifications
7.4
—
73.2
80.6
Reclassifications from AOCL to net earnings
(18.2)
—
(0.9)
(19.1)
Net other comprehensive (loss) income
(10.8)
—
72.3
61.5
Balance as of September 30, 2024
$
5.4
$
0.4
$
(439.6)
$
(433.8)
Nine Months Ended September 30, 2023
Interest rate swaps
Defined benefit pension plans
Foreign currency translation adjustment
Total
Balance as of December 31, 2022
$
38.1
$
1.5
$
(705.5)
$
(665.9)
Other comprehensive income (loss) before reclassifications
22.2
(0.1)
14.0
36.1
Reclassifications from AOCL to net earnings
(27.7)
—
(0.3)
(28.0)
Net other comprehensive income (loss)
(5.5)
(0.1)
13.7
8.1
Balance as of September 30, 2023
$
32.6
$
1.4
$
(691.8)
$
(657.8)
Note 8: Private Placement Warrants
In May 2024, the remaining 17.8 million private placement warrants expired unexercised. These warrants had an exercise price of $11.50 per share and were valued using a Black-Scholes option valuation model and classified as Level 3 financial instruments within the fair value hierarchy. The warrants were subject to remeasurement at each balance sheet date and represented a liability balance of zero and $5.1 as of September 30, 2024 and December 31, 2023, respectively, classified within Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets. The change in fair value was recognized as a fair value adjustment of warrants in the Condensed Consolidated Statements of Operations.
Note 9: Restructuring and Other Impairments
We have engaged in various restructuring programs to strengthen our business and streamline our operations, including taking actions related to the location and use of leased facilities. Our recent restructuring programs include the following:
•Segment Optimization Program - During the second quarter of 2023, we approved a restructuring plan to streamline operations within targeted areas of the Company to reduce operational costs, with the primary cost savings driver being from a reduction in workforce.
•ProQuest Acquisition Integration Program - During the fourth quarter of 2021, we approved a restructuring plan to streamline operations within targeted areas of the Company to reduce operational costs, with the primary cost savings driver being from a reduction in workforce.
As of September 30, 2024, we have incurred $31.4 of cumulative costs associated with the Segment Optimization Program and we expect to incur approximately $4 of additional restructuring costs associated with this program, primarily within 2024.
The following table summarizes the pre-tax charges by activity and program during the periods indicated:
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions or as otherwise noted)
Note 10: Other Operating Expense (Income), Net
Other operating expense (income), net, consisted of the following for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Loss on divestiture(1)
$
—
$
—
$
14.8
$
—
Gain on legal settlement(2)
—
—
—
(49.4)
Net foreign exchange loss (gain)(3)
31.5
(17.0)
36.1
15.3
Miscellaneous expense (income), net
(5.8)
4.0
(4.0)
3.6
Other operating expense (income), net
$
25.7
$
(13.0)
$
46.9
$
(30.5)
(1) Refer to Note 2 - Acquisitions and Divestitures for further information.
(2) Refer to Note 14 - Commitments and Contingencies for further information.
(3) Relates to realized and unrealized gains and losses on foreign currency transactions, with the largest impacts derived from transactions denominated in GBP.
Note 11: Income Taxes
We compute our provision (benefit) for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income (loss) and adjust the provision for discrete tax items recorded in the period.
The income tax provision of $15.1 and $15.6 for the three months ended September 30, 2024 and 2023, respectively, was primarily due to the mix of jurisdictions in which pre-tax profits and losses were recognized.
The income tax provision of $23.3 for the nine months ended September 30, 2024 was primarily due to the mix of jurisdictions in which pre-tax profits and losses were recognized, partially offset by a $14.2 tax benefit related to the goodwill impairment. The income tax benefit of $83.3 for the nine months ended September 30, 2023 was driven by a $70.4 tax benefit recorded on the settlement of an open tax dispute, a $33.0 tax benefit associated with the impairment of intangible assets, and a $17.1 tax benefit relating to the partial release of valuation allowance, partially offset by the mix of taxing jurisdictions in which pre-tax profits and losses were recognized.
Note 12: Earnings Per Share
Basic earnings per share (“EPS”) is calculated by dividing net income (loss) attributable to ordinary shares by the weighted average number of ordinary shares outstanding for the applicable period. Diluted EPS is computed by dividing net income (loss) attributable to ordinary shares, adjusted for the change in fair value of the private placement warrants, by the weighted average number of ordinary shares and dilutive potential ordinary shares outstanding for the applicable period. Diluted EPS reflects the potential dilution that could occur if securities were exercised or converted into ordinary shares, as calculated using the treasury stock method.
The basic and diluted EPS computations for our ordinary shares are calculated as follows:
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions or as otherwise noted)
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Basic EPS
Net income (loss)
$
(65.6)
$
12.3
$
(444.9)
$
(67.3)
Dividends on preferred shares
—
18.9
31.3
56.3
Net income (loss) attributable to ordinary shares
$
(65.6)
$
(6.6)
$
(476.2)
$
(123.6)
Weighted average shares, basic
718.7
670.9
690.5
673.9
Basic EPS
$
(0.09)
$
(0.01)
$
(0.69)
$
(0.18)
Diluted EPS
Net income (loss) attributable to ordinary shares
$
(65.6)
$
(6.6)
$
(476.2)
$
(123.6)
Change in fair value of private placement warrants
—
—
—
—
Net income (loss) attributable to ordinary shares, diluted
$
(65.6)
$
(6.6)
$
(476.2)
$
(123.6)
Weighted average shares, basic
718.7
670.9
690.5
673.9
Weighted average effect of potentially dilutive shares
—
—
—
—
Weighted average shares, diluted
718.7
670.9
690.5
673.9
Diluted EPS
$
(0.09)
$
(0.01)
$
(0.69)
$
(0.18)
Potential ordinary shares on a gross basis related to share-based awards and private placement warrants were excluded from diluted EPS in each period presented as their inclusion would have been antidilutive. Potential shares of 14.2 million and 29.4 million were excluded for the three months ended September 30, 2024 and 2023, respectively, and 22.3 million and 30.3 million were excluded for the nine months ended September 30, 2024 and 2023, respectively.
As a result of the MCPS conversion described in Note 7 - Shareholders' Equity, for the three and nine months ended September 30, 2024, the converted MCPS shares were included in basic EPS for the period subsequent to the conversion and were evaluated for inclusion in diluted EPS for the period prior to the conversion using the if-converted method. Because the pre-conversion weighted-average ordinary shares related to our MCPS would have been antidilutive for each period presented, they were excluded from the diluted EPS calculation for the pre-conversion portion within the three and nine months ended September 30, 2024 and the three and nine months ended September 30, 2023.
Note 13: Segment Information
Operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. As discussed in Note 1 - Nature of Operations and Summary of Significant Accounting Policies, we have three reportable operating segments: Academia & Government (“A&G”), Intellectual Property (“IP”), and Life Sciences & Healthcare (“LS&H”). An overview of our segment structure, organized based on the products we offer and the markets they serve, is as follows:
•A&G: Trusted content, intelligence, and workflow solutions that help academic and government institutions advance knowledge to transform our world. Within the A&G segment, we provide Research and Analytics, Content Solutions, Books and Marketplaces, and Library Software Solutions.
•IP: Our comprehensive intellectual property data, software, and expertise helps companies drive innovation, law firms achieve practice excellence, and organizations worldwide effectively manage and protect critical IP assets. Within the IP segment, we provide IP Management Software, IP Services, Patent Intelligence, and Brand IP Intelligence.
•LS&H: Empowers customers to advance innovation and accelerate patient outcomes that improve patient lives and create a healthier tomorrow. Our intelligence solutions, transformative data, and technology equip our customers with the insight and foresight needed across the entire healthcare ecosystem. Within the LS&H segment, we provide solutions for Research and Development, Real World Data, MedTech, Market Access, and Commercialization.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions or as otherwise noted)
Our Chief Executive Officer is identified as the CODM, who evaluates performance based primarily on segment revenues and Adjusted EBITDA. The CODM does not review assets by segment for the purpose of assessing performance or allocating resources.
Adjusted EBITDA represents Net income (loss) before the Provision (benefit) for income taxes, Depreciation and amortization, and Interest expense, net, adjusted to exclude acquisition and/or disposal-related transaction costs, share-based compensation, restructuring expenses, impairments, the impact of certain non-cash fair value adjustments on financial instruments, unrealized foreign currency gains/losses, legal settlements, and other items that are included in Net income (loss) for the period that we do not consider indicative of our ongoing operating performance.
The following table summarizes revenues by reportable segment for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Academia & Government
$
321.3
$
327.2
$
983.5
$
983.9
Intellectual Property
199.8
211.7
602.3
637.1
Life Sciences & Healthcare
101.1
108.3
307.9
324.1
Total Revenues
$
622.2
$
647.2
$
1,893.7
$
1,945.1
The following table presents segment profitability and a reconciliation to Net income (loss) for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Academia & Government
$
139.8
$
144.0
$
415.4
$
416.2
Intellectual Property
91.0
98.5
263.2
293.2
Life Sciences & Healthcare
33.6
38.9
96.5
109.6
Total Adjusted EBITDA
$
264.4
$
281.4
$
775.1
$
819.0
Provision (benefit) for income taxes
(15.1)
(15.6)
(23.3)
83.3
Depreciation and amortization
(177.2)
(176.8)
(541.0)
(527.5)
Interest expense, net
(72.2)
(71.9)
(213.5)
(218.5)
Transaction related costs
(6.1)
(2.7)
(13.6)
(5.1)
Share-based compensation expense
(15.4)
(25.4)
(49.7)
(97.1)
Goodwill and intangible asset impairments
(13.8)
—
(316.6)
(135.2)
Restructuring and other impairments
(4.0)
(3.7)
(14.2)
(25.3)
Fair value adjustment of warrants
—
12.6
5.2
14.4
Other(1)
(26.2)
14.4
(53.3)
24.7
Net income (loss)
$
(65.6)
$
12.3
$
(444.9)
$
(67.3)
(1) Primarily reflects the net impact of foreign exchange gains and losses related to the remeasurement of balances and other items that do not reflect our ongoing operating performance. In addition to the net unrealized foreign exchange loss, the nine months ended September 30, 2024 also includes a $14.8 loss on the divestiture discussed in Note 2 - Acquisitions and Divestitures and the nine months ended September 30, 2023 includes a $49.4 gain on legal settlement discussed in Note 14 - Commitments and Contingencies.
Note 14: Commitments and Contingencies
Lawsuits and Legal Claims
We are engaged in various legal proceedings, claims, audits, and investigations that have arisen in the ordinary course of business. These matters may include among others, antitrust/competition claims, intellectual property infringement claims, employment matters, and commercial matters. The outcomes of the matters against us are subject to future resolution, including the uncertainties of litigation.
From time to time, we are involved in litigation in the ordinary course of our business, including claims or contingencies that may arise related to matters occurring prior to our acquisition of businesses. At the present time, primarily because the matters are generally in early stages, we can give no assurance as to the outcome of any pending litigation to which we are currently a party, and we are unable to determine the ultimate resolution of these matters or the effect they may have on us.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(In millions or as otherwise noted)
We have and will continue to vigorously defend ourselves against these claims. We maintain appropriate levels of insurance, which we expect are likely to provide coverage for some of these liabilities or other losses that may arise from these litigation matters.
During the nine months ended September 30, 2023, we reached settlement related to a large legal claim, which was covered by insurance. We recognized a total gain on settlement of $49.4 which is included in Other operating expense (income), net in the Condensed Consolidated Statement of Operations.
Between January and March 2022, three putative securities class action complaints were filed in the United States District Court for the Eastern District of New York against Clarivate and certain of its executives and directors alleging that there were weaknesses in the Company’s internal controls over financial reporting and financial reporting procedures that it failed to disclose in violation of federal securities law. The complaints were consolidated into a single proceeding on May 18, 2022. On August 8, 2022, plaintiffs filed a consolidated amended complaint, seeking damages on behalf of a putative class of shareholders who acquired Clarivate securities between July 30, 2020, and February 2, 2022, and/or acquired Clarivate ordinary or preferred shares in connection with offerings on June 10, 2021, or Clarivate ordinary shares in connection with a September 13, 2021, offering. The amended complaint, like the prior complaints, references an error in the accounting treatment of an equity plan included in the Company’s 2020 business combination with CPA Global that was disclosed on December 27, 2021, and related restatements issued on February 3, 2022, of certain of the Company’s previously issued financial statements. The amended complaint also alleges that the Company and certain of its executives and directors made false or misleading statements relating to the Company’s product quality and expected organic revenues and organic growth rate, and that they failed to disclose significant known changes to the Company’s business model. Defendants moved to dismiss the amended complaint on October 7, 2022. Without deciding the motion, the court entered an order on June 23, 2023, allowing plaintiffs limited leave to amend, and plaintiffs filed an amended complaint on July 14, 2023. On August 10, 2023, the court issued an order deeming defendants’ prior motions and briefs to be directed at the amended complaint and permitting defendants to file supplemental briefs to address the new allegations in the amended complaint. Supplemental briefing on the motions was completed on September 8, 2023. Defendants’ motions to dismiss the amended complaint are currently pending.
In a separate but related litigation, on June 7, 2022, a class action was filed in Pennsylvania state court in the Court of Common Pleas of Philadelphia asserting claims under the Securities Act of 1933, based on substantially similar allegations, with respect to alleged misstatements and omissions in the offering documents for two issuances of Clarivate ordinary shares in June and September 2021. The Company moved to stay this proceeding on August 19, 2022, and filed its preliminary objections to the state court complaint on October 21, 2022. After granting a partial stay on January 4, 2023, the court denied a further stay of the proceedings on April 17, 2023. On April 24, 2024, the court sustained the Company’s preliminary objections, but permitted plaintiff leave to file an amended complaint, which plaintiff filed on May 28, 2024. On August 29, 2024, plaintiff filed a second amended complaint, to which the Company filed preliminary objections on September 30, 2024. Clarivate does not believe that the claims alleged in the complaints have merit and will vigorously defend against them. Given the early stage of the proceedings, we are unable to estimate the reasonably possible loss or range of loss, if any, arising from these matters.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our historical financial statements and related notes included in our annual report on Form 10-K for the year ended December 31, 2023 and the financial statements and related notes included elsewhere in this quarterly report on Form 10-Q. Certain statements in this section are forward-looking statements as described in the Cautionary Note Regarding Forward-Looking Statements section of this quarterly report. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is outlined under Item 1A. Risk Factors of this quarterly report.
Overview
We are a leading global provider of transformative intelligence. We offer enriched data, insights & analytics, workflow solutions and expert services in the areas of Academia & Government (“A&G”), Intellectual Property (“IP”) and Life Sciences & Healthcare (“LS&H”), which form the basis of our reportable segment structure. This structure allows us to provide substantial scale for our vertical market customers while still leveraging our shared services to operate efficiently across horizontal workflows and functions. Within each of our three segments, we provide the following information, solution, and service capabilities:
•Enriched data - comprehensive, curated content collections.
•Insights and analytics - on-demand predictive analytics capabilities to inform decision-making.
•Workflow solutions - automated workflow, including SaaS, to enable decisions and manage resources.
•Expert services - business-critical regulatory and compliance activities support.
Key Performance Indicators
We regularly monitor the following key performance indicators to evaluate our business and trends, measure our performance, prepare financial projections, and make strategic decisions. Organic revenue growth, Annualized contract value, Annual renewal rates, Adjusted EBITDA, Adjusted EBITDA margin, and Free cash flow are key performance indicators because they are a basis upon which management assesses our performance, and we believe they reflect the underlying trends and indicators of our business by allowing management to focus on the most meaningful indicators of our continuous operational performance.
Adjusted EBITDA, Adjusted EBITDA margin, and Free cash flow are financial measures that are not prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”). Although we believe these measures may be useful to investors for the same reasons described above, these measures are not a substitute for GAAP financial measures or disclosures. Reconciliations of our non-GAAP measures to the corresponding most closely related measures calculated in accordance with GAAP are provided further below.
Organic revenue growth
We review year-over-year organic revenue growth in our segments as a key measure of our success in addressing customer needs. We also review year-over-year organic revenue growth by transaction type to help us identify and address broad changes in product mix, and by geography to help us identify and address changes and revenue trends by region. We measure organic revenue growth excluding acquisitions, disposals, and foreign currency impacts. We define these components as follows:
•Organic: Revenue generated from pricing, up-selling, securing new customers, sales of new or enhanced product offerings, and any other revenue change drivers except for changes from acquisitions, disposals, and foreign currency.
•Acquisitions: Revenue generated from acquired products and services from the date of acquisition to the first anniversary date of that acquisition.
•Disposals: Revenue generated in the comparative prior year period from product lines, services, and/or businesses divested from the date of the sale in the current period presented or included within a disposal group.
•Foreign Currency (“FX”): The difference between current revenue at current exchange rates and current revenue at the corresponding prior period exchange rates.
Annualized contract value (“ACV”), at a given point in time, represents the annualized value for the next 12 months of subscription-based license agreements with our customers, assuming that all expiring license agreements during that period are renewed at their current price level. The renewal period for our subscriptions generally starts 90 days before the end of the current subscription period. Our calculation of ACV includes the impact of downgrades, upgrades, price increases, and cancellations during the reporting period.
We monitor ACV because it represents a leading indicator of the potential subscription revenues that may be generated from our existing customer base over the upcoming 12-month period. Measurement of subscription revenues as a key operating metric is particularly relevant because a majority of our revenues are generated from subscription-based license agreements. Actual subscription revenues that we recognize during any 12-month period are likely to differ from ACV at the beginning of that period, sometimes significantly. This may occur for various reasons, including subsequent changes in annual renewal rates, impacts of price increases (or decreases), cancellations, upgrades and downgrades, and acquisitions and divestitures. We calculate and monitor ACV for each of our segments and use the metric as part of our evaluation of our business and trends.
Our ACV was $1,596.4 and $1,579.2 as of September 30, 2024 and 2023, respectively, which corresponds to an increase of 1.1%. The increase in ACV was primarily due to the impact of price increases, partially offset by volume declines.
Annual renewal rate
Our revenues are primarily subscription based, which leads to high revenue predictability. Our ability to retain existing subscription customers is a key performance indicator that helps explain the evolution of our historical results and is a leading indicator of our revenues and cash flows for the subsequent reporting period.
Annual renewal rate is the metric we use to determine renewal levels by existing customers across our segments, and is a leading indicator of renewal trends, which impact the evolution of our ACV and results of operations. We calculate the annual renewal rate for a given period by dividing (a) the annualized dollar value of existing subscription product license agreements that are renewed during that period, including the value of any product downgrades, by (b) the annualized dollar value of existing subscription product license agreements that come up for renewal in that period. “Open renewals,” which we define as existing subscription product license agreements that come up for renewal but are neither renewed nor canceled by customers during the applicable reporting period, are excluded from both the numerator and denominator of the calculation. We calculate the annual renewal rate to reflect the impact of product downgrades but not the impact of product upgrades upon renewal, because upgrades reflect the purchase of additional products and services.
The impact of upgrades, new subscriptions, and product price increases is reflected in ACV, but not in annual renewal rates. Our annual renewal rate was 92% and 92% for the nine months ended September 30, 2024 and 2023.
Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA is presented because it is a basis upon which our management assesses our performance, and we believe it is useful for investors to understand the underlying trends of our operations. Adjusted EBITDA represents Net income (loss) before the Provision (benefit) for income taxes, Depreciation and amortization, and Interest expense, net, adjusted to exclude acquisition and/or disposal-related transaction costs, share-based compensation, restructuring expenses, impairments, the impact of certain non-cash fair value adjustments on financial instruments, unrealized foreign currency gains/losses, legal settlements, and other items that are included in Net income (loss) for the period that we do not consider indicative of our ongoing operating performance. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by Revenues.
Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed as an inference that our future results will be unaffected by any of the adjusted items, or that our projections and estimates will be realized in their entirety or at all. In addition, because of these limitations, Adjusted EBITDA should not be considered as a measure of liquidity or discretionary cash available to us to fund our cash needs, including investing in the growth of our business and meeting our obligations. For a reconciliation of Adjusted EBITDA and Adjusted EBITDA margin to Net income (loss) and Net income (loss) margin, refer to Adjusted EBITDA and Adjusted EBITDA margin (non-GAAP measures) below.
We use Free cash flow in our operational and financial decision-making and believe it is useful to investors because similar measures are frequently used by securities analysts, investors, ratings agencies, and other interested parties to measure the ability of a company to service its debt. Our presentation of Free cash flow should not be construed as a measure of liquidity or discretionary cash available to us to fund our cash needs, including investing in the growth of our business and meeting our obligations.
We define Free cash flow as Net cash provided by operating activities less Capital expenditures. For further discussion related to Free cash flow, including a reconciliation to Net cash provided by operating activities, refer to Liquidity and Capital Resources - Cash Flows below.
Results of Operations
Three Months Ended September 30,
Nine Months Ended September 30,
% Change
2024
2023
2024
2023
QTD
YTD
Revenues
$
622.2
$
647.2
$
1,893.7
$
1,945.1
(4)%
(3)%
Operating expenses:
Cost of revenues
210.1
220.6
641.5
674.8
(5)%
(5)%
Selling, general and administrative costs
169.7
171.9
546.8
559.3
(1)%
(2)%
Depreciation and amortization
177.2
176.8
541.0
527.5
—%
3%
Goodwill and intangible asset impairments
13.8
—
316.6
135.2
N/M
N/M
Restructuring and other impairments
4.0
3.7
14.2
25.3
8%
(44)%
Other operating expense (income), net
25.7
(13.0)
46.9
(30.5)
N/M
N/M
Total operating expenses
600.5
560.0
2,107.0
1,891.6
Income (loss) from operations
21.7
87.2
(213.3)
53.5
Fair value adjustment of warrants
—
(12.6)
(5.2)
(14.4)
N/M
(64)%
Interest expense, net
72.2
71.9
213.5
218.5
—%
(2)%
Income (loss) before income taxes
(50.5)
27.9
(421.6)
(150.6)
Provision (benefit) for income taxes
15.1
15.6
23.3
(83.3)
(3)%
N/M
Net income (loss)
(65.6)
12.3
(444.9)
(67.3)
Dividends on preferred shares
—
18.9
31.3
56.3
N/M
(44)%
Net income (loss) attributable to ordinary shares
$
(65.6)
$
(6.6)
$
(476.2)
$
(123.6)
N/M - Represents a change approximately equal or in excess of 100% or not meaningful.
There were no material changes to the business or other factors having a significant impact on the comparability of our results of operations between the periods presented.
Revenues
The tables below present the changes in revenues by transaction type, segment, and geography, as well as the components driving the changes between periods.
Subscription revenues increased primarily due to organic growth driven by price increases, partially offset by lower net volume in IP and LS&H. Re-occurring revenues were flat, but re-occurring organic revenue declined primarily due to lower IP patent renewal volume. Transactional and other revenues decreased primarily due to lower A&G, IP, and LS&H sales, as well as the IP product group divestiture.
Nine Months Ended September 30,
Change
% of Change
2024
2023
$
%
Acquisitions
Disposals
FX
Organic
Subscription
$
1,219.8
$
1,207.3
$
12.5
1.0
%
0.1%
—%
(0.3)%
1.2%
Re-occurring
317.8
325.5
(7.7)
(2.4)
%
—%
—%
(0.1)%
(2.3)%
Transactional and other
356.1
412.3
(56.2)
(13.6)
%
0.2%
(4.5)%
—%
(9.3)%
Revenues
$
1,893.7
$
1,945.1
$
(51.4)
(2.6)
%
0.1%
(1.0)%
(0.2)%
(1.5)%
Subscription revenues increased primarily due to organic growth driven by price increases, partially offset by lower net volume in IP and LS&H. Re-occurring revenues decreased primarily due to lower IP patent renewal volume. Transactional and other revenues decreased primarily due to lower A&G, IP, and LS&H sales, as well as the IP product group divestiture.
Revenues by segment
Three Months Ended September 30,
Change
% of Change
2024
2023
$
%
Acquisitions
Disposals
FX
Organic
A&G
$
321.3
$
327.2
$
(5.9)
(1.8)
%
—%
—%
(0.1)%
(1.7)%
IP
199.8
211.7
(11.9)
(5.6)
%
0.1%
(4.6)%
0.7%
(1.8)%
LS&H
101.1
108.3
(7.2)
(6.6)
%
0.9%
(0.7)%
(0.3)%
(6.5)%
Revenues
$
622.2
$
647.2
$
(25.0)
(3.9)
%
0.2%
(1.6)%
0.1%
(2.6)%
A&G segment revenues decreased due to a decline in transactional volume, partially offset by subscription growth driven by price increases. IP segment revenues decreased primarily due to the product group divestiture and lower transactional and subscription revenues. LS&H segment revenues decreased primarily due to lower transactional and subscription revenues.
Nine Months Ended September 30,
Change
% of Change
2024
2023
$
%
Acquisitions
Disposals
FX
Organic
A&G
$
983.5
$
983.9
$
(0.4)
0.0
%
—%
—%
(0.1)%
0.1%
IP
602.3
637.1
(34.8)
(5.5)
%
—%
(2.6)%
(0.2)%
(2.7)%
LS&H
307.9
324.1
(16.2)
(5.0)
%
0.5%
(0.6)%
(0.5)%
(4.4)%
Revenues
$
1,893.7
$
1,945.1
$
(51.4)
(2.6)
%
0.1%
(1.0)%
(0.2)%
(1.5)%
A&G segment revenues were flat, as subscription growth driven by price increases was offset by a decline in transactional volume. IP segment revenues decreased primarily due to lower transactional and subscription revenues, lower IP patent renewal volume, and the product group divestiture. LS&H segment revenues decreased primarily due to lower transactional and subscription revenues.
Revenues by geography
Three Months Ended September 30,
Change
% of Change
2024
2023
$
%
Acquisitions
Disposals
FX
Organic
Americas
$
335.4
$
342.8
$
(7.4)
(2.2)
%
0.4%
(0.3)%
—%
(2.3)%
EMEA
158.8
176.3
(17.5)
(9.9)
%
—%
(4.8)%
0.7%
(5.8)%
APAC
128.0
128.1
(0.1)
(0.1)
%
—%
(0.9)%
(0.4)%
1.2%
Revenues
$
622.2
$
647.2
$
(25.0)
(3.9)
%
0.2%
(1.6)%
0.1%
(2.6)%
Americas revenues decreased primarily due to lower contributions from A&G and LS&H. EMEA (Europe/Middle East/Africa) revenues decreased primarily due to the IP product group divestiture and lower IP contribution. APAC (Asia Pacific) revenues decreased primarily due to the IP product group divestiture, partially offset by A&G growth.
Americas revenues decreased primarily due to lower contributions from A&G and LS&H. EMEA revenues decreased primarily due to the IP product group divestiture and lower IP contribution. APAC revenues decreased due to a stronger dollar against APAC currencies and the IP product group divestiture, partially offset by A&G growth.
Cost of revenues
Cost of revenues consists of costs related to the production, servicing, and maintenance of our products and are composed primarily of personnel costs, data center services and licensing costs, and costs to acquire or produce content, including royalty fees.
The decrease of 4.8% and 4.9% compared to the three and nine months ended September 30, 2023, respectively, was primarily driven by a reduction in share-based compensation expense and reduced product-related royalty fees and content costs. As a percentage of revenues, cost of revenues decreased by 0.3% and 0.8%, compared to the three and nine months ended September 30, 2023, respectively, primarily as a result of lower share-based compensation expense.
Selling, general and administrative costs
Selling, general and administrative (“SG&A”) costs include nearly all business costs not directly attributable to the production, servicing, and maintenance of our products and are composed primarily of personnel costs, third-party professional services fees, facility costs like rent and utilities, technology costs associated with our corporate infrastructure, and transaction expenses associated with acquisitions, divestitures, and capital market activities including advisory, legal, and other professional and consulting costs.
The decrease of 1.3% and 2.2% compared to the three and nine months ended September 30, 2023, respectively, was primarily driven by a reduction in share-based compensation expense. As a percentage of revenues, SG&A costs were largely unchanged compared to the respective comparative prior year periods.
Depreciation and amortization
Depreciation expense relates to our fixed assets, including computer hardware, leasehold improvements, and furniture and fixtures. Amortization expense relates to our definite-lived intangible assets, including customer relationships, technology and content, internally developed computer software, and trade names.
The increase of 0.2% and 2.6% compared to the three and nine months ended September 30, 2023, respectively, was primarily driven by increased investment in internally developed software and content assets.
Goodwill and intangible asset impairments
In the second quarter of 2024, primarily due to sustained declines in our share price, we performed an interim quantitative goodwill impairment assessment by comparing the estimated fair value to the carrying value for both of our segment reporting units carrying a goodwill balance. The carrying value of the LS&H segment reporting unit exceeded its fair value, resulting in a goodwill impairment charge of $302.8.
In the third quarter of 2024, we recorded $13.8 of goodwill associated with a small acquisition within the IP reporting unit. We recorded an impairment to the goodwill because the carrying value of the IP reporting unit was still below its fair value based on the results of our most recent interim quantitative impairment assessment described above. For additional information, see Note 4 - Other Intangible Assets, Net and Goodwill included in Part I, Item 1 of this quarterly report.
In the second quarter of 2023, in connection with the divestiture of a small product group within our IP segment, we recorded an intangible assets impairment charge of $132.2 and a $3.0 goodwill impairment charge associated with the disposal group’s allocated portion of the IP segment reporting unit’s goodwill balance. For additional information, see Note 2 - Acquisitions and Divestitures included in Part I, Item 1 of this quarterly report.
The three and nine months ended September 30, 2024 charges were primarily associated with the Segment Optimization Program, which began in the second quarter of 2023 and is expected to continue through the end of 2024. The three and nine months ended September 30, 2023 charges were primarily associated with the ProQuest Acquisition Integration Program, which was substantively completed in 2023. For further information regarding each of our restructuring initiatives and impairment impacts, see Note 9 - Restructuring and Other Impairments included in Part I, Item 1 of this quarterly report.
Other operating expense (income), net
The change of $38.7 compared to the three months ended September 30, 2023 was driven by the net impact of realized and unrealized gains and losses on foreign currency transactions, with the largest impacts derived from transactions denominated in GBP.
The change of $77.4 compared to the nine months ended September 30, 2023 was driven by a $(49.4) gain on legal settlement in the comparative prior year period; the net impact of realized and unrealized gains and losses on foreign currency transactions, with the largest impacts derived from transactions denominated in GBP; and a $14.8 loss on divestiture in the current year period. For further information, see Note 10 - Other Operating Expense (Income), Net included in Part I, Item 1 of this quarterly report.
Fair value adjustment of warrants
The adjustment in fair value, resulting in gains in both the current and comparative prior year periods, was driven primarily by decreases in our share price and the remaining exercise period, both of which reduce the warrant value in the option valuation model. In May 2024, all remaining private placement warrants expired unexercised.
Interest expense, net
Interest expense was largely unchanged compared to the three months ended September 30, 2023. The decrease of (2.3)% compared to the nine months ended September 30, 2023 was driven by lower outstanding borrowings on our new term loan facility.
Provision (benefit) for income taxes
The income tax provision of $15.1 and $15.6 for the three months ended September 30, 2024 and 2023, respectively, was primarily due to the mix of jurisdictions in which pre-tax profits and losses were recognized.
The income tax provision of $23.3 for the nine months ended September 30, 2024 was primarily due to the mix of jurisdictions in which pre-tax profits and losses were recognized, partially offset by a $14.2 tax benefit related to the goodwill impairment. The income tax benefit of $83.3 for the nine months ended September 30, 2023 was driven by a $70.4 tax benefit recorded on the settlement of an open tax dispute, a $33.0 tax benefit associated with the impairment of intangible assets, and a $17.1 tax benefit relating to the partial release of valuation allowance, partially offset by the mix of taxing jurisdictions in which pre-tax profits and losses were recognized.
The current quarter effective tax rate may not be indicative of our effective tax rates for future periods.
In December 2021, the Organization for Economic Co-operation and Development (“OECD”) issued model rules for a new global minimum tax framework under its “Pillar Two” initiative, and various governments around the world have issued, or have announced that they plan to issue, legislation consistent with the OECD model rules. We are within the scope of the OECD Pillar Two model rules.
During the third quarter of 2023, the United Kingdom enacted legislation consistent with the OECD model rules, which became effective January 1, 2024. Based on our most recent tax filings, country-by-country reporting, and financial information available, we believe that most of the jurisdictions in which we operate will meet the requirements for transitional safe harbor relief. Therefore, we do not expect the global minimum tax to have a material impact in 2024. However, future legislation or changes in our financial results could materially increase our global minimum tax expense.
Dividends on preferred shares
Dividends on our MCPS were calculated and accrued at an annual rate of 5.25% of the liquidation preference of $100.00 per share. In June 2024, all outstanding MCPS automatically converted into 55.3 million ordinary shares at a conversion rate of
3.8462 ordinary shares per MCPS share. All accumulated preferred dividends were paid prior to the conversion, and as a result of the conversion, no further dividends will be accrued or paid.
Adjusted EBITDA and Adjusted EBITDA margin (non-GAAP measures)
The following table presents our calculation of Adjusted EBITDA and Adjusted EBITDA margin for the three and nine months ended September 30, 2024 and 2023, and reconciles these non-GAAP measures to our Net income (loss) and Net income (loss) margin for the same periods:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Net income (loss)
$
(65.6)
$
12.3
$
(444.9)
$
(67.3)
Provision (benefit) for income taxes
15.1
15.6
23.3
(83.3)
Depreciation and amortization
177.2
176.8
541.0
527.5
Interest expense, net
72.2
71.9
213.5
218.5
Transaction related costs
6.1
2.7
13.6
5.1
Share-based compensation expense
15.4
25.4
49.7
97.1
Goodwill and intangible asset impairments
13.8
—
316.6
135.2
Restructuring and other impairments
4.0
3.7
14.2
25.3
Fair value adjustment of warrants
—
(12.6)
(5.2)
(14.4)
Other(1)
26.2
(14.4)
53.3
(24.7)
Adjusted EBITDA
$
264.4
$
281.4
$
775.1
$
819.0
Net income (loss) margin
(10.5)%
1.9%
(23.5)%
(3.5)%
Adjusted EBITDA margin
42.5%
43.5%
40.9%
42.1%
(1) Primarily reflects the net impact of unrealized foreign currency gains and losses, as well as other items that do not reflect our ongoing operating performance. For the nine months ended September 30, 2024, the amount includes a $14.8 loss on the divestiture discussed in Note 2 - Acquisitions and Divestitures and for the nine months ended September 30, 2023, the amount includes a $49.4 gain on legal settlement discussed in Note 14 - Commitments and Contingencies.
Liquidity and Capital Resources
We finance our operations primarily through cash generated by operating activities and through borrowing activities. As of September 30, 2024, we had $388.5 of cash and cash equivalents (including restricted cash of $7.7) and $691.9 of available borrowing capacity under our revolving credit facility.
Cash Flows
We have historically generated significant cash flows from our operating activities. Our subscription-based revenue model provides a steady and predictable source of revenue and cash flow for us, as we typically receive payments from our customers at the start of the subscription period (usually 12 months) and recognize revenue ratably throughout that period. Our high customer renewal rate, stable margins, and efforts to improve operating efficiencies and working capital management also contribute to our ability to generate solid operating cash flows.
The following table discloses our cash flows by activity for the periods presented:
Nine Months Ended September 30,
Change
2024
2023
$
%
Net cash provided by operating activities
$
505.3
$
553.3
(48.0)
(9)
%
Net cash provided by (used for) investing activities
$
(258.1)
$
(170.4)
(87.7)
51
%
Net cash provided by (used for) financing activities
$
(230.5)
$
(322.2)
91.7
(28)
%
The decrease in net cash provided by operating activities was driven by lower operating results, partially offset by timing of working capital changes.
The increase in net cash used for investing activities was due to increased acquisition and divestiture activity, as well as increased capital spending.
The decrease in net cash used for financing activities was due to lower payments on our term loans and MCPS dividends, partially offset by payments for fees associated with the refinancing of our existing credit facilities in January 2024. During both periods presented, we used $100.0 of cash on hand to repurchase our ordinary shares.
Free cash flow (non-GAAP measure)
The following table reconciles our non-GAAP Free cash flow measure to Net cash provided by operating activities for the periods presented:
Nine Months Ended September 30,
2024
2023
Net cash provided by operating activities
$
505.3
$
553.3
Capital expenditures
(206.9)
(178.6)
Free cash flow
$
298.4
$
374.7
The decrease in Free cash flow was driven by lower operating results and increased capital expenditures, partially offset by timing of working capital changes. Our capital expenditures in both periods presented consisted primarily of capitalized labor, contract services, and other costs associated with product and content development.
Borrowings
As of September 30, 2024, we had $4,681.9 of outstanding borrowings under our notes and credit facilities. We incurred $213.5 and $218.5 of interest expense associated with our debt obligations during the nine months ended September 30, 2024 and 2023, respectively. Our contingent liabilities consist primarily of letters of credit and performance bonds and other similar obligations in the ordinary course of business.
In January 2024, we refinanced our existing credit facilities to provide improved financial flexibility, including extending our debt maturities and lowering our annual cash interest costs. We amended our $750.0 revolving credit facility by reducing it to a $700.0 facility (with a letter of credit sublimit of $77.0) and extending the maturity date to January 31, 2029. We also made a prepayment of $47.4 on our existing term loans due in 2026 and then refinanced the remaining term loans with a new $2,150 tranche of term loans maturing in 2031. The interest rate margin for the new term loan facility decreased from 300 to 275 basis points per annum in the case of loans bearing interest by reference to term SOFR. The term loans amortize in equal quarterly installments (the first installment was paid on June 28, 2024) equivalent to a rate of 1.00% per annum, with the balance due at maturity.
For further discussion related to our outstanding borrowings, see Note 6 - Debt included in Part I, Item 1 of this quarterly report.
Commitments and Contingencies
In addition to the scheduled future debt repayments that we will need to make, we also have commitments and plans related to our share repurchase program, capital expenditures, and other commitments in the ordinary course of business, primarily for cloud computing services and software license costs. Any amounts for which we are currently liable are reflected in our Condensed Consolidated Balance Sheets as Accounts payable or Accrued expenses and other current liabilities.
As of September 30, 2024, we had $300.0 of availability remaining under our current share repurchase program, which is valid through December 31, 2024.
In addition, we are engaged in various legal proceedings and claims that have arisen in the ordinary course of business and have taken what we believe to be adequate reserves related to the litigation and threatened claims. We maintain appropriate insurance policies, which are likely to provide some coverage for these liabilities or other losses that may arise from litigation matters. For additional information about our legal proceedings and claims, see Note 14 - Commitments and Contingencies included in Part I, Item 1 of this quarterly report.
We require and will continue to need significant cash resources to, among other things, meet our debt service requirements, fund our working capital requirements, make capital expenditures (including product and content development), and expand our business through acquisitions. Based on our forecasts, we believe that cash flow from operations, available cash on hand, borrowing capacity, and access to capital markets will be adequate to service debt, meet liquidity needs, and fund capital expenditures and other business plans for both the next 12 months and the foreseeable future. Our future capital requirements will depend on many factors, including the number of future acquisitions and the timing and extent of
spending to support product development efforts. We could be required, or could elect, to seek additional funding through public or private equity or debt financings; however, additional funds may not be available on terms acceptable to us.
Critical Accounting Policies and Estimates
Other than as discussed below, there have been no material changes to our critical accounting policies, estimates, and assumptions from those reported under Part I, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our annual report on Form 10-K for the year ended December 31, 2023.
Goodwill
We perform goodwill impairment testing during the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that carrying value may not be recoverable. In the second quarter of 2024, we performed an interim quantitative goodwill impairment assessment, primarily due to sustained declines in our share price.
Consistent with our policy, we estimated the fair value of our segment reporting units using a discounted cash flow (“DCF”) model. The most significant change in assumptions compared to our most recent analysis (performed in the fourth quarter of 2023) was the estimated discount rates. We updated the discount rate assumptions to 10.5% and 11.5% for our A&G and LS&H segment reporting units, respectively, compared to 9.5% and 10% for the same respective segment reporting units in the fourth quarter 2023 analysis. As a result of the quantitative analysis performed, we recorded a $302.8 goodwill impairment charge for the LS&H segment reporting unit in the second quarter of 2024. The use of a different set of assumptions and estimates could have resulted in materially different results. A 50 basis point increase in the discount rate assumption would have resulted in an incremental impairment charge for the LS&H segment reporting unit of approximately $60, while the fair value of the A&G segment reporting unit would still be substantially in excess of its carrying value.
Future events or changes in circumstances could result in additional changes to our DCF assumptions and estimates that would materially affect the determination of estimated fair value and result in additional impairment charges.
Recently Issued and Adopted Accounting Pronouncements
For recently issued and adopted accounting pronouncements, see Note 1 - Nature of Operations and Summary of Significant Accounting Policies included in Part I, Item 1 of this quarterly report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk that changes in market prices, such as foreign currency exchange rates and interest rates, will affect our cash flows or the fair value of our holdings of financial instruments. Market risks as of September 30, 2024 have not materially changed from those discussed under Part I, Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our annual report on Form 10-K for the year ended December 31, 2023.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act as of the end of the period covered by this report. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of our controls and procedures relative to their costs.
Based on that evaluation, our CEO and CFO concluded that, as of September 30, 2024 our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in the reports to be filed or submitted under the Securities Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
PART II. Other Information
Item 1. Legal Proceedings.
For information related to legal proceedings, see Note 14 - Commitments and Contingencies included in Part I, Item 1 of this quarterly report.
Item 1A. Risk Factors.
There have been no material changes to the risk factors associated with our business from those reported under Part I, Item 1A. Risk Factors in our annual report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table sets forth the total number of shares purchased, the average price paid per share, the total number of shares purchased as part of publicly announced programs, and the approximate dollar value of shares that may yet be purchased under the programs for each month during the three months ended September 30, 2024.
Period
Total Number of Shares Purchased(1)
Average Price Paid Per Share
Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares That May Yet Be Purchased Under Plans or Programs(2)
July 1, 2024 - July 31, 2024
54,845
$
5.68
—
$
400
August 1, 2024 - August 31, 2024
10,549,052
$
6.54
10,535,504
$
331
September 1, 2024 - September 30, 2024
5,287,548
$
6.69
4,645,399
$
300
Total
15,891,445
15,180,903
(1) Includes shares withheld to satisfy tax withholding obligations on behalf of employees that occur upon vesting and delivery of outstanding shares underlying equity awards under the 2019 Incentive Award Plan.
(2)In May 2023, the Company's Board of Directors approved the extension of its share repurchase authorization through December 31, 2024, and reduced the authorization from $1,000.0 to $500.0. To enable the buybacks under the Board's authorization, the Company obtained shareholder approval on July 27, 2023 to permit it to conduct open-market purchases of up to 100.0 million of its ordinary shares from time to time as approved by the Board of Directors at a minimum purchase price of $1 per share and maximum purchase price of $35 per share. As of September 30, 2024, the Company had $300.0 of availability remaining under the Board's current authorization.
Item 5. Other Information.
During the quarter ended September 30, 2024, no director or officer (as defined in Rule 16a-1 under the Exchange Act) of the Company adopted or terminated a Rule 10b5-1 trading plan or adopted or terminated a non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408(a) of Regulation S-K).
The following information from our Form 10-Q for the quarter ended September 30, 2024, formatted in Inline Extensible Business Reporting Language: (i) Condensed Consolidated Balance Sheets (Unaudited), (ii) Condensed Consolidated Statements of Operations (Unaudited), (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited), (iv) Condensed Consolidated Statements of Changes in Equity (Unaudited), (v) Condensed Consolidated Statements of Cash Flows (Unaudited), and (vi) Notes to the Condensed Consolidated Financial Statements (Unaudited).
104*
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
* Filed herewith.
+ Compensatory plan or arrangement.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized in the City of London, United Kingdom on November 6, 2024.
CLARIVATE PLC
By:
/s/ Jonathan M. Collins
Name: Jonathan M. Collins
Title: Executive Vice President & Chief Financial Officer