CALGON CARBON CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our unaudited Consolidated Financial Statements, including the notes thereto, included elsewhere in this report. Certain statements in this section are forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations and intentions. Our future results and financial condition may differ materially from those we currently anticipate as a result of the factors we describe under "Item 1A. Risk Factors." Certain income statement amounts discussed herein are presented on an actual and on a constant currency basis. We calculate constant currency by converting the non-U.S. dollar income statement balances for the most current year toU.S. dollars by applying the average exchange rates of the preceding year. Certain amounts that appear in this section may not sum due to rounding. Overview We offer a collection of high quality, market leading information and analytic products and solutions through our Science and Intellectual Property ("IP") Product Groups. OurScience Product Group consists of our Web of Science and Life Science Product Lines, and ourIP Product Group consists of our Derwent, CompuMark and MarkMonitor Product Lines. Our highly curated Web of Science products are offered primarily to universities, helping them navigate scientific literature, facilitate research and evaluate and measure the quality of researchers, institutions and scientific journals across various academic disciplines. Our Life Sciences Product Line offerings serve the content and analytical needs of pharmaceutical and biotechnology companies across the drug development lifecycle, including content on discovery and pre-clinical research, competitive intelligence, regulatory information and clinical trials. Our Derwent Product Line offerings help patent and legal professionals in R&D intensive businesses evaluate the novelty and patentability of new ideas and products to help protect and research patents. Our CompuMark products and services allow businesses and legal professionals to access our comprehensive trademark database. Finally, our MarkMonitor offerings include enterprise web domain portfolio management products and services. Factors Affecting the Comparability of Our Results of Operations There have been no material changes to the factors affecting the comparability of our results of operations associated with our business previously disclosed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors Affecting the Comparability of Our Results of Operations" section in our Annual Report on Form 10-K, except as set forth below. The disclosures set forth below updates, and should be read together with, the disclosures in the "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors Affecting the Comparability of Our Results of Operations" section, in our Annual Report on Form 10-K. Acquisition ofDecision Resources Group OnFebruary 28, 2020 , we acquired 100% of the assets, liabilities and equity interests ofDecision Resources Group ("DRG"), a premier provider of high-value data, analytics and insights products and services to the healthcare industry, from Piramal Enterprises Limited ("PEL"), which is a part of global business conglomeratePiramal Group . The acquisition helps us expand our core businesses and provides us with the potential to grow in the Life Sciences Product Line. The aggregate consideration paid in connection with the closing of the DRG acquisition was$964,997 , comprised of$900,000 of base cash plus$6,100 of adjusted closing cash paid on the closing date and up to 2,895,638 of the Company's ordinary shares to be issued to PEL following the one-year anniversary of closing. The contingent stock consideration was valued at$58,897 on the closing date and will be revalued at each period end and included in the Accrued expenses and other current liabilities in the Interim Condensed Consolidated Balance Sheets. InFebruary 2020 , we completed an underwritten public offering of 27,600,000 of our ordinary shares, generating net proceeds of$540,736 , which we used to fund a portion of the cash consideration for the DRG acquisition. In addition, we incurred an incremental$360,000 of term loans under our term loan facility and used the net proceeds from such borrowings, together with cash on hand, to fund the remainder of the cash consideration for the DRG acquisition and to pay related fees and expenses. As the result of the additional term loan, we had$1,256,850 outstanding on our term loan facility atMarch 31, 2020 . 30 --------------------------------------------------------------------------------CLARIVATE ANALYTICS PLC
Management's Discussion and Analysis of Financial Condition and Results of
Operations(Amounts in thousands, except per share and per share data, option price
amounts, ratios or as noted)
MarkMonitor Brand Protection, Antipiracy and Antifraud Disposition
InNovember 2019 , we entered into an agreement with an unrelated third-party for the sale of certain assets and liabilities of our MarkMonitor Product Line within the IP Group. The divestment closed inJanuary 2020 for a consideration of approximately$3,751 . An impairment charge of$18,431 was recognized in the Statement of Operations during the fourth quarter to reduce the Assets Held for Sale to their fair value. Accordingly, we recorded an immaterial loss on the divestiture during the period three months endedMarch 31, 2020 . Key Components of Our Results of Operations Revenues, net We categorize our revenues into two categories: subscription and transactional. Subscription-based revenues are recurring revenues that are earned under annual, multi-year, or evergreen contracts, pursuant to which we license the right to use our products to our customers. Revenues from the sale of subscription data and analytics solutions are typically invoiced annually in advance and recognized ratably over the year as revenues are earned. Subscription revenues are driven by annual revenue renewal rates, new subscription business, price increases on existing subscription business and subscription upgrades and downgrades from recurring customers. Substantially all of our historical deferred revenues purchase accounting adjustments are related to subscription revenues. Transactional revenues are earned under contracts for specific deliverables that are typically quoted on a product, data set or project basis and often derived from repeat customers, including customers that also generate subscription-based revenues. Transactional products and services are invoiced according to the terms of the contract, typically in arrears. Transactional content revenues are usually delivered to the customer instantly or in a short period of time, at which time revenues are recognized. Transactional revenues also include, to a lesser extent, professional services, which are typically performed under contracts that vary in length from several months to years for multi-year projects and are typically invoiced based on the achievement of milestones. The most significant components of our transactional revenues include our "clearance searching" and "backfiles" products. Cost of Revenues, Excluding Depreciation and Amortization Cost of revenues consists of costs related to the production, servicing and maintenance of our products and are comprised primarily of related personnel costs, such as salaries, benefits and bonuses for employees, fees for contracted labor, and data center services and licensing costs. Cost of revenues also includes the costs to acquire or produce content, royalties payable and non-capitalized R&D expenses. Cost of revenues does not include production costs related to internally generated software, which are capitalized. Selling, General and Administrative, Excluding Depreciation and Amortization Selling, general and administrative costs consist primarily of salaries, benefits, commission and bonuses for the executive, finance and accounting, human resources, administrative, sales and marketing personnel, third-party professional services fees, such as legal and accounting expenses, facilities rent and utilities and technology costs associated with our corporate infrastructure. Depreciation Depreciation expense relates to our fixed assets, including mainly computer hardware and leasehold improvements, furniture and fixtures. These assets are depreciated over their expected useful lives, and in the case of leasehold improvements over the shorter of their useful life or the duration of the related lease. Amortization Amortization expense relates to our finite-lived intangible assets, including mainly databases and content, customer relationships, internally generated computer software and trade names. These assets are amortized over periods of between two and 20 years. Definite-lived intangible assets are tested for impairment when indicators are present, and, if impaired, are written down to fair value based on discounted cash flows. No impairment of intangible assets has been identified during any financial period included in our accompanying unaudited Interim Condensed Consolidated Financial Statements. Share-based Compensation 31 --------------------------------------------------------------------------------CLARIVATE ANALYTICS PLC
Management's Discussion and Analysis of Financial Condition and Results of
Operations(Amounts in thousands, except share and per share data, option price amounts,
ratios or as noted)
Share-based compensation expense includes costs associated with stock options
granted to and certain modifications for certain members of management and
expense related to the issuance of shares in connection with our merger with
Churchill Capital Corp in 2019.
Transaction Expenses
Transaction expenses are incurred to complete business combination transactions,
including acquisitions and dispositions, and typically include advisory, legal
and other professional and consulting costs.
Transition, Integration and Other Related Expenses
Transition, integration and other related expenses, including transformation
expenses, mainly reflect the costs of transitioning certain activities performed
under the transition services agreement by Thomson Reuters and certain
consulting costs related to standing up our back-office systems to enable our
operation on a stand-alone basis. These costs include labor costs of full time
employees currently working on migration projects, including primarily employees
whose labor costs are capitalized in other circumstances (such as employees
working on application development). In 2019, these costs also relate to the
Company's transition expenses incurred following the merger with Churchill
Capital Corp.
Restructuring
Restructuring expense includes costs associated with involuntary termination
benefits provided to employees under the terms of a one-time benefit
arrangement, certain contract termination costs, and other costs associated with
an exit or disposal activity.
Other Operating Income (Expense), Net
Other operating income (expense), net consists of gains or losses related to
legal settlements and the disposal of our assets, asset impairments or
write-downs and the consolidated impact of re-measurement of the assets and
liabilities of our company and our subsidiaries that are denominated in
currencies other than each relevant entity's functional currency.
Interest Expense, net
Interest expense, net consists of expense related to interest on our borrowings
under our term loan facility and our secured notes due 2026, the amortization
and write off of debt issuance costs and original discount, and interest related
to certain derivative instruments.
Benefit (Provision) for Income Taxes
A benefit or provision for income tax is calculated for each of the
jurisdictions in which we operate. The benefit or provision for income taxes is
determined using the asset and liability approach of accounting for income
taxes. Under this approach, deferred taxes represent the future tax consequences
expected to occur when the reported amounts of assets and liabilities are
recovered or paid. The benefit or provision for income taxes represents income
taxes paid or payable for the current year plus the change in deferred taxes
during the year. Deferred taxes result from differences between the book and tax
bases of assets and liabilities and are adjusted for changes in tax rates and
tax laws when changes are enacted. Valuation allowances are recorded to reduce
deferred tax assets when it is more likely than not that a tax benefit will not
be realized. Interest accrued related to unrecognized tax benefits and income
tax related penalties are included in the provision for income taxes.
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.
Adjusted Revenues
We present Adjusted Revenues, which excludes the impact of the deferred revenue
purchase accounting adjustment (recorded in connection with the separation from
Thomson Reuters) and revenues from divestitures. We present these measures
because we believe it is useful to readers to better understand the underlying
trends in our operations. See "- Certain Non-GAAP Measures - Adjusted Revenues"
below for important information on the limitations of Adjusted Revenues and
their reconciliation to the respective revenues measures under U.S. GAAP.
Adjusted EBITDA and Adjusted EBITDA margin
32
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CLARIVATE ANALYTICS PLC Management's Discussion and Analysis of Financial Condition and Results of
Operations(Amounts in thousands, except per share and per share data, option price
amounts, ratios or as noted)
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. See "- Certain Non-GAAP Measures -
Adjusted EBITDA and Adjusted EBITDA margin" for important information on the
limitations of Adjusted EBITDA and its reconciliation to our Net loss under
GAAP. Adjusted EBITDA represents net loss before provision for income taxes,
depreciation and amortization, interest income and expense adjusted to exclude
acquisition or disposal-related transaction costs (such costs include net income
from continuing operations before provision for income taxes, depreciation and
amortization and interest income and expense from divestitures), losses on
extinguishment of debt, stock-based compensation, unrealized foreign currency
gains/(losses), costs associated with the transition services agreement with
Thomson Reuters, which we entered into in connection with our separation from
Thomson Reuters in 2016, separation and integration costs, transformational and
restructuring expenses, acquisition-related adjustments to deferred revenues,
costs related to our merger with Churchill Capital Corp in 2019, non-cash
income/(loss) on equity and cost method investments, non-operating income or
expense, the impact of certain non-cash, legal settlements and other items that
are included in net income for the period that the Company does not consider
indicative of its ongoing operating performance and certain unusual items
impacting results in a particular period. Adjusted EBITDA margin is calculated
by dividing Adjusted EBITDA by Adjusted Revenues.
Annualized Contract Value
Annualized Contract Value ("ACV"), at a given point in time, represents the
annualized value for the next 12 months of subscription-based client license
agreements, assuming that all expiring license agreements during that period are
renewed at their current price level. License agreements may cover more than one
product and the standard subscription period for each license agreement
typically runs for no less than 12 months. The renewal period for our
subscriptions starts 90 days before the end of the current subscription period,
during which customers must provide notice of whether they intend to renew or
cancel the license agreement.
An initial subscription period for new customers may be for a term of less than
12 months, in certain circumstances. Most of our customers, however, opt to
enter into a full 12-month initial subscription period, resulting in renewal
periods spread throughout the calendar year. Customers that license more than
one subscription-based product may, at any point during the renewal period,
provide notice of their intent to renew only certain subscriptions within the
license agreement and cancel other subscriptions, which we typically refer to as
a downgrade. In other instances, customers may upgrade their license agreements
by adding additional subscription-based products to the original agreement. Our
calculation of ACV includes the impact of downgrades, upgrades, price increases,
and cancellations that have occurred as of the reporting period. For avoidance
of doubt, ACV does not include fees associated with transactional revenues.
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 through subscription-based products, which accounted for 79.7% and
82.2% in each of the three months ended March 31, 2020 and 2019, respectively.
We calculate and monitor ACV for each of our Groups and use the metric as part
of our evaluation of our business and trends.
The amount of actual subscription revenues that we earn over any 12-month period
are likely to differ from ACV at the beginning of that period, sometimes
significantly. This may occur for numerous reasons, including subsequent changes
in annual revenue renewal rates, impact of price increases (or decreases),
cancellations, upgrades and downgrades, and acquisitions and divestitures.
We calculate the ACV on a constant currency basis to exclude the effect of
foreign currency fluctuations.
The following table presents ACV as of the dates indicated:
March 31 , Variance
(in thousands, except percentages) 2020 2019 $ %
Annualized contract value
Annual Revenue Renewal Rates
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.
33
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CLARIVATE ANALYTICS PLC Management's Discussion and Analysis of Financial Condition and Results of
Operations(Amounts in thousands, except per share and per share data, option price
amounts, ratios or as noted)
"Annual revenue renewal rate" is the metric we use to determine renewal levels
by existing customers across all of our Groups, and is a leading indicator of
renewal trends, which impact the evolution of our ACV and results of operations.
We calculate the annual revenue 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 reposting period, are excluded from both the numerator and
denominator of the calculation. We calculate the annual revenue renewal rate to
reflect the value of product downgrades but not the value of product upgrades
upon renewal, because upgrades reflect the purchase of additional services.
The impact of upgrades, new subscriptions and product price increases is
reflected in ACV, but not in annual revenue renewal rates. Our annual revenue
renewal rates were 93.0% and 93.0% for the three months ended March 31, 2020 and
2019, respectively.
Results of Operations
The following table presents the results of operations for the three months
ended March 31, 2020 and 2019:
Three Months Ended March 31 , Variance Increase / (Decrease)
2020 2019 $ %
(in thousands, except
percentages)
Revenues, net $ 240,592 $ 234,025 $ 6,567 2.8 %
Cost of revenues, excluding
depreciation and amortization (82,399 ) (89,267 ) (6,868 ) (7.7 )%
Selling, general and
administrative costs, excluding
depreciation and amortization (86,948 ) (92,296 ) (5,348 ) (5.8 )%
Share-based compensation expense (17,469 ) (3,176 ) 14,293 N/M
Depreciation (2,329 ) (2,051 ) 278 13.6 %
Amortization (49,112 ) (56,106 ) (6,994 ) (12.5 )%
Transaction expenses (26,689 ) (10,270 ) 16,419 N/M
Transition, integration and
other related expenses (2,232 ) (1,161 ) 1,071 92.2 %
Restructuring (7,754 ) - 7,754 N/M
Other operating income
(expense), net 6,032 (5,617 ) 11,649 N/M
Total operating expenses (268,900 ) (259,944 ) 8,956 3.4 %
Loss from operations (28,308 ) (25,919 ) 2,389 9.2 %
Interest expense, net (30,940 ) (33,101 ) (2,161 ) (6.5 )%
Loss before income tax (59,248 ) (59,020 ) 228 0.4 %
Provision for income taxes (14,753 ) (240 ) 14,513 N/M
Net loss $ (74,001 ) $ (59,260 ) $ 14,741 24.9 %
Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
Revenues, Net
Revenues, net of $240,592 for the three months ended March 31, 2020 , increased
by $6,567 , or 2.8%, from $234,025 for the three months ended March 31, 2019 . On
a constant currency basis, Revenues, net increased $8,305 , or 3.5% for the three
months ended March 31, 2020 .
Adjusted Revenues, which excludes the impact of the deferred revenues
adjustment, increased $8,285 , or 3.5%, to $242,474 in the three months ended
March 31, 2020 from $234,189 in the three months ended March 31, 2019 . On a
constant currency basis, Adjusted Revenues increased $10,023 , or 4.2% for the
three months ended March 31, 2020 . For an explanation of our calculation of
Adjusted Revenues and the limitations as to its usefulness, see "- Certain
Non-GAAP Measures - Adjusted Revenues."
34
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CLARIVATE ANALYTICS PLCManagement's Discussion and Analysis of Financial Condition and Results of
Operations(Amounts in thousands, except share and per share data, option price amounts,
ratios or as noted)
The following tables present the amounts of our subscription and transactional
revenues for the periods indicated, as well the drivers of the variances between
periods, including as a percentage of such revenues.
Variance Increase/(Decrease) Percentage of Factors Increase/(Decrease)
Total
Three Months Ended March 31 , Total Variance (Dollars) Variance (%) Acquisitive Disposal FX Impact
Organic (in thousands, except percentages) 2020 2019 Subscription revenues$ 193,235 $ 192,492 $ 743 0.4 % 5.1 % (7.3 )% (0.7 )% 3.3 % Transactional revenues 49,239 41,697 7,542 18.1 % 23.0 % (1.6 )% (0.8 )% (2.5 )% Deferred revenues adjustment (1) (1,882 ) (164 ) 1,718 NM NM 0.0 % 0.0 % 68.3 % Revenues, net$ 240,592 $ 234,025 $ 6,567 2.8 % 7.5 % (6.3 )% (0.7 )% 2.3 % Deferred revenues adjustment (1) 1,882 164 1,718 NM NM 0.0 % 0.0 % 68.3 % Adjusted Revenues, net$ 242,474 $ 234,189 $ 8,285 3.5 % 8.3 % (6.3 )% (0.7 )% 2.2 % (1) Reflects the deferred revenues adjustment as a result of purchase accounting. Subscription revenues increased by$743 , or 0.4% for the three months endedMarch 31, 2020 . On a constant currency basis, subscription revenues increased by$2,124 , or 1.1%. Acquisitive subscription growth is generated from the acquisitions of Darts-ip inNovember 2019 and DRG inFebruary 2020 . Disposal subscription reduction is derived from the divestiture of the MarkMonitor Brand Protection, Antipiracy, and Antifraud products inJanuary 2020 . Organic subscription revenues increased primarily due to price increases and new business, consistent with the growth in the annualized contract value. Transactional revenues increased by$7,542 , or 18.1% for the three months endedMarch 31, 2020 . On a constant currency basis, transactional revenues increased by$7,899 , or 18.9%. Acquisitive transactional growth is generated from the acquisitions of Darts-ip inNovember 2019 and DRG inFebruary 2020 . Disposal transactional reduction is derived from the divestiture of the MarkMonitor Brand Protection, Antipiracy, and Antifraud products inJanuary 2020 . Organic transactional revenues decreased due to timing of product offerings and volume. This decrease was offset partially by increased revenues related to the upgrades of the Techstreet product offerings. The table below presents our revenue split by geographic region for the periods indicated, as well the drivers of the variances between periods, including as a percentage of such revenues. Variance Increase/(Decrease) Percentage of Factors Increase/(Decrease) Total Revenues by Total Variance Variance Geography Three Months Ended March 31, (Dollars) (%) Acquisitive Disposal FX Impact Organic (in thousands, except percentages) 2020 2019 Americas$ 116,992 $ 112,136 $ 4,856 4.3 % 12.0 % (8.7 )% (0.1 )% 1.1 % Europe/Middle East/Africa 66,795 66,998 (203 ) (0.3 )% 6.9 % (5.8 )% (1.7 )% 0.3 % Asia Pacific 58,687 55,055 3,632 6.6 % 2.5 % (2.0 )% (0.8 )% 6.9 % Deferred revenues adjustment (1) (1,882 ) (164 ) 1,718 NM NM - % - % 68.3 % Revenues, net$ 240,592 $ 234,025 $ 6,567 2.8 % 7.5 % (6.3 )% (0.7 )% 2.3 % Deferred revenues adjustment (1) 1,882 164 1,718 NM NM - % - % 68.3 % Adjusted Revenues, net$ 242,474 $ 234,189 $ 8,285 3.5 % 8.3 % (6.3 )% (0.7 )% 2.2 % (1) Reflects the deferred revenues adjustment as a result of purchase accounting. Acquisitive growth for all regions was related to the acquisitions of Darts-ip inNovember 2019 and DRG inFebruary 2020 . Disposal reduction is derived from the divestiture of the MarkMonitor Brand Protection, Antipiracy, and Antifraud 35 -------------------------------------------------------------------------------- CLARIVATE ANALYTICS PLC
Management's Discussion and Analysis of Financial Condition and Results of
Operations(Amounts in thousands, except share and per share data, option price amounts,
ratios or as noted)
products in January 2020 . On a constant currency basis, Americas revenues
increased by $4,985 , or 4.4%, with organic growth slightly increasing due to
increased subscription revenues offset by decreased transactional revenues. On a
constant currency basis, Europe /Middle East /Africa revenues increased by $950 ,
or 1.4%, with organic growth slightly decreasing due to a reduction in
subscription revenue and transaction revenue remaining flat. On a constant
currency basis, Asia Pacific revenues increased $4,088 , or 7.4%, with organic
growth increasing due to increases in subscription and transactional revenues.
The following tables, and the discussion that follows, present our revenues by
Product Group for the periods indicated, as well the drivers of the variances
between periods, including as a percentage of such revenues.
Variance Increase/(Decrease) Percentage of Factors Increase/(Decrease)
Revenues by Product Total Variance Total
Group Three Months Ended March 31, (Dollars)Variance (%) Acquisitive Disposal FX Impact Organic (in thousands, except percentages)
2020 2019
14.0 % 13.2 % - % (1.0 )% 1.8 %
IP Product Group 95,214 104,978 (9,764 ) (9.3 )% 2.3 % (14.0 )% (0.5 )% 2.9 %
Deferred revenues
adjustment (1) (1,882 ) (164 ) 1,718 NM NM - % - % 68.3 %
Revenues, net $ 240,592 $ 234,025 $ 6,567 2.8 % 7.5 % (6.3 )% (0.7 )% 2.3 %
Deferred revenues
adjustment (1) 1,882 164 1,718 NM NM - % - % 68.3 %
Adjusted Revenues,
net $ 242,474 $ 234,189 $ 8,285 3.5 % 8.3 % (6.3 )% (0.7 )% 2.2 %
(1) Reflects the deferred revenues adjustment as a result of purchase
accounting.
Science Product Group : Revenues of $147,260 for the three months ended March 31,
2020 increased $18,049 , or 14.0% from $129,211 for the three months ended March
31, 2019 . On a constant currency basis, revenues increased by $19,292 , or
15.0%. Acquisitive transactional growth is generated from the acquisition of DRG
in February 2020 . Organic revenues increased due to price increases and new
business in subscription revenues, partially offset by a minimal decrease in
transactional revenues due to timing of product offerings.
IP Product Group : Revenues of $95,214 for the three months ended March 31, 2020
decreased $9,764 , or 9.3% from $104,978 for the three months ended March 31,
2019 . On a constant currency basis, revenue decreased $9,269 , or 8.8%, driven by
subscription and transactional revenue. Acquisitive transactional growth is
generated from the acquisition of Darts-ip in November 2019 . Disposal reduction
is derived from the disposal of the MarkMonitor Brand Protection, Antipiracy,
and Antifraud productions in January 2020 . Organic revenues increased due to
subscription and transactional growth primarily due to the upgrades of the
Techstreet product offerings.
Cost of Revenues, Excluding Depreciation and Amortization
Cost of revenues of $82,399 for the three months ended March 31, 2020 decreased
by $6,868 , or 7.7%, from $89,267 for the three months ended March 31, 2019 . On a
constant currency basis, cost of revenues decreased by $4,160 or 4.7%, for the
three months ended March 31, 2020 , respectively. On a constant currency basis,
costs of revenues decreased due to a decrease in Transition Services Agreement
data center costs.
Selling, General and Administrative, Excluding Depreciation and Amortization
Selling, general and administrative expense of $86,948 for the three months
ended March 31, 2020 , decreased by $5,348 , or 5.8%, from $92,296 for the three
months ended March 31, 2019 . On a constant currency basis, Selling, general and
administrative expenses increased by $2,590 , or 2.8%, for the three months ended
March 31, 2020 , reflecting an increase in employee related costs substantially
offset by a decrease in Transition Services Agreement costs, and certain
business operating costs.
Share-based Compensation
36
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CLARIVATE ANALYTICS PLCManagement's Discussion and Analysis of Financial Condition and Results of
Operations(Amounts in thousands, except share and per share data, option price amounts,
ratios or as noted)
Share-based compensation expense of $17,469 for the three months ended March 31,
2020 increased by $14,293 from $3,176 for the three months ended March 31, 2019 .
The increase in the three months ended March 31, 2020 was largely due to
additional expense related to the waived performance vesting condition
associated with the Merger Shares.
Depreciation
Depreciation of $2,329 for the three months ended March 31, 2020 increased by
$278 , or 13.6% from $2,051 for the three months ended March 31, 2019 . The
increase in the three months ended March 31, 2020 was driven by the additional
depreciation on assets acquired through the acquisitions of Darts-ip in November
2019 and DRG in February 2020 . This increase was offset by run-off of previously
purchased capital expenditures.
Amortization
Amortization of $49,112 for the three months ended March 31, 2020 decreased by
$6,994 , or 12.5%, from $56,106 for the three months ended March 31, 2019 , The
decreases in the three months ended March 31, 2020 was predominately related to
intangible assets acquired in connection with our separation from Thomson
Reuters in 2016 that are now fully amortized and reduction of amortization on
the Mark Monitor intangible assets disposed in January 2020 . These decreases
were offset partially by an increase in the amortization on intangible assets
acquired through the acquisitions of Darts-ip in November 2019 and DRG in
February 2020 .
Transaction Expenses
Transaction expenses of $26,689 for the three months ended March 31, 2020 ,
increased by $16,419 , from $10,270 for the three months ended March 31, 2019 .
The increase in the three months ended March 31, 2020 was due to costs incurred
in association with the closing of a offering of 27,600,000 ordinary shares and
costs associated with the acquisition of DRG during the three months ended March
31, 2020 compared to lower costs incurred in association with our merger with
Churchill Capital Corp during the three months ended March 31, 2019 .
Transition, Integration, and Other Related Expenses
Transition, integration, and other expenses of $2,232 for the three months ended
March 31, 2020 , increased by $1,071 , from $1,161 for the three months ended
March 31, 2019 . The increase in the period three months ended March 31, 2020 is
due to additional costs associated with the remediation of the material
weakness, which has been completed.
Restructuring
Restructuring of $7,754 for the three months ended March 31, 2020 , increased by
$7,754 , from $0 for the three months ended March 31, 2019 . The increase is
related to an initiative, following our merger with Churchill Capital Corp in
2019, to streamline our operations by simplifying our organization and focusing
on two product groups.
Other Operating Income (Expense), Net
Other operating income (expense), net of $6,032 income for the three months
ended March 31, 2020 , changed by $11,649 , from an expense of $5,617 for the
three months ended March 31, 2019 . The change was attributable to the
consolidated impact of the remeasurement of the assets and liabilities of our
Company that are denominated in currencies other than each relevant entity's
functional currency.
Interest Expense
Interest expense, net of $30,940 for the three months ended March 31, 2020 ,
decreased by $2,161 , or 6.5% from $33,101 for the three months ended March 31,
2019 . The decreases in the period three months ended March 31, 2020 was due to
lower interest payments resulting from lower interest rates on the Company's
borrowings as the result of the refinancing transaction in October 2019 .
Benefit (provision) for Income Taxes
There was a provision of $14,753 for the three months ended March 31, 2020 ,
compared to a provision of $240 for income taxes for the three months ended
March 31, 2019 . The increase was due to additional provision related to the DRG
acquisition and reflected the mix of taxing jurisdictions in which pre-tax
profits and losses were recognized.
Certain Non-GAAP Measures
37
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CLARIVATE ANALYTICS PLC Management's Discussion and Analysis of Financial Condition and Results of
Operations(Amounts in thousands, except share and per share data, option price amounts,
ratios or as noted)
We include non-GAAP measures in this Report, including Adjusted Revenues,
Adjusted EBITDA, Adjusted EBITDA margin and Free Cash Flow because they are a
basis upon which our 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.
Although we believe these measures are useful for investors for the same
reasons, we recommend users of the financial statements to note these measures
are not a substitute for GAAP financial measures or disclosures. We provide
reconciliations of these non-GAAP measures to the corresponding most closely
related GAAP measure.
Adjusted Revenues
We present Adjusted Revenues, which excludes the impact of the deferred revenues
purchase accounting adjustment (recorded in connection with the separation from
Thomson Reuters and acquisitions). We present this measure because we believe it
is useful to readers to better understand the underlying trends in our
operations.
Our presentation of Adjusted Revenues is for informational purposes only and is
not necessarily indicative of our future results. You should compensate for
these limitations by relying primarily on our GAAP results and only using
non-GAAP measures for supplementary analysis.
The following table presents our calculation of Adjusted Revenues for the three
months ended March 31, 2020 and 2019 and a reconciliation of this measure to our
Revenues, net for the same periods:
Three Months Ended March 31 , Variance
(in thousands, except percentages) 2020 2019 $ % Revenues, net$ 240,592 $ 234,025 $ 6,567 2.8 % Deferred revenues adjustment 1,882 164 1,718 NM Adjusted revenues$ 242,474 $ 234,189 $ 8,285 3.5 % 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. See "- Certain Non-GAAP Measures - Adjusted EBITDA and Adjusted EBITDA margin" for important information on the limitations of Adjusted EBITDA and its reconciliation to our Net loss under GAAP. Adjusted EBITDA represents net loss before provision for income taxes, depreciation and amortization, interest income and expense adjusted to exclude acquisition or disposal-related transaction costs (such costs include net income from continuing operations before provision for income taxes, depreciation and amortization and interest income and expense from divestitures), losses on extinguishment of debt, stock-based compensation, unrealized foreign currency gains/(losses), costs associated with the transition services agreement with Thomson Reuters, which we entered into in connection with our separation from Thomson Reuters in 2016, separation and integration costs, transformational and restructuring expenses, acquisition-related adjustments to deferred revenues, costs related to our merger withChurchill Capital Corp in 2019, non-cash income/(loss) on equity and cost method investments, non-operating income or expense, the impact of certain non-cash, legal settlements and other items that are included in net income for the period that the Company does not consider indicative of its ongoing operating performance and certain unusual items impacting results in a particular period. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by Adjusted 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. You should compensate for these limitations by relying primarily on ourU.S. GAAP results and only use Adjusted EBITDA and Adjusted EBITDA margin for supplementary analysis. The following table presents our calculation of Adjusted EBITDA for the three months endedMarch 31, 2020 and 2019 and reconciles these measures to our Net loss for the same periods: 38 -------------------------------------------------------------------------------- CLARIVATE ANALYTICS PLC
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Amounts in thousands, except share and per share data, option price amounts,
ratios or as noted)
Three Months Ended March 31,
(in thousands, except percentages) 2020 2019
Net loss $ (74,001 ) $ (59,260 )
Provision for income taxes 14,753 240
Depreciation and amortization 51,441 58,157
Interest, net 30,940
33,101
Transition services agreement costs(1) 1,551
5,273
Transition, transformation and integration expense(2) 2,228
2,460
Deferred revenues adjustment(3) 1,882 164 Transaction related costs(4) 26,689
10,270
Share-based compensation expense 17,469 3,176 Restructuring(5) 7,754 - Other(6) (2,484 ) 5,644 Adjusted EBITDA$ 78,222 $ 59,225 Adjusted EBITDA margin 32.2 % 25.3 % (1) In 2020, this is related to a new transition services agreement and offset by the reverse transition services agreement from the sale of MarkMonitor assets. In 2019, this includes payments to Thomson Reuters under the Transition Services Agreement. (2) Includes costs incurred in connection with and after our separation from Thomson Reuters in 2016 relating to the implementation of our standalone company infrastructure and related cost-savings initiatives. These costs include mainly transition consulting, technology infrastructure, personnel and severance expenses relating to our standalone company infrastructure, which are recorded in Transition, integration, and other line-item of our income statement, as well as expenses related to the restructuring and transformation of our business following our separation from Thomson Reuters in 2016, mainly related to the integration of separate business units into one functional organization and enhancements in our technology. (3) Reflects the deferred revenues adjustment as a result of purchase accounting. (4) Includes costs incurred to complete business combination transactions, including acquisitions and dispositions, and typically include advisory, legal and other professional and consulting costs. (5) Reflects costs incurred in connection with the initiative, following our merger withChurchill Capital Corp in 2019, to streamline our operations by simplifying our organization and focusing on two product groups. (6) Includes primarily the net impact of foreign exchange gains and losses related to the re-measurement of balances and other items that do not reflect our ongoing operating performance. Free Cash Flow We use free cash flow in our operational and financial decision-making and believe free cash flow is useful to investors because similar measures are frequently used by securities analysts, investors, ratings agencies and other interested parties to evaluate our competitors and to measure the ability of companies to service their 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. You should compensate for these limitations by relying primarily on ourU.S. GAAP results. We define free cash flow as net cash provided by operating activities less capital expenditures. For further discussion on free cash flow, including a reconciliation to cash flows provided by operating activities, refer to "- Liquidity and Capital Resources - Cash Flows" below. Liquidity and Capital Resources Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, capital expenditures, debt service, acquisitions, other commitments and contractual obligations. Our principal sources of liquidity include cash from operating activities, cash and cash equivalents on our Interim Condensed Balance Sheet and amounts available under our revolving 39 -------------------------------------------------------------------------------- CLARIVATE ANALYTICS PLC
Management's Discussion and Analysis of Financial Condition and Results of
Operations(Amounts in thousands, except share and per share data, option price amounts,
ratios or as noted)
credit facility. We consider liquidity in terms of the sufficiency of these
resources to fund our operating, investing and financing activities for a period
of 12 months after the financial statement issuance date.
Our cash flows from operations are generated primarily from payments from our
subscription customers. As described above, the standard term of a subscription
is typically 12 months. When a customer enters into a new subscription
agreement, or submits a notice to renew their subscription, we typically invoice
for the full amount of the subscription period, record the balance to deferred
revenues, and ratably recognize the deferral throughout the subscription period.
As a result, we experience cash flow seasonality throughout the year, with a
heavier weighting of operating cash inflows occurring during the first half, and
particularly first quarter, of the year, when most subscription invoices are
sent, as compared to the second half of the year.
We require and will continue to need significant cash resources to, among other
things, meet our debt service requirements under our credit facilities, our
secured notes due 2026 and any future indebtedness, fund our working capital
requirements, make capital expenditures (including related to product
development), and expand our business through acquisitions. We continue to
assess the changing environment in relation to COVID-19 and conducted a scenario
planning exercise to assess the potential impact on our liquidity and our future
financial position. The scenario planning has taken into account our existing
cash position, the creditworthiness of our banking partners, potential revenue
outcomes (in both a worst and reasonable downside scenario), and to be prudent
evaluated potential reductions in the cost base. Based on our forecasts, we
believe that cash flow from operations, available cash on hand and available
borrowing capacity under our revolving credit facility will be adequate to
service debt, meet liquidity needs and fund necessary capital expenditures for
at least the next 12 months. Our future capital requirements will depend on many
factors, including the number of future acquisitions, data center infrastructure
investments, 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.
Cash and cash equivalents were $308,021 and $76,130 as of March 31, 2020 and
December 31, 2019 , respectively. We had approximately $1,956,850 of debt as of
March 31, 2020 , consisting primarily of $1,256,850 in borrowings under our term
loan facility, and $700,000 in outstanding principal of secured notes due 2026
with no borrowings under our revolving credit facility as of the date. As of
December 31, 2019 , we had approximately $1,665,000 of debt, consisting primarily
of $900,000 in borrowings under our term loan facility, $700,000 in outstanding
principal of secured notes due 2026 and $65,000 of borrowings under our
revolving credit facility (which borrowings under our revolving credit facility
we subsequently paid down in full in February 2020 ). On February 28, 2020 , we
incurred an incremental $360,000 of term loans under our term loan facility and
used the net proceeds from such borrowings, together with cash on hand, to fund
a portion of the cash consideration for the DRG acquisition and to pay related
fees and expenses. See "-Debt Profile" below.
Cash Flows
The following table discloses our consolidated cash flows provided by (used in)
operating, investing and financing activities for the periods presented:
Three Months Ended March 31 ,
(in thousands) 2020 2019
Net cash provided by operating activities$ 46,106 $ 42,453 Net cash used in investing activities (900,967 ) (5,957 ) Net cash provided by (used in) financing activities 1,091,606 (33,836 ) Effect of exchange rates (2,013 )
(190 ) Increase in cash and cash equivalents, and restricted cash
234,732 2,470
Cash and cash equivalents, and restricted cash beginning of the year 76,139
25,584
Cash and cash equivalents, and restricted cash end of the period
$ 310,871
Cash Flows Provided by (Used in) Operating Activities
Net cash provided by operating activities consists of net loss adjusted for
non-cash items, such as: depreciation and amortization of property and equipment
and intangible assets, deferred income taxes, share-based compensation, deferred
finance charges and for changes in net working capital assets and liabilities.
40
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CLARIVATE ANALYTICS PLC Management's Discussion and Analysis of Financial Condition and Results of
Operations(Amounts in thousands, except share and per share data, option price amounts,
ratios or as noted)
Net cash provided by operating activities was $46,106 and $42,453 for the three
months ended March 31, 2020 and March 31, 2019 , respectively. The $46,106 of net
cash from operating activities for the three months ended March 31, 2020
included net loss of $74,001 off set with $66,150 of non-cash adjustments and
changes in operating assets and liabilities of $53,957 . The improvement in
operating cash flows was driven by increased in revenue illustrating an increase
in sales year over year and offset by a higher operating loss driven by a
$14,513 increase in the provision for income taxes and $16,419 increase in
transaction expense related to the acquisition of DRG and the February share
offering.
Cash Flows Provided by (Used in) Investing Activities
Net cash used in investing activities was $900,967 for the three months ended
March 31, 2020 . Cash flows used in investing is attributable to: and (1)
$885,323 of key business intangible assets acquired from Decision Resource
Group , (2) $19,395 in capital expenditures and (3) $3,751 of divestiture related
to the sale of the MarkMonitor AntiFraud, Antipiracy, and Brand Protection
products.
Net cash used in investing activities was $5,957 for the three months ended
March 31, 2019 reflecting capital expenditures.
Our capital expenditures in both 2020 and 2019 consisted primarily of
capitalized labor, consulting and other costs associated with product
development.
Cash Flows Provided by (Used) in Financing Activities
Net cash provided by financing activities was $1,091,606 for the three months
ended March 31, 2020 . Key drivers of cash flows provided by financing include:
(1) Proceeds of $540,597 from the issuance of ordinary shares related to our
public offering, (2) $360,000 from the issuance of the issuance of an
incremental term loan and (3) $278,708 from the exercise of warrants and
employee share options This activity was offset by cash flows used in financing
related to: (1) $65,000 repayment of borrowings under the revolving credit
facility, (2) $10,420 of payments related to tax withholdings for stock-based
compensation, (3) $4,115 payment related to the TradeMark Vision contingent
earn-out, (5) payment of debt issuance costs related to the issuance of the
incremental term loan and (5) $3,150 principle payment on the term loan
facility.
Net cash used in financing activities was $33,836 for the three months ended
March 31, 2019 . Key drivers of cash flows used in financing include a $30,000
repayment of borrowings under the revolving credit facility and a recurring term
loan facility principal repayments of $3,836 .
In February 2020 , we completed an underwritten public offering of 27,600,000 of
our ordinary shares, generating net proceeds of $540,597 , which we used to fund
a portion of the cash consideration for the DRG acquisition. In addition, we
incurred an incremental $360,000 of term loans under our term loan facility and
used the net proceeds from such borrowings, together with cash on hand, to fund
the remainder of the cash consideration for the DRG acquisition and to pay
related fees and expenses.
During the period January 1, 2020 through February 21, 2020 , 24,132,666 of the
Company's outstanding warrants were exercised for one ordinary share per whole
warrant at a price of $11.50 per share.
Free Cash Flow (non-GAAP measure) The following table reconciles free cash flow measure, which is a non-GAAP measure, to net cash provided by operating activities:
Three Months Ended March 31,
(in thousands) 2020 2019
Net cash provided by operating activities $ 46,106 $ 42,453
Capital expenditures (19,395 ) (5,957 )
Free cash flow $ 26,711 $ 36,496
Free cash flow was $26,711 for the three months ended March 31, 2020 , compared
to $36,496 for the three months ended March 31, 2019 . The decrease in free cash
flow was primarily due to higher capital expenditures.
41
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CLARIVATE ANALYTICS PLCManagement's Discussion and Analysis of Financial Condition and Results of
Operations(Amounts in thousands, except share and per share data, option price amounts,
ratios or as noted)
Required Reported Data -Standalone Adjusted EBITDA
We are required to report Standalone Adjusted EBITDA, which is substantially
similar to Consolidated EBITDA and EBITDA as such terms are defined under our
credit facilities, dated as of October 31, 2019 and the indenture governing our
secured notes due 2026 issued by Camelot Finance S.A. and guaranteed by certain
of our subsidiaries, respectively. In addition, the credit facilities and the
indenture contain certain restrictive covenants that govern debt incurrence and
the making of restricted payments, among other matters. These restrictive
covenants utilize Standalone Adjusted EBITDA as a primary component of the
compliance metric governing our ability to undertake certain actions otherwise
proscribed by such covenants. Standalone Adjusted EBITDA reflects further
adjustments to Adjusted EBITDA for cost savings already implemented and excess
standalone costs.
Because Standalone Adjusted EBITDA is required pursuant to the terms of the
reporting covenants under the credit facilities and the indenture and because
this metric is relevant to lenders and noteholders, management considers
Standalone Adjusted EBITDA to be relevant to the operation of its business. It
is also utilized by management and the compensation committee of the Board as an
input for determining incentive payments to employees.
Excess standalone costs are the difference between our actual standalone company
infrastructure costs, and our estimated steady state standalone infrastructure
costs. We make an adjustment for the difference because we have had to incur
costs under the transition services agreement, with Thomson Reuters after we had
implemented the infrastructure to replace the services provided pursuant to the
transition services agreement, thereby incurring dual running costs.
Furthermore, there has been a ramp up period for establishing and optimizing the
necessary standalone infrastructure. Since our separation from Thomson Reuters,
we have had to transition quickly to replace services provided under the
transition services agreement, with optimization of the relevant standalone
functions typically following thereafter. Cost savings reflect the annualized
"run rate" expected cost savings, net of actual cost savings realized, related
to restructuring and other cost savings initiatives undertaken during the
relevant period.
Standalone Adjusted EBITDA is calculated under the credit facilities and the
indenture by using our Consolidated Net Loss for the trailing 12-month period
(defined in the credit facilities and the indenture as our U.S. GAAP net income
adjusted for certain items specified in the credit facilities and the indenture)
adjusted for items including: taxes, interest expense, depreciation and
amortization, non-cash charges, expenses related to capital markets
transactions, acquisitions and dispositions, restructuring and business
optimization charges and expenses, consulting and advisory fees, run-rate cost
savings to be realized as a result of actions taken or to be taken in connection
with an acquisition, disposition, restructuring or cost savings or similar
initiatives, "run rate" expected cost savings, operating expense reductions,
restructuring charges and expenses and synergies related to the transition
projected by us, costs related to any management or equity stock plan, other
adjustments that were presented in the offering memorandum used in connection
with the issuance of the secured notes due 2026 and earnout obligations incurred
in connection with an acquisition or investment.
The following table reconciles Standalone Adjusted EBITDA to our Net loss for
the periods presented:
42
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CLARIVATE ANALYTICS PLC Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Amounts in thousands, except share and per share data, option price amounts,
ratios or as noted)
Twelve Months Ended
March 31,
2020
(in thousands)
Net loss $ (225,718 )
Provision for income taxes 24,714
Depreciation and amortization 193,826
Interest, net
155,528
Transition services agreement costs(1)
6,759
Transition, transformation and integration expense(2)
24,140
Deferred revenues adjustment(3)
2,156
Transaction related costs(4)
62,633
Share-based compensation expense 65,676 Restructuring(5) 23,424 Legal settlement (39,399 ) Impairment on held for sale 18,431 Other(6) 893 Adjusted EBITDA 313,063 Realized foreign exchange gain (5,461 ) DRG Adjusted EBITDA Impact(7) 45,390 Cost savings(8) 44,016 Excess standalone costs(9) 28,521 Standalone Adjusted EBITDA $ 425,529 (1) In 2020, this is related to a new transition services agreement and offset by the reverse transition services agreement from the sale of MarkMonitor assets. In 2019, this includes payments to Thomson Reuters under the Transition Services Agreement. (2) Includes cash payments in connection with and after our separation from Thomson Reuters in 2016 relating to the implementation of our standalone company infrastructure and related cost-savings initiatives. These cash payments include mainly transition consulting, technology infrastructure, personnel and severance expenses relating to our standalone company infrastructure, which are recorded in Transition, integration, and other line-item of our income statement, as well as cash payments related to the restructuring and transformation of our business following our separation from Thomson Reuters in 2016 mainly related to the integration of separate business units into one functional organization and enhancements in our technology. This also includes cash payments following our merger withChurchill Capital Corp in 2019, to streamline our operations by simplifying our organization and focusing on two product groups. (3) Reflects the deferred revenues adjustment as a result of purchase accounting. (4) Includes costs incurred to complete business combination transactions, including acquisitions and dispositions, and typically include advisory, legal and other professional and consulting costs. (5) Reflects costs incurred in connection with the initiative, following our merger withChurchill Capital Corp in 2019, to streamline our operations by simplifying our organization and focusing on two product groups. (6) Includes primarily the net impact of foreign exchange gains and losses related to the re-measurement of balances and other items that do not reflect our ongoing operating performance. (7) Represents DRG Adjusted EBITDA for the period beginningApril 1, 2020 until the acquisition date ofFebruary 28, 2020 to reflect the company's Standalone EBITDA as though material acquisitions occurred at the beginning of the presented period (8) Reflects the estimated annualized run-rate cost savings, net of actual cost savings realized, related to restructuring and other cost savings initiatives undertaken during the period (exclusive of any cost reductions in our estimated standalone operating costs). (9) Reflects the difference between our actual standalone company infrastructure costs, and our estimated steady state standalone operating costs, which were as follows: 43 -------------------------------------------------------------------------------- CLARIVATE ANALYTICS PLC
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Amounts in thousands, except share and per share data, option price amounts,
ratios or as noted)
Twelve Months Ended March 31,
(in thousands) 2020
Actual standalone company infrastructure costs $ 161,500
Steady state standalone cost estimate (132,979 )
Excess standalone costs $ 28,521
The foregoing adjustments (9) and (10) are estimates and are not intended to
represent pro forma adjustments presented within the guidance of Article 11 of
Regulation S-X. Although we believe these estimates are reasonable, actual
results may differ from these estimates, and any difference may be material. See
"- Cautionary Statement Regarding Forward-Looking Statements"
Debt Profile
During the three months ended March 31, 2020 we incurred an incremental $360,000
of term loans under our term loan facility. There have been no further material
changes to the debt profile associated with our business previously disclosed in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity" section in our Annual Report on Form 10-K, except as
discussed above and further set forth below. The disclosures set forth below
updates, and should be read together with, the disclosures in the "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity-Debt Profile" section, in our in our Annual Report on
Form 10-K.
The credit facilities are secured by substantially all of our assets and the
assets of all of our U.S. restricted subsidiaries and certain of our non-U.S.
subsidiaries, including those that are or may be borrowers or guarantors under
the Credit Facilities, subject to customary exceptions. The credit facilities
contains customary events of default and restrictive covenants that limit us
from, among other things, incurring certain additional indebtedness, issuing
preferred stock, making certain restricted payments and investments, certain
transfers or sales of assets, entering into certain affiliate transactions or
incurring certain liens. These credit facilities limitations are subject to
customary baskets, including certain limitations on debt incurrence and issuance
of preferred stock, subject to compliance with a consolidated coverage ratio of
Consolidated EBITDA (as defined in the credit facilities), a measure
substantially similar to our Standalone Adjusted EBITDA disclosed above under
"- Required Reported Data - Standalone Adjusted EBITDA", to interest and other
fixed charges on certain debt (as defined in the credit facilities) of 2.00 to
1.00. In addition, the credit facilities requires us to comply with a springing
financial covenant pursuant to which, as of the third quarter of 2019, we must
not exceed a total first lien net leverage ratio (as defined under the credit
facilities) of 7.25 to 1.00, to be tested on the last day of any quarter only
when more than 30% of the revolving credit facility (excluding (i) non-cash
collateralized, issued and undrawn letters of credit in an amount up to $10,000
and (ii) any cash collateralized letters of credit) is utilized at such date. As
of March 31, 2020 , our consolidated coverage ratio was 4.65 to 1.00 and our
consolidated leverage ratio was 3.87 to 1.00. As of the date of this Report, we
are in compliance with the covenants in the credit facilities. During the three
months ended March 31, 2020 , the Company paid down an additional $65,000 drawn
on the revolving credit facility prior to the close of our merger with Churchill
Capital Corp. In addition, in connection with the acquisition of DRG, the
Company incurred an incremental $360,000 of term loans under our term loan
facility.
Commitments and Contingencies
Our contingent liabilities consist primarily of letters of credit and
performance bonds and other similar obligations in the ordinary course of
business. Additionally, the Company has agreed to pay the former shareholders of
acquired companies certain amounts in conjunction with the Publons,
TradeMarkVision and Kopernio acquisitions. Regarding the Publons acquisition,
the Company agreed to pay the former shareholders up to an additional
$9,500 through 2020. Regarding the TradeMarkVision acquisition, the Company
agreed to pay former shareholders earn-out payments through 2020. Regarding the
Kopernio acquisition, the Company agreed to pay contingent consideration of up
to $3,500 through 2021. Amounts payable are contingent upon Publons',
TrademarkVision's and Kopernio's achievement of certain milestones and
performance metrics. As of March 31, 2020 , the Company had an outstanding
liability for Publons of $3,480 related to the estimated fair value of this
contingent consideration included in Accrued expenses and Other current
liabilities. As of March 31, 2020 , the Company had an outstanding liability for
TradeMarkVision of $0 related to the estimated fair value of this contingent
consideration. The Company paid $8,000 of the contingent purchase price in the
three months ended March 31, 2020 , as a result of
44
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CLARIVATE ANALYTICS PLCManagement's Discussion and Analysis of Financial Condition and Results of
Operations(Amounts in thousands, except share and per share data, option price amounts,
ratios or as noted)
TradeMark Vision achieving milestones and performance metrics. As of March 31,
2020 , the Company recognized over the concurrent service period an outstanding
liability for Kopernio of $1,269 related to the estimated fair value of this
contingent compensation earn-out. The liability is included in Accrued expenses
and other current liabilities in the Consolidated Balance Sheets.
Off Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements and do not have any
holdings in variable interest entities.
Contractual Obligations
We have various contractual obligations and commercial commitments that are
recorded as liabilities in our financial statements. Other items, such as
purchase obligations and other executory contracts, are not recognized as
liabilities in our consolidated financial statements, but are required to be
disclosed.
There have been no material changes, outside of the ordinary course of business,
to our contractual obligations as previously disclosed in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity-Contractual Obligations" section, in our Annual Report on Form 10-K.
Critical Accounting Policies, Estimates and Assumptions
There have been no other material changes from the critical accounting policies,
estimates, and assumptions previously disclosed in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Critical Accounting Policies, Estimates and Assumptions" section in our Annual
Report on Form 10-K, except as set forth below. The disclosures set forth below
updates, and should be read together with, the disclosures in the "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies, Estimates and Assumptions" section,
in our Annual Report on Form 10-K.
Accounts Receivable
Through the adoption of ASU 2016-13 and the related standards, the Company
revised the policy regarding recognition of the uncollectible receivables as
follows.
Accounts receivable are recorded at the amount invoiced to customers and do not
bear interest. We maintain an allowance for doubtful accounts for losses
resulting from the inability of specific customers to meet their financial
obligations, representing our best estimate of probable credit losses in
existing trade accounts receivable. A specific reserve for doubtful receivables
is recorded against the amount due from these customers. We recognize reserves
for doubtful receivables utilizing the historical loss method by evaluating
factors such as the length of time receivables are past due, historical
collection experience, and the current economic and competitive environment. If
any of these estimates change or actual results differ from expected results,
then an adjustment is recorded in the period in which the amounts become
reasonably estimable. For all other customers, we recognize a general reserve
based on average yearly write-offs divided by average quarterly accounts
receivable aging by risk buckets.
Recently Issued and Adopted Accounting Pronouncements
For recently issued and adopted accounting pronouncements, see "Item 1.
Financial Statements and Supplementary Data- Notes to Interim Condensed
Consolidated Financial Statements - Note 3" within this Report.
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