Clarivate Reports Fourth Quarter and Full Year 2021 Results

— Reaffirms 2021 Outlook —

London, UK — March 10, 2022 – Clarivate Plc (NYSE: CLVT) (the “Company” or “Clarivate”), a global leader in providing trusted information and insights to accelerate the pace of innovation, today reported results for the fourth quarter and year ended December 31, 2021.

Fourth Quarter 2021 Financial Highlights

  • Revenues of $560.7 million increased 23.1%, and 24.3% at constant currency
  • Adjusted Revenues(1) of $560.2 million increased 18.9%, and 20.1% at constant currency
  • Adjusted organic revenues(1) increased 4.0% at constant currency
  • Net loss(2) attributable to ordinary shares of $130.4 million increased $116.7 million; Net loss per diluted share of $0.20 increased $0.18
  • Adjusted Net Income(1) of $163.2 million increased 20.4%; Adjusted Income per diluted share(1) of $0.23 increased 4.7% or $0.01
  • Adjusted EBITDA(1) of $256.6 million increased 28.3% and Adjusted EBITDA Margin(1) of 45.8% increased 340 basis points

Full Year 2021 Financial Highlights

  • Revenues of $1,876.9 million increased 49.7%, and 48.3% at constant currency
  • Adjusted Revenues(1) of $1,880.8 million increased 47.3%, and 46.0% at constant currency
  • Adjusted organic revenues( ) increased 4.5% at constant currency
  • Net loss(2) attributable to ordinary shares of $312.0 million improved $38.7 million; Net loss per diluted share of $0.61 improved $0.21
  • Adjusted Net Income(1) of $481.7 million increased 66.6%; Adjusted Income per diluted share(1) of $0.72 increased 11.5% or $0.08
  • Adjusted EBITDA(1) of $800.4 million increased 64.5% and Adjusted EBITDA Margin(1) of 42.6% increased 450 basis points
  • Cash Flow from Operations increased $60.3 million to $323.8 million; Adjusted Free Cash Flow(1) increased $157.8 million to $459.4 million

1 Represents a Non-GAAP measure. Please see “Reconciliation to Certain Non-GAAP measures” in this earnings release for important disclosures and reconciliations of these financial measures to the most directly comparable GAAP measure. These terms are defined elsewhere in this earnings press release.2 Net loss margin change from comparable period is not meaningful.

Jerre Stead, Executive Chair and CEO, said: “We delivered good subscription and re-occurring revenue growth and grew our Adjusted EBITDA margin in the fourth quarter. Transactional revenues faced some headwinds late in the quarter, which prevented us from delivering better results. However, we are taking steps to improve this smaller segment of our business.”

“2021 continued to be a transformative year for us. We enhanced our academic offerings with the acquisition of ProQuest, completed the inside sales customer migration to better serve more than 24,000 customers, launched more than 90 new product offerings and enhancements, and continued to deliver on cost savings initiatives. With our One Clarivate vision, which aligns our operations into four customer verticals to focus outside-in on our customers and the complete portfolio of solutions we can offer them, we are poised to deliver improved growth and exceptional cash flows in 2022.”

Selected Financial Information
The results for the year ended December 31, 2021 include contributions from the following 2020 acquisitions: 1) CPA Global, which was completed in October 2020; 2) Beijing Incopat Co., Ltd (“IncoPat”), which was completed in October 2020; 3) Hanlim IPS Co., Ltd (“Hanlim”), which was completed in November 2020; and 4) DRG, which was completed in February 2020. Additionally, the results for the year ended December 31, 2021 include contributions from the following 2021 acquisitions: 1) Bioinfogate, which was completed in August 2021; and 2) ProQuest, which was completed in December 2021 for which there were no comparable amounts in the year ended December 31, 2020. The results for the three months and year ended December 31, 2021 exclude the results of Techstreet, which was divested in November 2020.

(Amounts in tables may not sum due to rounding)(1) Non-GAAP measure. Please see “Reconciliation to Certain Non-GAAP measures” in this earnings release for important disclosures and reconciliations of these financial measures to the most directly comparable GAAP measure. These terms are defined elsewhere in this earnings release.

(2) Calculated assuming a net income position compared to a net loss position on the statement of operations for calculating Adjusted net income and Adjusted diluted EPS.

Fourth Quarter 2021 Operating Results
Revenues, net, for the fourth quarter increased $105.1 million, or 23.1%, to $560.7 million, and increased 24.3% on a constant currency basis. Adjusted revenues, net, which excludes the impact of deferred revenues resulting from purchase accounting adjustments related to acquisitions, increased 20.1% on a constant currency basis. Adjusted organic revenues(1) increased 4.0% on a constant currency basis.

Subscription revenues for the fourth quarter increased $61.9 million, or 25.4%, to $305.5 million, and increased 26.4% on a constant currency basis, primarily driven by the acquisition of ProQuest in December 2021, partially offset by the Techstreet divestiture. Organic subscription revenues(1) increased 4.5% on a constant currency basis due to higher life sciences, healthcare data solutions, and CPA Global revenues.

Re-occurring revenues for the fourth quarter increased $7.7 million, or 6.9% to $119.6 million, and increased 8.7% on a constant currency basis. Organic re-occurring revenues(1) increased 8.4% on a constant currency basis, primarily from the CPA Global patent renewals business.

Transactional revenues for the fourth quarter increased $19.3 million, or 16.7%, to $135.0 million, and increased 17.8% on a constant currency basis, primarily due to the acquisition of ProQuest, partially offset by the Techstreet divestiture. Organic transactional revenues(1) decreased 1.2% on a constant currency basis due to lower healthcare data solutions, healthcare professional services and IP custom data sales.

Net loss attributable to ordinary shares for the fourth quarter was $130.4 million, or $(0.20) per share, compared to Net loss of $13.7 million, or $(0.02) per share, in the prior-year period, primarily driven by higher interest expense as a result of recent acquisitions and the negative impact of mark to market adjustments on outstanding private placement warrants.

Adjusted EBITDA for the fourth quarter was $256.6 million, an increase of $56.5 million or 28.3%, driven by the earnings contribution from acquisitions, organic growth and cost savings from integration programs.

Adjusted net income for the fourth quarter was $163.2 million, an increase of $27.6 million or 20.4%, driven by higher revenues and ongoing cost savings initiatives.

Adjusted diluted earnings per share was $0.23 for the fourth quarter, compared to $0.22 in the prior-year period, as strong growth in Adjusted net income was offset by a 15.0% increase in weighted average ordinary shares outstanding primarily driven by the acquisitions of CPA Global and ProQuest.

Full Year 2021 Operating Results
Revenues, net, for the full year 2021 increased $622.8 million, or 49.7%, to $1,876.9 million, and increased 48.3% on a constant currency basis. Adjusted revenues, net, increased $603.7 million or 47.3%, to $1,880.8 million, and increased 46.0% on a constant currency basis. Adjusted organic revenues(1) increased 4.5% on a constant currency basis.

Subscription revenues for the full year 2021 increased $156.7 million, or 17.9%, to $1,034.4 million, and increased 16.0% on a constant currency basis, primarily driven by the acquisition of CPA Global, partially offset by the Techstreet divestiture. Organic subscription revenues(1) increased 3.5% on a constant currency basis due to higher life sciences, healthcare data solutions, Web of Science and CompuMark revenues.

Re-occurring revenues for the full year 2021 increased $341.3 million, or 304.9% to $453.2 million, and increased 306.7% on a constant currency basis, primarily from the patent renewals business acquired in the CPA Global acquisition. Organic re-occurring revenues(1) increased 8.4% on a constant currency basis due to higher CPA Global revenues.

Transactional revenues for the full year 2021 increased $105.7 million, or 36.8%, to $393.2 million, and increased 35.9% on a constant currency basis, primarily due to the acquisition of CPA Global, partially offset by the Techstreet divestiture. Organic transactional revenues(1) increased 5.9% on a constant currency basis due to higher healthcare data solutions, stronger back file sales and trademark search volumes.

Net loss attributable to ordinary shares for the full year 2021 was $312.0 million, or $(0.49) per share, compared to Net loss of $350.6 million, or $(0.82) per share, in the prior year period, primarily driven by improved mark to market adjustments on outstanding private placement warrants, partially offset by higher interest expense.

Adjusted EBITDA for the full year 2021 was $800.4 million, an increase of $313.8 million or 64.5%, driven by the earnings contribution from acquisitions, organic growth and cost savings from integration programs.

Adjusted net income for the full year 2021 was $481.7 million, an increase of $192.5 million or 66.6%, driven by higher revenues and ongoing cost savings initiatives.

Adjusted diluted earnings per share was $0.72 for the full year 2021, compared to $0.64 in the prior year, as strong growth in Adjusted net income was offset by a 49.4% increase in weighted average ordinary shares outstanding primarily driven by the acquisition of CPA Global and ProQuest.

Balance Sheet and Cash Flow
As of December 31, 2021, cash and cash equivalents of $430.9 million increased $173.1 million, driven by the growth in revenues and profits. Restricted cash increased $142.1 million to $156.7 million, compared to December 31, 2020 primarily due to the cash received from the Employee Benefit Trust established for the CPA Equity Plan in December 2021.

The Company’s total debt outstanding as of December 31, 2021 was $5.6 billion, an increase of $2.0 billion compared to December 31, 2020, primarily due to the debt offering to finance a portion of the purchase price for the acquisition of ProQuest.

Net cash provided by operating activities was $323.8 million for the year ended December 31, 2021, compared to net cash provided by operating activities of $263.5 million for the prior year. Adjusted free cash flow for the year ended December 31, 2021, was $459.4 million, and an increase of $157.8 million, compared to the prior year, as a result of growth in revenues and Adjusted EBITDA.

Outlook for 2022 (forward-looking statement)
Jonathan Collins, Executive Vice President and Chief Financial Officer, said: “Our 2022 financial outlook reflects significant growth driven by the acquisition of ProQuest and an increase in organic revenue. With our enhanced inside sales model and a united go-to-market sales strategy centered around the One Clarivate vision, we currently expect to generate a 200-basis improvement in organic revenue growth of approximately 6.5%. Our Adjusted EBITDA margin will slightly compress before we fully recognize the more than $100 million of cost synergies related to the ProQuest acquisition by the end of 2023.”

The full year outlook presented below assumes no further currency movements, acquisitions, divestitures, or unanticipated events.

The below outlook includes Non-GAAP measures. Please see “Reconciliation to Certain Non-GAAP measures” presented below for important disclosure and reconciliations of these financial measures to the most directly comparable GAAP measure. These terms are defined elsewhere in this earnings press release.

(1) Adjusted Diluted EPS for 2022 is calculated based on approximately 741.7 million fully diluted weighted average shares outstanding.

 

Conference Call and Webcast
Clarivate will host a conference call and webcast today to review the results for the fourth quarter at 9:00 a.m. Eastern Time. The conference call will be simultaneously webcast on the Investor Relations section of the company’s website.

Interested parties may access the live audio broadcast by dialing 1-888-317-6003 in the United States, 1-412-317-6061 for international, and 1-866-284-3684 in Canada. The conference ID number is 7262464. An audio replay will be available approximately two hours after the completion of the call at 1-877-344-7529 in the United States, 1-412-317-0088 for international, and 1-855-669-9658 in Canada. The Replay Conference ID number is 10153175. The recording will be available for replay through March 25, 2022. The webcast can be accessed at https://services.choruscall.com/links/clvt220217.html and will be available for replay.

Use of Non-GAAP Financial Measures
Non-GAAP results are not presentations made in accordance with U.S. generally accepted accounting principles (“GAAP”) and are presented only as a supplement to our financial statements based on GAAP. Non-GAAP financial information is provided to enhance the reader’s understanding of our financial performance, but none of these non-GAAP financial measures are recognized terms under GAAP. They are not measures of financial condition or liquidity, and should not be considered as an alternative to profit or loss for the period determined in accordance with GAAP or operating cash flows determined in accordance with GAAP. As a result, you should not consider such measures in isolation from, or as a substitute for, financial measures or results of operations calculated or determined in accordance with GAAP.

We use non-GAAP measures in our operational and financial decision-making. We believe that such measures allow us to focus on what we deem to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations and we also believe that investors may find these non-GAAP financial measures useful for the same reasons. Non-GAAP measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies comparable to us, many of which present non-GAAP measures when reporting their results. These measures can be useful in evaluating our performance against our peer companies because we believe the measures provide users with valuable insight into key components of GAAP financial disclosures. However, non-GAAP measures have limitations as analytical tools and because not all companies use identical calculations, our presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies.

Definitions and reconciliations of non-GAAP measures, such as Adjusted Revenues, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Diluted EPS, Free Cash Flow, Adjusted Free Cash Flow, Standalone Adjusted EBITDA, and organic revenue to the most directly comparable GAAP measures are provided within the schedules attached to this release. Our presentation of non-GAAP measures should not be construed as an inference that our future results will be unaffected by any of the adjusted items, or that any projections and estimates will be realized in their entirety or at all.

Forward-Looking Statements
This communication contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management’s current views concerning future business, events, trends, contingencies, financial performance, or financial condition, appear at various places in this communication and may use words like “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “goal,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “see,” “seek,” “should,” “strategy,” “strive,” “target,” “will,” and “would” and similar expressions, and variations or negatives of these words. Examples of forward-looking statements include, among others, statements we make regarding: guidance outlook and predictions relating to expected operating results, such as revenue growth and earnings; strategic actions such as acquisitions, joint ventures, and dispositions, including the anticipated benefits therefrom, and our success in integrating acquired businesses; anticipated levels of capital expenditures in future periods; our ability to successfully realize cost savings initiatives and transition services expenses; our belief that we have sufficiently liquidity to fund our ongoing business operations; expectations of the effect on our financial condition of claims, litigation, environmental costs, the COVID-19 pandemic and governmental responses thereto, contingent liabilities, and governmental and regulatory investigations and proceedings; and our strategy for customer retention, growth, product development, market position, financial results, and reserves. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on management’s current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are difficult to predict and many of which are outside of our control. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include those factors discussed under the caption “Risk Factors” in our annual report on Form 10-K, along with our other filings with the U.S. Securities and Exchange Commission (“SEC”). However, those factors should not be considered to be a complete statement of all potential risks and uncertainties. Additional risks and uncertainties not known to us or that we currently deem immaterial may also impair our business operations. Forward-looking statements are based only on information currently available to our management and speak only as of the date of this communication. We do not assume any obligation to publicly provide revisions or updates to any forward-looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws. Please consult our public filings with the SEC or on our website at www.clarivate.com.

About Clarivate
Clarivate™ is a global leader in providing solutions to accelerate the lifecycle of innovation. Our bold mission is to help customers solve some of the world’s most complex problems by providing actionable information and insights that reduce the time from new ideas to life-changing inventions in the areas of science and intellectual property. We help customers discover, protect and commercialize their inventions using our trusted subscription and technology-based solutions coupled with deep domain expertise. For more information, please visit clarivate.com.


Reconciliation to Certain Non-GAAP Measures
(Amounts in tables may not sum due to rounding)

Adjusted Revenues

Adjusted Revenues excludes the impact of the deferred revenues purchase accounting adjustments (recorded in connection with recent acquisitions).

The following table presents our calculation of Adjusted Revenues for the three months and year ended December 31, 2021 and 2020 and a reconciliation of this measure to our Revenues, net for the same periods:

(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of FASB ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. In the fourth quarter of 2021, Clarivate adopted ASU No. 2021-08 which allows an acquirer to account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This guidance was applied retrospectively to all business combinations for which the acquisition date occurs during or subsequent to the fiscal year 2021.

(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of FASB ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. In the fourth quarter of 2021, Clarivate adopted ASU No. 2021-08 which allows an acquirer to account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This guidance was applied retrospectively to all business combinations for which the acquisition date occurs during or subsequent to the fiscal year 2021.

 

Adjusted EBITDA

Adjusted EBITDA represents net income (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), share-based compensation, mandatory convertible preferred share dividend expense, 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-operating income or expense, the impact of certain non-cash, mark to market adjustments on financial instruments 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. Per Clarivate’s Non-GAAP policy effective January 1, 2021, we have ceased use of adjustments for costs in connection with our separation from Thomson Reuters including costs related to the transition services agreement and separation, integration, and transformational expenses, as well as costs related to our merger with Churchill Capital Corp in 2019.

The following table presents our calculation of Adjusted EBITDA for the three months and year ended December 31, 2021 and 2020 and reconciles these measures to our Net loss for the same periods:

(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of FASB ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. In the fourth quarter of 2021, Clarivate adopted ASU No. 2021-08 which allows an acquirer to account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This guidance was applied retrospectively to all business combinations for which the acquisition date occurs during or subsequent to the fiscal year 2021.
(2) Includes costs incurred to complete business combination transactions, including acquisitions, dispositions and capital market activities and include advisory, legal, and other professional and consulting costs. This also includes the mark to market adjustments on the contingent stock consideration associated with the CPA Global and DRG acquisitions.
(3) Reflects costs related to restructuring and impairment associated with the acquisition of primarily DRG and CPA Global in 2020. This also includes costs incurred in connection with the initiative, following our merger with Churchill Capital Corp in 2019, to streamline our operations by simplifying our organization and focusing on two segments. During 2021, the CPA Global plan continued as well as the addition of the One Clarivate and ProQuest Programs, which were approved restructuring actions to streamline operations within targeted areas of the Company. Additionally, during the year ended December 31, 2021, 2020 and 2019, we incurred impairment charges taken on right-of-use assets of $57,305, $4,771 and $0 respectively, relating the exit and ceased use of leased properties.
(4) Reflects mark to market adjustments on financial instruments under Accounting Standards Codification 815, Derivatives and Hedging, (“ASC 815”). Warrant instruments that do not meet the criteria to be considered indexed to an entity’s own stock shall be initially classified as a liability at their estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash. In periods subsequent to issuance, changes in the estimated fair value of the liabilities are reported through earnings.
(5) 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. The 2021 YTD detail also includes an accrual of $8,000 for a legal case. The 2020 detail also includes costs related to a transition services agreement and offset by the reverse transition services agreement from the sale of MarkMonitor. In 2019, this includes payments to Thomson Reuters under the Transition Services Agreement. For both 2020 and 2019, this also 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 selling, general and administrative costs in 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. These costs were largely wound down by the end of 2020.

 

Adjusted Net Income and Adjusted Diluted EPS
Adjusted Net Income is calculated using net income (loss), 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 the divested business), amortization related to acquired intangible assets, share-based compensation, mandatory convertible preferred share dividend expense, 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-operating income or expense, the impact of certain non-cash, mark to market adjustments on financial instruments, interest on debt held in escrow, 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, and the income tax impact of any adjustments. Per Clarivate’s Non-GAAP policy effective January 1, 2021, we have ceased use of adjustments for costs in connection with our separation from Thomson Reuters including costs related to the transition services agreement and separation, integration, and transformational expenses, as well as costs related to our merger with Churchill Capital Corp in 2019. We calculate Adjusted Diluted EPS by using Adjusted Net Income divided by adjusted diluted weighted average shares for the period. The adjusted diluted weighted average shares assumed that all instruments in the calculation are dilutive.

The following table presents our calculation of Adjusted Net Income and Adjusted Diluted EPS for the three months and year ended December 31, 2021 and 2020 and reconciles these measures to our Net loss and EPS for the same periods:

(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of FASB ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. In the fourth quarter of 2021, Clarivate adopted ASU No. 2021-08 which allows an acquirer to account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This guidance was applied retrospectively to all business combinations for which the acquisition date occurs during or subsequent to the fiscal year 2021.
(2) Includes costs incurred to complete business combination transactions, including acquisitions, dispositions and capital market activities and include advisory, legal, and other professional and consulting costs. This also includes the mark to market adjustments on the contingent stock consideration associated with the CPA Global and DRG acquisitions.
(3) Reflects costs primarily related to restructuring and impairment associated with the acquisition of primarily DRG and CPA Global in 2020, as well as the approved One Clarivate and ProQuest restructuring programs in 2021. This also includes costs incurred in connection with the initiative, following our merger with Churchill Capital Corp in 2019, to streamline our operations by simplifying our organization and focusing on two segments.
(4) Reflects mark to market adjustments on our private placement warrant financial instruments. In periods after issuance, changes in the estimated fair value of the liabilities are reported through earnings.
(5) Reflects interest expense incurred on the principal related to the 2021 debt offering, that was held in escrow until the completion of the acquisition of ProQuest on December 1, 2021. Clarivate used the net proceeds to finance a portion of the purchase price and therefore, considered as part of the transaction costs associated with the acquisition.
(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. The 2021 YTD detail also includes an accrual of $8,000 for a legal case. The 2020 detail also includes costs related to a transition services agreement and offset by the reverse transition services agreement from the sale of MarkMonitor and 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 were largely wound down by the end of 2020.

 

Free Cash Flow and Adjusted Free Cash Flow
Free cash flow is calculated using net cash provided by operating activities less capital expenditures. Adjusted free cash flow is calculated as free cash flow, less cash paid for restructuring and lease-exit activities, transition services agreement, transition, transformation and integration expenses, transaction related costs, interest on debt held in escrow, and debt issuance costs offset by cash received for hedge accounting transactions. Per Clarivate’s Non-GAAP policy effective January 1, 2021, we have ceased use of adjustments for costs in connection with our separation from Thomson Reuters including costs related to the transition services agreement and separation, integration, and transformational expenses, as well as costs related to our merger with Churchill Capital Corp in 2019.

The following table reconciles our non-GAAP free cash flow and Adjusted free cash flow measure to net cash provided by operating activities:

(1) Reflects cash payments for costs primarily related to restructuring and lease-exit activities associated with the acquisition of DRG and CPA Global in 2020. This also includes cash paid for costs incurred in connection with the initiative, following our merger with Churchill Capital Corp in 2019, to streamline our operations by simplifying our organization and focusing on two segments.
(2) Includes cash paid for costs incurred to complete business combination transactions, including acquisitions, dispositions and capital market activities and include advisory, legal, and other professional and consulting costs.
(3) Includes cash paid for costs incurred in 2020 and 2019 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, costs for which were largely wound down by December 31, 2020, as well as other costs that do not reflect our ongoing operating performance.
(4) In 2020, this is related to a new transition services agreement, offset by the reverse transition services agreement from the sale of MarkMonitor assets.
(5) Reflects the portion of cash paid on interest expense incurred on the principal related to the 2021 debt offering, that was held in escrow until the completion of the pending acquisition of ProQuest on December 1, 2021. Clarivate used the net proceeds to finance a portion of the purchase price and therefore, considered as part of the transaction costs associated with the pending acquisition.

 

Required Reported Data

Standalone Adjusted EBITDA

We are required to report Standalone Adjusted EBITDA, which is identical to Consolidated EBITDA and EBITDA as such terms are defined under our credit facilities, dated as of October 31, 2019, and the indentures governing our secured notes due 2026 issued by Camelot Finance S.A. and guaranteed by certain of our subsidiaries, and the indentures governing the secured and unsecured notes issued by Clarivate Science Holdings Corporation in August 2021, respectively. In addition, the credit facilities and the indentures 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 indentures 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. These costs wound down at the end of December 31, 2020.

Standalone Adjusted EBITDA is calculated under the credit facilities and the indentures by using our Consolidated Net Loss for the trailing 12-month period (defined in the credit facilities and the indentures as our U.S. GAAP net income adjusted for certain items specified in the credit facilities and the indentures) 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 bridges Net loss to Adjusted EBITDA to Standalone Adjusted EBITDA, as Adjusted EBITDA reflects a substantial portion of the adjustments that comprise Standalone Adjusted EBITDA for the periods presented:

(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of FASB ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. In the fourth quarter of 2021, Clarivate adopted ASU No. 2021-08 which allows an acquirer to account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This guidance was applied retrospectively to all business combinations for which the acquisition date occurs during or subsequent to the fiscal year 2021.
(2) Includes costs incurred to complete business combination transactions, including acquisitions, dispositions and capital market activities and include advisory, legal, and other professional and consulting costs. This also includes the mark to market adjustments on the contingent stock consideration associated with the CPA Global and DRG acquisitions.
(3) Reflects costs related to restructuring and impairment associated with the acquisition of primarily DRG and CPA Global in 2020. This also includes costs incurred in connection with the initiative, following our merger with Churchill Capital Corp in 2019, to streamline our operations by simplifying our organization and focusing on two segments. During 2021, the CPA Global plan continued as well as the addition of the One Clarivate and ProQuest Programs, which were approved restructuring actions to streamline operations within targeted areas of the Company. Additionally, during the year ended December 31, 2021, we incurred impairment charges taken on right-of-use assets of $57,305 relating the exit and ceased use of leased properties.
(4) Reflects mark to market adjustments on financial instruments recorded under Accounting Standards Codification 815, Derivatives and Hedging, (“ASC 815”). Warrant instruments that do not meet the criteria to be considered indexed to an entity’s own stock shall be initially classified as a liability at their estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash. In periods subsequent to issuance, changes in the estimated fair value of the liabilities are reported through earnings.
(5) 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. The 2021 detail also includes an accrual of $8,000 for a legal case.
(6) Represents the acquisition Adjusted EBITDA for the period beginning January 1 of the year of the acquisition through the respective acquisition date of each acquired business to reflect the company’s Standalone EBITDA as though material acquisitions occurred at the beginning of the presented period.
(7) 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), including synergies related to acquisitions.

 

The foregoing adjustments (6) and (7) 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.

The following tables present the amounts of our subscription, re-occurring and transactional revenues, including as a percentage of our total revenues, for the periods indicated, as well the drivers of the variances between periods.

(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of FASB ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. In the fourth quarter of 2021, Clarivate adopted ASU No. 2021-08 which allows an acquirer to account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This guidance was applied retrospectively to all business combinations for which the acquisition date occurs during or subsequent to the fiscal year 2021.
(2) Q4 2021 reflects the amortization of the historical purchase accounting adjustments with no additional quarter-to-date impacts due to the adoption of ASU no. 2021-08 described above.

(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of FASB ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. In the fourth quarter of 2021, Clarivate adopted ASU No. 2021-08 which allows an acquirer to account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This guidance was applied retrospectively to all business combinations for which the acquisition date occurs during or subsequent to the fiscal year 2021.

 

The following tables and the discussion that follows presents our revenues by Product Segment for the periods indicated, as well as the drivers of the variances between periods, including as a percentage of such revenues.

(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of FASB ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. In the fourth quarter of 2021, Clarivate adopted ASU No. 2021-08 which allows an acquirer to account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This guidance was applied retrospectively to all business combinations for which the acquisition date occurs during or subsequent to the fiscal year 2021.

(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of FASB ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. In the fourth quarter of 2021, Clarivate adopted ASU No. 2021-08 which allows an acquirer to account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This guidance was applied retrospectively to all business combinations for which the acquisition date occurs during or subsequent to the fiscal year 2021.

 

The following table presents our calculation of Revenues, at the mid-point, for the 2022 updated outlook including acquisitive, disposals, FX impact and organic growth:

(1) Reflects the deferred revenues adjustment made as a result of purchase accounting prior to the adoption of FASB ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. In the fourth quarter of 2021, Clarivate adopted ASU No. 2021-08 which allows an acquirer to account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This guidance was applied retrospectively to all business combinations for which the acquisition date occurs during or subsequent to the fiscal year 2021.

 

The following table presents our calculation of Adjusted EBITDA for the 2022 updated outlook and reconciles this measure to our Net loss for the same period:

(1) Dividends on our mandatory convertible preferred shares (“MCPS”) are payable quarterly at an annual rate of 5.25% of the liquidation preference of $100 per share. For the purposes of calculating net loss attributable to Clarivate, we have excluded the accrued and anticipated MCPS stock dividends.
(2) Reflects the deferred revenues adjustment made as a result of acquisition accounting associated with businesses that were acquired prior to January 1, 2021.
(3) Reflects restructuring costs primarily associated with the ProQuest acquisition which will be incurred in 2022.
(4) Includes CPA Global equity plan compensation expense.

 

The following table presents our calculation of Adjusted Diluted EPS for the 2022 updated outlook and reconciles these measures to our Net loss per share for the same period:

(1) Dividends on our mandatory convertible preferred shares (“MCPS”) are payable quarterly at an annual rate of 5.25% of the liquidation preference of $100 per share. For the purposes of calculating net loss attributable to Clarivate, we have excluded the accrued and anticipated MCPS stock dividends.
(2) Reflects restructuring costs primarily associated with the ProQuest acquisition which will be incurred in 2022.
(3) For the purposes of calculating adjusted earnings per share, the Company has excluded the accrued and anticipated MCPS stock dividends and assumed the “if-converted” method of share dilution.
(4) Includes CPA Global equity plan compensation expense.

 

The following table presents our calculation of Free Cash Flow and Adjusted Free Cash Flow for the 2022 updated outlook and reconciles these measures to our Net cash provided by operating activities for the same period:

(1) Reflects cash payments for costs primarily related to restructuring associated with the ProQuest acquisition in 2022.
(2) Includes cash funded by a trust related to CPA Global equity plan payout upon vesting.

 

Media Contact:
Lisa Hume, Global Head of Science Communications
Lisa.Hulme@clarivate.com

Investor Relations Contact:
Mark Donohue, Head of Global Investor Relations
mark.donohue@clarivate.com
215-243-2202